First Capital Real Estate Investment Trust

Adam Paul - President & CEO Kay Brekken - EVP & CFO Jordan Robins - EVP & COO Jodi Shpigel - SVP, Development Carmine Francella - SVP, Leasing

Sam Damiani - TD Securities Pammi Bir - Scotia Capital Michael Smith - RBC Capital Markets Dean Wilkinson - CIBC World Markets Matt Kornack - National Bank Financial

Thank you very much, Vincent. As usual we’ll start with the typical cautionary comments.

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 June 30, 2017 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. Okay.

With me here today are several members of our executive team including Kay Brekken; Jordan Robins; Jodi Shpigel and Carmine Francella. The consistent performance of our business extended in the second quarter.

In short our Q2 results continued to deliver meaningful growth in Same Property NOI, lease renewal rate increases, occupancy, OFFO per share and NAV per share. More importantly we’re very well positioned to continue delivering growth into the future.

We believe there are profound differences between the sound fundamentals of the First Capital business model and the generalized commentary about the broader retail environment. As I mentioned last quarter history shows that as retail changes there are always winners and losers.

Future business performance will likely be different across the retail real estate universe. And in this regard First Capital is and continues to be very well positioned.

Notwithstanding the impact of technology, ecommerce and various other shifts occurring in retail, demand for well located, well designed retail space in Canada as largest urban growth market is and should continue to be very solid. These are the most dense locations in Canada with the most robust population growth and where the greatest amount of retail spending takes place.

These are also the markets that have the highest barriers entry for new retail supply and we’re assembling functional, well designed space is the most complex. These are also the markets where retail sales continue to increase at the highest rate and consequently where the greatest rental rate growth potential exists.

And because of the proactive work we started many years ago to reposition the portfolio, it is where over 90% of our rent is generated today. We said that the most successful retailers of the future will require both a strong physical and digital presence.

We believe this is true for many of our retail tenant categories including our largest which is grocery store. Since our last conference call Amazon agreed to acquire Whole Foods for a cash equity value of $13.7 billion.

Now there are many ways to analyze this transaction and while it’s too early to make well informed assessment on Amazon strategy, it’s seems obvious that the transaction further validates the value of well located retail locations in urban markets with strong demographics. As Canada’s leading necessity base landlord of urban retail properties, supermarkets are largest tenants.

We reviewed a lot of good news for FCR regarding the grocery segment on our last conference call. And since then we continue to do new lease deals with four more supermarket locations in Toronto and Calgary.

Grocery stores that are important part of our shopping stores, so naturally we spend a lot of time reviewing and analyzing these stores and the business they conduct in our space. We also allocate resources to further improve our properties and the sales our tenants achieve in them whether it be by adding new access points, traffic lights, parking spaces, loading docks, bring new tenant or use and so on.

So when you couple this proactive approach with our long term focus on only high quality locations with robust demographic profiles, it shows our grocery tenants very well. And I’ll explain further.

But first, a quick look at the demographic profile of our portfolio. These demographics are industry leading in Canada especially the density number which we lead by a very wide margin.

So it’s no surprise that the grocery stores in our portfolio are significantly more productive than the grocery industry average. In total 81 of our grocery store locations report sales.

The average sales of these stores in 2016 were $680 per square foot. This is an exceptionally strong sales figure much higher than average which speak to the strength of our real estate and the trends continue to be positive.

Notwithstanding deflation faced by the grocery segment last year, the grocery stores in our portfolio reported 2016 sales that were 3.3% higher than the prior year again, a very strong figure. The bottom line is that our properties are situated in very dense locations.

We invest our expertise and our capital to constantly improve functionality, merchandizing mix and so on. This results in higher sales per square foot with higher growth rates and consequently higher rents overtime which we have and continue to achieve.

Before I pass things over to Kay, I will touch on our major active developments where we continue to make meaningful progress during the quarter. For clarity, the major active projects I am referring to include 3080 Yonge at the corner of Yonge Street in Lawrence, Yorkville Village and King High Line all in Toronto, the Brewery District in Edmonton and Mount Royal Village in Calgary.

We reviewed the significant progress we have made in these development projects at our AGM in May. For those of you who are not able to attend, the webcast is still posted on our website.

Since last quarter we made further progress which I will quickly talk about today starting with Yorkville. First SoulCycle, who just opened their second Canadian location in our property and the balance of the year has a lot in store for the mall with many new tenants opening including the first Canadian boutiques of both Belstaff, Eleventy, Palm Lane Restaurant by the Chase Group, Jean-Paul Fortin’s latest footwear boutique and a very exciting deal that was just signed in the last couple of weeks Balfour gallery one of Canada's most recognized independently run art gallerias who will expand for the first time in almost four decades from Montreal and open up 5,000 square foot gallery in our mall later this year.

This is great news not only for our mall but for the Yorkville area in general. As you can see on slide 6, there is a lot of activity on our Street Front assets.

A couple of weeks ago we commenced demolition of 102, 104, 106, and 108 Yorkville to make room for new buildings that will advance the transformation underway on Yorkville Avenue. This neighboring set of properties beside our upcoming Chanel store will be the future home of several new to market retailers such as Jimmy Choo and is still confidential luxury retailer.

We have also entered into a lease for the entire third level including a spacious outdoor terrace with Her Majesty's Pleasure who will expand from King West and is a great fit for the Yorkville neighborhood. Referring to slide 8, during the quarter we formed part of a group that acquired Toronto Fashion Week which is being re-launched and naturally relocated to Yorkville.

Toronto Fashion Week will occur twice per year with the first event taking place this fall immediately before TIF. A road closure permit has been obtained so the runway and events can take place directly on Yorkville Avenue in front of our mall.

Jean Paul Gaultier and Derek Blasberg CNN Style will be featured as well as Salvador Dali themed art and fashion exposition named Dali X Yorkville village. There are many more new components of the re-launch of Toronto Fashion Week in Yorkville Village.

This is another good example of the many innovative initiatives we are pursuing to enhance the experience in our properties and to elevate them as vibrant retail environments with a strong sense of place. Before moving on from the Yorkville area, I refer you to slide 9, where we also announced that we have entered into a lease with [indiscernible] who have leased the entire [carport] level of One Bloor Street each which is under development at the corner of Yonge and Bloor.

The new 18,000 square foot gourmet store will include both a significant prepared food offering as well as grocery offering. Subsequent to last quarter we also announced our two anchor tenants for the retail component of our mixed use King High Line development in Liberty Village as you can see on slide 10.

We have signed leases with long’s for a 30,000 square foot grocery store and Canadian Tire for 42,000 square foot space. Both retailers are scheduled to open in the second half of 2018.

So in total these five large active developments will be substantially complete by the end of next year. These five projects total 1.3 million square feet with a total cost of roughly a $1 billion.

Individually each of these are exceptional pieces of real-estate with an NOI growth profile well above average. But it is the collective effect that will be most impactful.

This billion dollar group of properties will further strengthen our presence in our core urban markets and they will significantly increase the bark on our weighted average asset quality which is already very high. In addition to the foregoing, our development pipeline will further progress or will further this progress which stands at over 14 million square feet of incremental density including the former Christy Cookie site which will be another very substantial [indiscernible] asset for First Capital.

So with that I will now pass things over to Kay to review our second quarter results in detail.

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

As Adam mentioned we were pleased with our overall results for the quarter. We generated solid growth in same property NOI which was up 2.8% and in operating FFO which was up 4% over the prior year period.

Additionally as expected and as we indicated on our prior call our portfolio occupancy rate improved by 50 basis points over Q1. Starting on slide 12 of our conference call deck, our operating FFO fort the second quarter increased 4% or $0.01 on a per share basis and 9.8% or $6.3 million in dollar term versus the prior year period.

The growth in operating FFO per share was primarily due to same property NOI growth of $2.5 million. This was driven by higher rental rates and also by $2.3 million increase in interest and other income as a result of higher loans and deposits outstanding over the prior year period.

This includes the deposits we made on the forward purchase of One Bloor which is expected to close in the fourth quarter of this year. Moving to slide 13, our Q2 same-property NOI increased by 2.8% versus the prior year period primarily due to rent escalation, lifts on renewal and reduced operating cost.

On slide 12, we continue to achieve solid lifts on our lease renewals. Our Q2 same-property lease renewal lift was 9.6% on 345,000 square feet of renewals.

Our Q2 total portfolio lease renewal lift was 8.6% on 387,000 square feet of renewals slightly lower due to leases renewed and properties currently undergoing are slated for redevelopment. Moving to slide 15, our average net rental rate grew 2.3% or $0.43 over the past 12 months to $19.39 per square foot primarily due to rent escalations and lift on renewals.

In the second quarter we transferred 18,000 square feet of new GLA from development to income producing properties bringing our year-to-date development completions to 62,000 square feet of new GLA with an invested cost of $44.8 million. The majority of this space is leased at an average rental rate of $33.30 per square foot, 72% higher than the average rental rate for our portfolio.

On slide 16, our total portfolio occupancy rate increased by 50 basis points since Q1 as higher performing retailers paying higher rents took possession during the quarter of 105,000 square feet of space at two of our properties that had increased vacancy in the prior quarter. At quarter end we were holding 0.8% of our portfolio intentionally vacant for redevelopment.

Slide 17 highlights our five largest developments that accounted for the majority of the 38.3 million in development and redevelopment spend in the quarter. Our development pipeline at quarter end totaled 14 million square feet of additional density include 2.8 million square feet of retail density and 11.3 million square feet of residential density with 555,000 square feet currently under active development.

I also want to touch on the growth in NAV per share during the quarter. Our NAV increased by $1.12 per share or 5.5% during the quarter.

Approximately 40% of this growth was due to higher rents and NOI with the remainder due to lower cap rates on assets primarily located in Toronto as a result of an external appraisal on a major Toronto asset and recent market activity. Slide 18 shows the factors driving the growth in operating FFO during the quarter and the year-to-date period.

This slide also highlights our year-to-date operating FFO payout ratio which improved to 75.4% from 78.2% in the first half of last year. Slide 19 summarizes our new ACFO metric.

As discussed on our last call effective Q1 we adapted the ACFO cash flow metric as defined by RealPac to replace AFFO our prior cash flow metric. Our ACFO working capital adjustments primarily relate to prepaid and accrued reality taxes to the seasonal variances in these items over the course of the year.

Our CapEx deductions as actual maintenance CapEx spend in the quarter which includes both revenues sustaining and recoverable CapEx. Our Q2 ACFO was downsized 21 million or 7.9% versus the prior year period primarily related to higher maintenance CapEx spend in the quarter.

This was due to the timing of the spend this year versus last year. We expect our full year spend for 2017 to be consistent with our average spend for maintenance CapEx over the past two years which was 28 million.

Slide 20 touches on our other gains, losses and expenses. We had minimal other gains and losses during the quarter.

In the prior year period we recognized 3.2 million in target proceeds related to the 2015 closure of two target stores in our portfolio. Excluding these proceeds our Q2 FFO per diluted share was up 6.3% over the prior year period.

Information on our recent financing activities is on slide 21. Post quarter end we issued 300 million of series U ten year unsecured debentures at an effective interest rate of 3.7% and redeemed in cash 51 million of Series I convertible debentures with an effective interest rate of 6.2%.

Slide 22 summarizes the size of our operating credit facility and our unencumbered asset flow as well as our key financial ratio. During the second quarter we extended the term of our 800 million operating facility by one year to remain at a five year term.

Our net debt to total asset ratio improved by 60 basis points since Q2 of last year to 42.5% while our unencumbered asset flow grew by 1.1 billion to 7.2 billion or 74% of our total assets over the same time period. Slide 23 shows our ten year debt ladder post our new 300 million unsecured debenture offering in July.

Our weighted average interest rate had declined to 4.4% and our weighted average term has increased to 5.6 years. We continue to have future opportunity for interest rate roll down in our near term maturities.

We have 175 million in remaining 2017 debt maturities with the weighted average interest rate of 5.4%. Overall, we are pleased with our strong financial position and our solid results for the quarter and the year-to-date period.

At this time we would be please to take any questions you have. Vincent, can you please open the call for question.

Thank you. Good afternoon.

Adam the comments you made on the grocery stores were quite impressive. You mentioned that there were 81 stores that were represented by that $680 sales figure is that right?

That's right.

And what percentage of the total store count would that be for the company?

So as of Q2 we had 132 grocery stores so it’s roughly 60% of the total.

Okay and do you have sale spheres for other categories of retailed size groceries?

No. Look in the unenclosed retail format where we operate as you probably know it's not typical to receive reported sales from tenants generally.

Going back many years we made a conservative effort to try and include that. There is a lot of categories like grocery where even without reported sales we can generally get a good sense of where they are by walking the stores, utilizing our expertise, a lot of people in our company came from the grocery industry talking to people within our company, within the grocers themselves and that's the same for other retailers.

But we do put more emphasis on the grocery segment in terms of a barometer of how much traffic is generated in the properties and how healthy things are. But the grocery would be the category where we actually receive the most formal reporting of sales of any other tenant category.

Okay and would you want to add any color in terms of the crock ratio or the rent that these grocers are paying in terms of any indication, in terms of object to market as these leases rollover in the future?

Yes I mean what I would say is, if you look at our average increased rent which is just under $20 given the grocers are anchors for a lot of these properties the average for grocers is less than the average in our portfolio. So very quickly making together the net rent and generally what the additional rents are in the properties you get to a range of whether saying relative to the [indiscernible] are exceptionally healthy on average and clearly there is overtime, a lot of runway in terms of at least what their ability to pay is notwithstanding where market is relative to in place rents.

And I think you mentioned, you did four grocery deals since last quarter I think, does that include a [indiscernible] center in Calgary is that finalized?

That one has been finalized. That one is included, yes.

Okay. Just switching over to guidance I think you introduced at the beginning of the year for low single-digits “OFFO” growth what's your sort of outlook today given half the year is under your belt at 4% growth so far year-to-date?

Sam, we were pleased with our year-to-date operating FFO growth of 3.8% which came in at the high end of our guidance range. We expect the solid performance to continue in the second half of the year.

And that our full year results will also come in at the high end of our guidance range.

Okay. That's helpful and is there any specific impact from One Bloor East how that asset is going to either contribute in the third, fourth quarter and just timing of cash flows?

Sam we would expect upon closing that a portion of the space will remain under development as we continue our work to improve the functionality and the presentation of the expense of the space. We would expect this work to take us the next several months to complete and we also expect that a portion of the space will be ready for tenant possession and that closing will become part of our IPP portfolio.

And closing is October?

Yes that's where we are retracting so based on what Kay said, there should not be a material impact positively or negatively in the fourth quarter. We think once we complete the redevelopment part of the space in the lease up that there certainly is the opportunity for positive impact but it will not be in the fourth quarter of this year.

That will be sometime later than that.

Great. Thank you.

Okay. Thanks Sam.

Thanks. Good afternoon.

Just maybe sticking with One Bloor just based on the [indiscernible] lease where does that put you I guess in terms of what you are targeting from an unlevered yield standpoint?

Well, I don't think we have talked about publicly where we were targeting from an unlevered yield basis but what I can tell you is that the [indiscernible] lease rates are at the high end of what we had underwritten for this space and we are hoping to do better than that because to the extent that they do exceptionally well which we believe they will. We would a participation factor in that as well.

Okay. And I guess can you just remind us how much of that space is left to address at this stage?

Yes. It's Jordan.

It's about 27,000 square feet of space is remaining.

And how are the prospects for the rest of that?

Well, I have to say we are really pleased, I mean after the announcement of [indiscernible] the response has been overwhelming in fact. We are, I would say, in active discussions with a number of retail tenants today in a variety of uses.

Okay and then just maybe in another way if you look at the return that's being earned on the deposit, I guess once it's all set and done would you expect to be ahead of that once it's all leased?

Yes I mean when we entered into the transaction Pammi we indicated that we believe under kind of our worst realistic case scenario that's where we would end up. We still feel that way now.

I would be very surprised if we ended up there and not better. But really in total last 27,000 square feet is what we all know for sure but certainly our thesis going into the investment is played out the way we expected are slightly better.

And look at the end of the day this is Yonge and Bloor so we knew going in there was never a question task whether we could lease the space it was how much rent can we generate from the space. And we don't have a lot of space left we understand the value of the space.

It's very high for all the reasons it should be and so we are going to be selective on who we ultimately complete transactions with and what the lease rates are.

Got it. Maybe just switching gears Kay, I think your comments earlier with respect to the increase in the NAV your referenced to one of your major Toronto assets can you be a little more specific and also would – are you open to sharing the cap rate that was applied to that asset?

Yes. As I said Pammi the fair value change in the quarter 40% of it really related to stabilized NOI growth rate within the portfolio and the remainder of the cap rate compression we saw a number of data points in the market that supported that certainly the appraisal on very large assets in Toronto was part of that.

But we don't disclose individual cap rate on our assets.

Okay. How much was the – like what was the compression in the cap rate I am just curious no you don't have to give the specific, the absolute number for the cap rate but just curious how many basis points you brought it down?

Sure. 25 basis points on that asset in Toronto.

Okay and just switching gears if you look at just going back to the 62,000 I guess square feet of development that was completed am I correct that roughly that in terms of the lease rate and the occupied space you are basically looking at about 2 million in NOI?

Yes you can simply do the math on it Pammi in terms of the square footage times the average rental rate.

And so at $45 million in terms of the cost that was transferred I mean is that roughly again sort of looking at 4.5 yield?

You have to be careful one taking that formula in any one specific quarter because it's very hard to allocate cost and various components of the developments specifically to lease on Bloor so you are going to get some quarters like this one where you look at the cost per square foot and it's higher than the overall development outstanding the rents may not be. So I would strongly encourage you Pammi to take that metric over several quarters to try to figure out development yield.

We disclosed the development yields on the portfolio back to developments every quarter that's generally where they are coming in so I think looking at it on a single quarter basis you just got to be careful because it can be a bit lumpy.

Sure. Go generally speaking you expect based on the commentary just sort of get into that five range, the low fives on a stabilized basis?

Yes that's the weighted average that we are expecting for properties that we disclosed that are under active development.

Okay. Thanks very much.

Okay. Thank you.

Thank you and good afternoon. You had a nice fair value market in Q1 and Q2 can we expect that trend to continue?

Michael that's really dependent on leasing activity within our portfolio and if we have additional improvement in NOI that wasn't reflected in our evaluation models at the end of the quarter and additionally any new market activity which would indicate changes to cap rate assumptions that are necessary.

And what's your sense of cap rates?

In terms of?

Like direction.

Well I mean, there is a number of other factors that go into that like interest rates and bunch of other things that I am not sure and I wouldn't put a lot of weight in our opinion personally on that. But what we have noticed over the years is for urban retail real estate like we own the correlation between let’s say moves in interest rates is less sold then it used to be so we have more foreign capital that's investing in this type of real estate and some cases especially the European capital they have different set of fundamentals that drive what yield they view value in and are prepared to accept.

So it certainly seems sticker in terms of cap rates and look we talked about this before. There are inherent limitations in IFRS valuations with respect to cap rates that we are working on providing better tools for investors to see through that and to be able to determine value more, in our view more appropriately but it's not the call where cap rates are going Michael.

Where we are focusing more is where NOI is going and that's what's a lot more in our control and we are encouraged with the activity that we are seeing in the business.

Okay. Good.

And just switching gear could you I know its early going but any color on Christie Cookie Sites? What activity are you doing that’s going?

We can tell you, yes we are very encouraged and have a lot of conviction in the fact that given the opportunities to bring everything we have learned in urban development into a massive site where we have full control that will be one of our marquee asset undoubtedly and I think we are going to make a lot of money through the process. But in terms of exactly where we are right now I will have Jodi let you know where we are at in terms of the overall process.

Hey Michael. Just to add to Adam's comment we spent the last year since we bought property meeting with various repair groups and resident groups and of course city of Troy, key people at Metrolinks as well.

These are all the stakeholders that we are working with to try to advancing to the advanced discussions. This is a complex project.

There is a lot of things that will go in so we are trying to bring our experience an also working along with the municipality and other government to advance things. So that's how I expect things will continue over the next -- before we have anything further to announce.

And you are happy with the way things are going?

Yes. I am.

Okay. Good and just lastly, just to clarify on the per share FFO guidance so looks like it’s coming in at the high end of the ranges.

Is the range low single-digit or low to mid-single digit for the full year?

It's still at low single-digits Michael.

Okay. Alright thanks.

Thank you.

Thanks. Afternoon everyone.

Kay I just wanted to make sure that I understood what you said around that increase in the fair market value during the quarter. 40% of about 172 million was from stabilized NOI growth is that correct?

That is correct.

So where I would say the other 100 is then just mark to market gains against the appraisal or other assets within the portfolio?

That is correct.

Okay. Perfect.

And I think that the asset under appraisal item had disclosed in Q1 that was Liberty Village that is correct, correct?

That is the one.

That's the one. Perfect.

Could you tell me shut in the dark here, of that $100 million mark how much of that was related to Liberty Village?

We don't disclose that.

Fair enough. I thought I try.

Last one from me real small one on the McKenzie Scotiabank in Calgary was there a large amount of access land associated with that acquisition?

No.

No. So the price is more a strategic acquisition relative to it being in proximity to something you already own?

Yes, I mean, McKenzie has been one of our most successful assets in development and we are pretty much at a development space there. So naturally when the Scotiabank property was available for purchase it was one of – one of the only things in the shop, we didn't own so certainly we would have a strong desire to do it and we were able to buy it at a reasonable price so it yes it clearly made a lot of sense for us.

That was the rationale behind it.

Okay. It makes sense.

That's it. Thanks all.

Hand it back.

Okay. Thank you Dean.

Hi guys. Just wondering in your view would Christie Cookie be the next large development that you will pursue within the portfolio or there others that you are currently looking that haven't been identified as such currently?

So again, I will let Jodi answer that but I mentioned that we really have five major active projects underway right now and they ramp-up or get substantially complete by the end of the year. And so we have done a lot of work and Jodi's group has done a lot of work to analyze the portfolio.

And so we will undoubtedly start other projects before Christie Cookie. We have got a lot of pre-physical construction work to do on Christie Cookie, more we actually do that.

So with that I will pass it over to Jodi.

Hi Matt, so from our disclosure we have a very deep development pipeline and so with the exception of Christie Cookie most of the properties that are in our development pipeline are income producing shopping centers which gives us the ability to manage the timing that’s most suitable. So what we are doing is we are looking at the best properties that will have the lowest risk profile and the highest returns to develop and then we will manage the timeline when we want to start the development or the redevelopment of those properties.

So you’ve actually have a list that’s about ten that were going to the process of identifying now they are strong candidates for the next round of development. The first one has already been touched on is 102 to 108 Yorkville as you saw from the photos, we started in this quarter to the existing building.

Also in Yorkville, 101 Yorkville that we purchased a year ago will be a future development. 1071 King which is in Liberty Village will be another one.

Humbertown shopping center most people are familiar with that. Rutherford marketplace we have a piece of land that’s slated for residential development that will be next year.

Royal Orchard shopping center which is in Thornhill is a future redevelopment. Parkway shopping center at the Northeast end of Toronto is going to – is in phase one of development now and phase 2 which is more substantial will be next year.

Wilderton shopping center which is in Montreal also is a next year project. [indiscernible] is also a future project and then finally [indiscernible] and that will be future redevelopment.

So all those ten we are doing our analysis and assessing which ones we will bring forward.

And for the most part in all of those projects would involve taking down existing structures that are leased or is that on a adjacent land doing that?

Depending on the situation some of them are redevelopments the case of Royal Orchid would be a redevelopment another cases it’s intensification, so it really does depend on the actual property.

Okay and in terms of timing with regards to disclosing potentially which of those are going to be prioritized that something you would expect sort of next year or will they just be announced as they start?

Yes once we have clarity and we feel that disclosure is appropriate and at the right time then obviously that's the point where we will come forward with it. So I would expect it to be done piece meal like we did this quarter we included 102, 104, 106, 108 Yorkville for the first time and as others as we make decisions on others and commit to moving forward then we will improve them in the disclosure at that time.

Okay. Fair enough and just switching topics with regards occupancy Ontario, Alberta, BC 95%-97% range comeback has fallen off but sequentially was fairly strong.

Is there anything I mean do you seek that getting back up in the 94% -95% range or is that vacancy going to stay in and around the 8% area for a while here?

Yes. As you have seen last quarter and this quarter, the occupancy can bump around quite a bit especially when you take sub-portfolios which actually does and notwithstanding the portfolio is pretty substantial when you take sub-portfolio it doesn't take a lot of square footage to move the needle.

But basically we expect to get back to where we were. We don't think we are staying 8% vacant in the East here in Quebec and there is a number of deals that I know Carmine is working on that’s slated to come through the pipeline over the next several quarters.

So that presumably will drive aggregate numbers positively as well I think that probably will contribute a little bit in this quarter to the sequential increase. And then finally, with regards to the credit facility you have drawn more on it which I think is a good thing because it’s a cheaper cost of capital but in terms of reducing that overtime do you foresee using unsecured market mortgages, equity or how are you looking that at this point?

Well we had it drawn at the end of the quarter but then we subsequently did the $300 million unsecured which immediately paid it down. So the way we view the credit facility is a certain amount which is less than half we expect to generally draw not on a long-term basis but to keep room for when an unsecured may make sense or other forms of capital that maybe coming into the business.

So it's a good place to draw on. I say close to half is really there as almost an insurance back stock.

We have a robust development program. We have wonderful urban assets that we are investing capital in.

Inevitably at some point there will be a major economic situation that could impact the cost and availability of capital and we don't want to put ourselves into a short term position where that drives decision making at the real estate level and so that gives us a lot of comfort that we can get through a reasonable period of time where things are very unfavorable on the capital side and still progress our real estate project the way they should progress keeping the long-term nature in mind but that's how we view the credit facility.

Okay. That's great.

Thanks guys.

Okay. Thank you Matt.

Thanks. Just wanted to touch on a couple of things.

First off on the banks it’s been topical for about a year in terms of prospect of branch closures and what not. I am just wondering what are you seeing in terms of your locations obviously given the higher quality urban nature I am just curious what you are seeing in that regard and then I’ve a follow up?

Well, we are still little surprised because I would have guessed that we would have seen reduction in our bank branch total right now but that has not played out. We still believe that will play out but I think we signed three new bank deals either this quarter or the last two quarters so they still make obviously great tenants for the real estate and while the size of the branches are little different in the way that they are building them out and the activities that are taking place and are evolving.

There still seems to be pretty strong demand from the banks for a lot of our real estates. So it's pretty obvious speaking to some of the bank CEOs and executives that there will be reduced store count in the future but it's going to be a more gradual and slower transition than I think we probably initially saw.

And you would expect given the locations, strong locations as you say rents that you can get from other retailer category would be comparable or better those cases?

Yes I mean that's the idea. For banks that have been there for a while paying rental rates that were negotiated five or ten years ago they are – a number of them are well under market but we have done a lot of work in anticipation of potentially getting a lot of the bank space back in many cases restaurants actually make for a great repurchasing of the space.

In locations where the banks are in patio which is in a lot of spots in our portfolio. They have drive through so they are great for quick serve food, retailers, often times on caps and some of our multi tenant buildings with great unutilized patio potential and restaurants it is an expanding categories in the urban centers they do pay strong rents.

So we don't see an issue in the event that we end up turning over bunch of bank branches over time. We don't see an issue in terms of rental rates rolling down in fact we believe the opposite one will happen.

Thank you. I just want to do also touch on the completions of the major projects next year and how they phase sort of out of construction into IPP and the timing versus the interest expense no longer being capitalized and the NOI eventually ramping up to stabilized levels.

Is there some down time that we should be modeling if you have, Kay, any ability to quantify that at this point that would be helpful?

Yes we laid that all out in the MD&A Sam in terms of the expected completion dates of everything that’s under development. I won't be modeling some specific downtime into that.

I think we are tracking well up against what we have disclosed in terms of those target completion dates.

So does the lag between interest expense coming on and NOI reaching stabilization would you say is typically quarter, two quarters?

Yes I think that's a fair assumption.

Okay. Thank you.

Thanks Sam.

Okay. Well thank you very much everyone for your interest in First Capital and for attending the Q2 conference call.

Have a great afternoon. Enjoy the rest of your summer.

Bye. Bye.