First Capital Real Estate Investment Trust

Good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements.

These statements are based on our current estimates and assumptions, many of which are beyond our control, and 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 securities filings, including our Q2 MD&A, our MD&A for the year ended December 31, 2024, and our current AIF, all of which are available on SEDAR+ and 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. During today's call, we will also be referencing certain non-IFRS financial measures.

These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these as a complement to IFRS measures to aid in assessing the REIT's performance.

These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this call. I'll now turn the call over to Adam.

Okay. Thank you very much, Alison.

Good afternoon, everyone, and thank you for joining us today for our Q2 conference call. We're very pleased to deliver another strong quarter of operating and financial results.

It truly has been a great first half of 2025. In the second quarter, same-property cash NOI grew by a healthy 6.2%.

This excludes lease termination fees and bad debt expense, which happen to have a very small impact. In round numbers, a little over 2% of the NOI growth was from increased occupancy and new tenants starting to pay cash rent at One Bloor East.

All other factors, which are primarily higher rents across the balance of the portfolio contributed to about 4% of the same-property NOI growth. Last quarter, we matched our all-time high occupancy of 96.9%.

This quarter, we set a new FCR occupancy record at 97.2%. Another new record set this quarter was our average in-place net rental rate, which stood at $24.44 per square foot.

During Q2, we renewed just over 625,000 square feet across approximately 150 spaces. This included a 150,000-square foot Walmart with a typical fixed flat renewal.

We also reduced four grocery stores and seven pharmacies that were completed at market rents. In total, net rental rates in year 1 of the renewal terms averaged $26.10 per square foot, representing a year 1 renewal rate increase of 16.2%.

Approximately 80% of our renewed leases in the second quarter included contractual rent escalations throughout the renewal terms. This resulted in a renewal lift of approximately 21% when comparing net rents in the last year of expiring terms to the average net rent during the renewal terms.

In addition to renewal leasing, we also completed approximately 105,000 square feet of new leasing at FCR's share across 42 spaces, carrying an average year 1 rent of just over $30 per square foot. Leasing continues to be very strong, which does not surprise us.

We own great assets, and our leasing team understands what's going on from a macro perspective. This environment has been in the making for quite some time.

The last number of years have been characterized by high population growth against a very low supply of new grocery-anchored shopping centers. Said another way, the customer base of FCR tenants has grown, while grocery-anchored retail square footage per capita has declined.

Over that time, land and construction costs have risen, meaning the replacement cost of the space our tenants occupy has increased. This has culminated in the current environment in which many FCR-type retailers are seeking to grow their store networks.

With economic trends remaining well in excess of both market rents and in-place rents, new supply in the trade areas where our properties are located, will continue to be muted. For these reasons, we see a very long runway for accelerated and sustained rent growth for our portfolio.

We're now halfway through our 3-year strategic plan that we presented to our investors at the beginning of 2024. At its heart, the plan is focused on delivering our primary investor objectives.

These primary objectives are quite simply, delivering on a per unit basis, stability and consistent growth in FFO, growth in net asset value and absolutely stable, reliable monthly cash distributions to our investors and growth in those distributions over time. With a focus on these objectives, the 3-year plan that we outlined for investors was designed to deliver on two key metrics.

The first is delivering operating FFO per unit growth of at least 3% on average over the 3-year time frame. The second key metric is achieving a net debt to adjusted EBITDA ratio that is in the low 8x range by the end of 2026.

I am pleased to say that we are tracking well to deliver on both metrics. Through the first 18 months of the plan, our operating FFO per unit CAGR, excluding several positive, but nonrecurring items is approximately 5%.

We're tracking ahead on OFFO. Debt-to-EBITDA has improved to 9x or below 9 adjusting for those same nonrecurring items.

This is exactly where we expected our debt-to-EBITDA to be at this time. So we're very pleased with our results to date on our 3-year plan, and we look forward to updating you further on our progress as we continue to execute.

And with that, I will now pass things over to Neil.

Thanks, Adam, and good afternoon, everyone. Consistent with our usual practice, we have a slide deck available on our website at www.fcr.ca.

And in my remarks today, I will make some references to that presentation. So if we start with Slide 6.

FCR earned operating FFO of $73 million during the second quarter. On a year-over-year basis, this was an increase of 6% from $68 million.

OFFO per unit was $0.33, also equating to an increase of 6% from $0.319 in Q2 2024. Overall, these are very strong results with most of the growth coming from core operations.

I will note that in totality, there is approximately $2 million of income or about $0.01 per unit within Q2 2025 OFFO that may not necessarily repeat in subsequent quarters. These contributions are spread across several line items.

In this regard, there's approximately $900,000 in net operating income, including prior year CAM and tax recoveries and a small $300,000 bad debt recovery. Elsewhere in the P&L was approximately $1.2 million of nonrecurring fees and other income.

So a few more points of note on income and expenses, starting with net operating income. Firstly, same-property NOI, where strong growth was at the core of the second quarter performance.

Same-property NOI, excluding bad debt recoveries and lease termination fees increased by 6.2%, representing a year-over-year increase of $6.5 million to $111 million in the quarter. As Adam referenced, approximately 1/3 of that growth was due to the conversion of straight-line rent to cash rents during the quarter.

This is something that we specifically discussed on this very same quarterly conference call 1 year ago. And at that time, it was an important element of our conviction in strong performance for 2025.

Secondly, on a year-over-year basis, the NOI loss from dispositions is approximately $1.5 million. This relates to property sales totaling $140 million from the third quarter of last year to the end of the second quarter of this year.

And thirdly, within the other non- same-property NOI line, the $1.2 million decline that you see relates to straight-line rent, which decreased by $1.6 million year-over- year. Therefore, the year-over-year growth in cash NOI in this line item was actually about $400,000.

Further down the FFO statements, general and administrative expenses of $10.7 million declined by about 6% year-over-year. You shouldn't read too much into this decline.

The timing of expenses can move around a bit from quarter-to-quarter. And in general, we expect a recurring quarterly run rate of about $11 million this year for 2025 G&A expenses of approximately $44 million.

Moving to Slide 7. First half results have generated same-property NOI growth, excluding lease termination fees and bad debt of 5.7%.

With this very strong performance to date and the constructive outlook for the balance of the year, we expect FCR to deliver 2025 same-property NOI growth of approximately 5%. This compares to an expectation of approximately 4% that we cited on the Q1 conference call in early May.

Slides 8 and 9 cover key operating metrics, some of which Adam already touched upon. In short, the themes remain consistent again through the second quarter with continued and broad strength across key occupancy, leasing velocity, leasing spreads and rental rate metrics.

Slides 10 and 11 provide various distribution payout ratio metrics. During Q2 and on a year-to-date basis, FCR's AFFO and ACFFO (sic) [ ACFO ] payout ratios are running at a mid-80% level.

Advancing to Slide 12. The REIT's June 30 net asset value was $22.20 per unit.

This is an increase of $0.14 from Q1's $22.06 and a year-over-year increase of about 2% from $21.82. The NAV change during the quarter included only a few small value movements, which resulted in a net fair value increase of $4 million in the REIT's income statement.

Turning next to capital investments as outlined on Slide 13. During Q2, $53 million of capital was invested in the business bringing the first half to $125 million of investment.

Q2 capital deployment included $37 million of development expenditures and nearly $16 million of investments into leasing costs and CapEx into the operating portfolio. The most significant development expenditures during the quarter related to our Yonge & Roselawn developments; our Humbertown Shopping Centre redevelopment, where Phases 2 and 3 are advancing; and our 1071 King project, which is now nicely up and out of the ground with second level forming in progress.

On the topic of development, and while not specifically covered in this slide, I will note that the value of our density and development land that's included within our IFRS values was $424 million at June 30, 2025. This was little changed during the quarter.

Notably, within the aggregate value, are two properties that are classified as held for sale. One of those properties sold last week and the other has a Q4 closing date.

So net of contracted or recently completed sales, the balance of density and development land is really only about $357 million or $1.65 on a per unit basis. Slide 14 summarizes some key financing activities.

During Q2, we repaid $140 million of debt with a 3.3% weighted average interest rate. As we mentioned on our last call, we repaid in mid-April, a $75 million term loan, and further to that, on June 2, we repaid a maturing $56 million mortgage that was secured by our Royal Oak Centre, Calgary.

The major new financing activity during Q2 was the issuance of $300 million of Series E debentures on June 13. The financing carries an 8-year term and a 4.83% coupon.

The offering had exceptional demand with an order book of $1.8 billion from approximately 50 buyers. The new issue spread was 159 basis points over Canada's, marking the tightest FCR spread ever for an 8-year unsecured debenture and one of the tightest 8-year offering spreads for any Canadian REIT.

Overall, we were very pleased with the outcome of the offering. At June 30 and still today, we continue to carry most of the net proceeds of that offering in the form of cash.

This cash is earmarked to repay the $300 million of maturing Series S debentures, that have an effective interest rate of 4.2%, this coming Thursday, which is July 31. To wrap up, on Slide 15 through 17, we summarize some key credit metrics and the debt maturity profile.

FCR is in a very strong financial position. The REIT ended Q2 with more than $900 million of liquidity in the form of the cash I just mentioned plus undrawn revolvers.

FCR's unencumbered asset pool has a total value of $6.6 billion, equating to 70% of total assets and its secured debt to total assets ratio was a low 15%. This concludes my remarks, and I'm now pleased to turn the session to Jordie to elaborate further on investing and related activities.

Thank you, Neil, and good afternoon. Today, I'm going to provide an update on our investment, development and entitlement activities.

In Q2, we closed or entered into binding agreements on three properties with gross proceeds of $77 million. The first property we sold is Place Anjou, and closing occurred last week.

It's a 4.7-acre site in Montreal's east end with two freestanding retail buildings totaling 52,000 square foot of GLA. It's occupied by a Toys "R" Us and a Maison en Gros.

The $33 million sale price equated to a mid-2% yield based upon income in place, and it was sold at a premium of approximately 30% over our IFRS value. In addition to these metrics, what's noteworthy is that our work to crystallize this value actually started in 2018.

It was that year when the municipal government announced plans to extend the Blue Line from Saint-Michel to a new terminal that's directly adjacent to Place Anjou. We had correctly predicted that this 8-kilometer, 5-station Blue Line transit extension will result in residential intensification in the broader node.

So shortly after the announcement, we submitted for and in 2023, secured approvals for the first phase of a redevelopment, which contemplates 370,000 square feet of residential density. We marketed for sale this first phase but ultimately negotiated the sale of all of the land, based on the value of the as-of-right density and the additional anticipated density totaling approximately 950,000 square feet.

This past quarter, we also entered into a binding agreement to sell our Montgomery assembly for a total consideration of $42 million. Assembled between 2019 and 2022, the Montgomery assembly is a 3/4 of an acre development site.

It's comprised of 13 continuous homes on the north side of Montgomery Avenue, between Yonge Street and Duplex, three blocks north of Eglinton Avenue. In 2024, following extensive engagement with city staff and local residents and after an appeal to the Ontario Land Tribunal, we secured approval to permit the development of a 27-story high-rise tower of approximately 250,000 square feet of gross floor area.

The sale price equates to approximately $170 per billable square foot, which compares favorably to similar recent transactions and is approximately 25% above FCR's Q1 2025 IFRS value. As part of the sale, we took back a $12 million mortgage for 12 months, carrying a 7% interest rate paid monthly.

Our active developments are also progressing well. At Yonge & Roselawn we remain on schedule and on budget.

You'll recall, we own 50% of the 636-unit residential rental building with 65,000 square feet of retail space and serve as the development manager. We set out to design Yonge & Roselawn at zero carbon building.

In Q2, the project received the zero-carbon building design certification by Canada Green Building Council. The ground floor slab will be completed this month and formwork is progressing to the second floor.

81% of the project costs are now awarded. We continue to receive strong interest from a variety of retailers for the 65,000 square feet of large and smaller format retail space that we're developing in Roselawn.

With time on our side from a demand and a market rent perspective, we have no plans to enter into commitments for this space until next year at the earliest. Construction of our 1071 King Street West development project in Liberty Village also remains on schedule and on budget.

Formwork for the second-floor slab is underway. You'll recall we own 25% of this 298-unit, 225,000 square foot purpose-built residential rental project, which includes 6,000 square feet of at-grade retail space.

Phases 2 and 3 of our Humbertown Shopping Centre redevelopment continue to advance as well, included in Phase 2, we expect a new and enlarged 34,000-square foot Loblaw store to open in the middle of next year. Within Phase 3, the newly created 20,000 square foot Shoppers Drug Mart and the Scotiabank along with a number of others -- other to-be-announced tenants are on target for completion in the late 2026.

On completion, we'll have added a total of 23,000 square feet of GLA, removed all of it enclosed common area and Humbertown will look and feel like a brand-new grocery and pharmacy-anchored shopping center. Looking at the related financial returns, we'll have invested approximately $45 million on this redevelopment and will generate an unlevered return that exceeds 7%.

We have other redevelopment opportunities in the planning and construction stage, including several of our enclosed centers and the redevelopment of the former Molson hub site in Calgary. I look forward to updating you on all of this activity in future quarters.

Turning to entitlements, in 2025, we anticipate we will receive approvals for an additional 1.7 million square feet of incremental density at share. During this year, we also expect to submit re-zoning applications for a further 1.8 million square feet of incremental density.

This past quarter, we submitted entitlement applications for nearly 1.1 million square feet of this contemplated space. To date, netting out the density we've already sold, we've submitted for entitlements on approximately 18 million square feet of incremental density.

This represents 79% of our 23 million square foot pipeline. Once secured, the value of this approved density will be crystalized either through the sale of 100% interest as is the case with Montgomery and Anjou, or a partial sale to a strategic partner like Yonge & Roselawn.

We continue to advance our objectives and feel very good about our progress to date. Thank you for your time today and your continued support of FCR.

And with that, operator, we can now open it up for questions.

Neil, you mentioned the increase in the same-property NOI growth outlook. Was there -- anything changed quarter-over-quarter that drove the increase?

Or is there just an element of conservatism built into the prior outlook?

I would say it's just a progression of the results through the year. We came into 2025 with the view that it would be a, I'll call it, above-trend year.

And that is continuing to materialize and adding to our confidence that we think we can deliver about 5% organic growth for the year.

Okay. Fair enough.

And then just on the revenues from temporary tenants [indiscernible], et cetera, et cetera. It was up $1 million sequentially.

I know you called out some onetime items in NOI, would that be part of that bucket?

No, not specifically.

Okay. So I guess another way to asking that, do you guys kind of expect that to be the trend going forward for that line item?

There is a bit of seasonality in that line item, Lorne, I believe.

Okay. And then just one last one.

Maybe getting a little bit ahead of myself here. But looking at the average rents on 2026 expiries, it's quite a bit higher than any of the years prior to 2030.

Is this just a function of where the lease expiries are? Or should we expect a step down in rent growth versus 2025?

Yes, it's Adam. It's a good question, Lorne.

But what I would describe when you see expiring rents that are higher than normal, the composition of the space is typically different. So I mentioned in this particular quarter, we had an expiring Walmart, 150,000 square feet with a single-digit net rent.

Next year, we do not have any Walmarts that are expiring. So that's one thing in isolation that moves the needle.

So I can tell you from our perspective, the type of rent growth that we've been experiencing in percentage terms, we expect to continue in 2026, notwithstanding on the surface, the average rent that's expiring is higher than some other years. It's a function of the nature of the space and the type of tenants that are expiring.

Congratulations on the strong second quarter results. Just one question for me.

I guess you guys are maybe a little bit like $350 million to $375 million of dispos left to do to sort of get to that $750 million target. I was just wondering if you can give some thoughts or color around what that -- the composition of the balance might look like just in terms of the split between density and maybe potentially some of the income-producing, but still noncore assets in your [indiscernible] portfolio?

Thanks for your question, Mike. I would say in this particular case, history is a good indication of the future.

So if you look at the $400 million that we've either sold or contracted to sell since the beginning of the plan, it's been a mix of no-yielding assets, development sites like Montgomery or low-yielding assets like Anjou and some others that we've sold. When we look at the remaining part of the plan and the composition of the assets, it's very similar.

So roughly even split between lower-yielding income properties and development sites. So hopefully, that gives you some clarification around what to expect, very similar to what we've seen so far.

Okay. I appreciate that.

And then just if we ex out the Walmart this quarter, then the leasing spread looks even better. I recognize that you do have these sometimes from quarter-to-quarter in your portfolio.

If we thought about just flat renewals or very punitive fixed- rate steps, I guess, punitive for you, not for the person who occupies the space. What would be the proportion of your portfolio that's subject to this type of fixed-rate renewals in the future?

We'll have to get back to you on what percentage is subject to fixed rate renewals, but what we've seen, not necessarily quarter-to- quarter, but year-to-year, there's been a fairly high degree of consistency for several years now. So we're still saddled with a very small number of sporadic fixed rate renewals.

We typically don't give them ourselves. So these are in properties where we bought them and consequently bought the leases years ago.

But -- so let's get back to you on a little more color on the exact percentage. But one thing I can tell you, it's fairly consistent year-to-year.

And when we look over the next few years, that remains the case.

Okay. No, that's fair.

And I guess just last one, I promise this time last one when I say that. Obviously, market rents have had to grow a good amount to get to where we are today.

How would you characterize the pace of market rent growth sort of over the past 3 to 6 months? And do you expect that we've plateaued here for the next little while, and we're just going to continue to eat into mark-to- market?

Or do you think market rent growth will continue to progress at a reasonable clip over the next several years?

Yes. Look, we see all the makings for it to continue to progress and grow at an above-average rate relative to the historical norm, and it's really a function of what we touched on today.

If you take the time frame from, say, 2017 to today, we've seen Canadian population grow by nearly 5 million people or about 13%. That growth has been focused on the urban areas.

So the trade areas where our properties are located have benefited disproportionally from that growth. And we've seen very little supply of our product type.

You've seen inflation positively impact our tenant base in terms of top line sales, but equally as important. We know that they protected profit margins.

So their store profitability is up, their rent-paying capability is up. And we're seeing broad-based growth, like I mentioned that we had four grocery stores and seven pharmacies renewals in the quarter, all of which were owned by grocery stores.

The rent increase on those were just as good or better than the average for the quarter. So we're seeing it broad-based, and we see all the makings for continued market rent growth.

Economic rents are still way above in-place or market rents today. And so you're not going to see meaningful supply as a result of that, which means market rents are poised to continue to grow at an above-average rate.

That's what we hope, that's what we expect to see, and that's currently what's been playing out in the business and coming through our results.

Congrats again.

I guess, a pretty positive outcome on the Montgomery land transaction. Can you maybe just provide some background on the buyer there?

And as you kind of work through some of these slower housing markets, have you seen any changes in the buyer landscape, positive or negative?

Pammi, it's Jordie. We can't yet disclose the name of the buyer, but I'll say, historically, a condominium developer with a very long and successful history.

They are considering doing multifamily rental on the site. And I would say they were motivated primarily by the location of the site and the prospect they saw for success and growth, particularly its proximity to transit.

As you know, you've got the Yonge-University Line, and you've got obviously the east-west Eglinton LRT, and both of those elements and the surrounding 500,000-person trade area was of huge value to them and hit the threshold that they were seeking.

Got it. As you kind of think about the balance of the year, are there any more transactions that might be in any advanced stages in negotiations or that you expect before year-end?

Pammi, look, we've been at this for a while now, and it's been a patient, focused methodical approach, and it has not been easy, notwithstanding the success that Jordie and his team have had. And so at any given time, we're -- we have multiple transactions underway, they're at various stages.

Obviously, you know the ones that get done, others, we continue to work on. And so yes, our full expectation is that we certainly get more done this year, but it would be premature to say whether -- which properties or what quantum.

Importantly, we're on track for our 3-year plan. We believe that we will get that done, maybe a bit chunky or lumpy in terms of quarter-to-quarter.

But we can tell you we're working on other transactions, and we'll update you as they progress to an appropriate stage.

Got it. Okay.

Maybe just switching gears, just given the consistent strength that we've seen in the grocery-anchored space, how would you characterize the depth of the private market demand for acquisitions at this stage? And are you seeing any new capital being formed, domestic or foreign, that might perhaps put some pressure on cap rates?

Yes. Look, the demand is pretty good.

I think probably something that's more likely to drive cap rates lower in the short term is where interest rates go. So cap rates have been pretty sticky, but when you look at where you can finance grocery-anchored shopping centers and take secured debt, which is accessible to almost everyone, 5-year money, generally in the low 4s.

That's very different than where it was 12 to 18 months ago, but cap rates are still appraising out at a similar level. So I would say that's one area to watch.

In terms of new capital pools, yes, it's interesting because there's a lot of dialogue out there about how grocery-anchored retail is amongst the most favored asset classes. And some of the people saying that are not in a position to buy yet, namely some of the pension funds where they're still dealing with their allocation and other real estate subsectors and trying to get those balances in order.

So I think that would be the other place to watch in terms of large capital pools that start to more aggressively pursue retail.

And would you consider partnering with some of these funds -- these pension funds on the core portfolio, if that's a means for them to maybe gain some exposure?

The short answer is not likely. Again, everything we do comes back to the key investor objectives that we're trying to deliver.

And by partnering in isolation on a meaningful component of our core grocery-anchored portfolio, it just doesn't achieve that. Where it would be more likely is if we came across a large new opportunity to invest in grocery-anchored retail because over the next 18 months, call it, the balance of our 3-year plan, we've got a defined limited amount of acquisition capital available.

So if there was an opportunity that exceeded that, that's when it would make sense for us. But when we start looking out beyond 2026, the -- we start to see a business plan that allows for a lot more investment in acquisitions than we've seen over the last couple of years.

And so again, it will be a function of opportunity. But from our perspective, to be selling down our core grocery-anchored shopping center portfolio in any meaningful way, the only way it would rationally make sense is if it was part of a much larger transaction that involved the investment in new grocery-anchored shopping centers.

And I guess just to finish off from Pammi's question there, it sounds like what you're saying, Adam, is that the sort of the low 8x debt- to-EBITDA is kind of where you see the business stabilizing beyond '26 and hence forth being able to redeploy capital and no longer needing to pay down debt. Is that a fair assumption the way you're thinking about it?

In part, Sam. So if you run through our activities and make the assumption that we will continue to sell low and no-yielding assets for many years to come, which is a safe assumption.

Then the question becomes, does the use of capital from those proceeds change. Right now, call it, roughly evenly split between debt repayment and real estate investment activities.

And so part of the strategy work that we will do over the balance of the year is exactly that. And our plan is to come to our investors sometime early next year, likely in the form of another Investor Day and present what our plans are.

But that's where the work lies this year for the Board and management. If you simply kind of extend our 3-year plan with some reasonable expectations in terms of run rate on NOI growth, et cetera, then what you do see is leverage easily does continue to come down absent meaningful investment.

And so the decisions to be made is do we deploy more growth capital instead of doing that or not, and what's better for our investors, that's the work that we will do.

That makes sense. Very helpful.

And just to I guess, tie of bow on the 2026 lease roll. It does have higher rents, which you addressed.

That was pretty clear. But there is also a lower amount of leases actually rolling as well.

So does that also suggest maybe the same- property NOI growth next year, it could be a little lower?

No, the short answer is, no. We've -- the way we characterize 2026 same-property NOI growth from the time we started talking about it, which is when we launched our 3-year plan, is we said it would be -- we expect it to be a normal year.

And if you look at our history, our average same-property NOI growth is 3%. And we've said that the future looks better than the past for some of the reasons I spoke to in terms of why the fundamentals for grocery-anchored retail have changed.

So that means we expect better than 3% as a normal same-property NOI growth rate, and that would be the case for next year.

Okay. That's helpful.

And just a couple of little ones to finish off here. On -- I guess, when we're looking out over the next couple of years, I know there's one or two redevelopments that might get initiated.

And I'm just thinking, is there any sort of de-leasing that could take place in the next year or so that could [ detract ] a little bit from NOI as you prepare one or two projects for redevelopment?

Yes, it's possible that there's a little bit of that, but we would describe it at this stage as non-material and not something that would be pronounced enough for us to recommend you to adjust your models. If that changes, we'll let you know.

But at this point, it would be quite small.

Okay. And just finally, also, I guess, tagging on to one of the questions earlier was just on the dispositions.

Any thoughts on the timing of exiting any of the Yorkville assets over -- in the next year or so?

Yes. I think there's a strong likelihood that we exit a component of the Yorkville portfolio over the next year, 1.5 years.

Without getting into specific detail, there's a component that we think based on the asset management and leasing activities that we've undertaken recently, we think they'd be ready to be sold in that time frame.

Congrats again on a great quarter.

Just given the evolution of the landlord-tenant relationships and the strength of your product, are you taking this opportunity to kind of curate the tenant offering differently and maybe push out some underperforming tenants and bring in better-performing tenants, given the comfort around occupancy? Or how should we think about kind of how you're dealing with the strategy within leasing within the centers themselves?

Well, hopefully, you've been thinking we've been doing that for a long time because we have. We spent a lot of time included at the executive level on tenant mix, probably more time than most people think.

But getting that mix right is really, really important to us. And certainly, when you have a stronger environment like we've had, there's a little bit more flexibility.

I would say tenant mix is around the margin on that front, where it's become more impactful on things like operating cost recoveries. But as you know, from looking at our financials, not all tenants pay their full proportionate share of operating cost recoveries.

The last 1.5 years, we've been fixing between 50 and 100 leases a year, mostly anchor tenants, to improve the way they pay operating cost recoveries. Use restrictions, [ no builds.

] These are a lot of the things that are more easily attainable in this environment. But I would describe our approach to tenant mix as hyper-focused for a long, long time.

And I wouldn't say that, that's changed now.

Makes sense. Maybe a Neil question with regard to where -- or you, Adam, where those operating cost recoveries and tax recovery can trend to?

I know this quarter was high, and it sounds like there were some onetime items in it. But is that something that you see kind of evolving and moving closer to, I don't know, what the ultimate percentage that you think you can achieve?

Yes. Okay, Matt.

So I'll say a two things on that front. Firstly, with reference to the prior year CAM and tax adjustments, I did highlight them in my prepared remarks as something that I think I described as may not necessarily repeat in subsequent quarters.

But the flip side of that is they may also repeat in subsequent quarters. So we're, I think, the only REIT that actually discloses those prior year CAM and tax adjustments.

To the best of my knowledge, they happen in every commercial real estate business. And when we're billing our tenants and making our accruals for recoveries, we certainly don't want to over accrue, and we would -- in erring on the side of caution versus too much optimism, we would rather have a prior year CAM and tax recovery show up in a subsequent year and then that reversal.

So those, I would say, are not necessarily repeatable, but they may repeat. And if you look in our financial statements for Q2 of 2025, Q2 of 2024, and the first half of 2025 and the first half of 2024, there was actually a net recovery in all of those periods.

So that's a bit of a long-winded answer to point number one. Point number two is, look, we're simply trying to drive growth in net operating income, and we're using all the tools available to drive that growth, including lease renewal spreads, including contractual rental [indiscernible] and including fixing or amending shortfalls when we enter into lease negotiations.

So it's all part of the toolkit, the job or the objective, obviously, is maximum NOI growth. And that's really all I can say on that front as opposed to giving some sort of specific forecast or target as to what we think we can get those recovery ratios to.

It's a process that takes time, right?

Sure. No, makes sense, and it's showing up in your figures.

The last one maybe for me, again, on the accounting side. You've made big progress this quarter in some of the conversion of your straight-line to cash rent?

Is that done? Or do you still expect a little bit more improvement in Q3 on that front?

Yes, I think the short answer is that is probably normalized at this point on a quarterly run rate basis, at least in the near term.

Okay. Thank you very much, operator.

Thank you, everyone, for your interest in FCR and your time today. Have a wonderful afternoon.

Take care.