Choice Properties Real Estate Investment Trust

TSX:CHP.UN

Earnings Call Analysis

Solid Performance and Strategic Expansions in Q2 2024

Choice Properties Real Estate Investment Trust reported a strong second quarter for 2024, maintaining a high occupancy rate of 98% and achieving a 48.2% leasing spread. Significant growth was noted with same-asset cash Net Operating Income (NOI) rising by 4.4% and Funds from Operations (FFO) increasing by 5.7% year-over-year, excluding one-time costs. Key activities included renewing 46 out of 48 Loblaw locations with an average rent increase of 8.4% and acquiring two grocery-anchored retail assets valued at $33 million. The company continues to focus on maintaining a robust portfolio through strategic acquisitions and effective capital management.

Strong Operational Performance in Q2 2024

Choice Properties reported solid financial results for the second quarter, showing resilience despite market challenges. The company achieved funds from operations (FFO) of $184.7 million, or $0.255 per unit. This represented a modest increase of 0.4% from the same quarter in 2023. When adjusted for nonrecurring items, normalized FFO grew by 5.7%, a reflection of strong same-asset performance and transaction-related growth.

Segment-Specific Growth Drivers

Same-asset net operating income (NOI) grew by 4.4%, fueled primarily by solid performance in the retail and industrial segments. Retail same-asset cash NOI increased by $5.5 million or 3%, driven largely by higher rents from renewals and new leasing. In the industrial sector, same-asset cash NOI jumped by an impressive 11.8%, boosted by strong leasing activity and successful resolutions of tenant disputes.

Portfolio Resilience and Lease Renewals

The overall occupancy rate for Choice Properties remained strong at 98%. Key metrics included a tenant retention rate of 91% and an average rent increase of 48.2% during lease renewals. Significant renewal activity with Loblaw’s locations showcased a robust average rental uplift of 8.4%, reflecting strong demand for necessity-based retail spaces.

Strategic Growth Initiatives

Choice Properties continues to expand through strategic acquisitions and dispositions. In Q2, the company completed approximately $114 million in transactions, acquiring two grocery-anchored assets worth $33 million and disposing of four properties totaling $81 million. This disciplined approach to capital recycling aligns with their goal of maintaining a high-quality portfolio.

Debt Management and Financial Stability

The company demonstrated prudent capital management, successfully raising $788 million in new debt financings, maintaining a healthy debt-to-EBITDA ratio of 6.9x. The portfolio benefits from $1.5 billion in available credit and $12.8 billion in unencumbered properties. Notably, Choice received a credit rating upgrade from Standard & Poor’s to BBB+, which underscores its strong operational performance and strategic positioning.

Guidance for Future Performance

Looking ahead, Choice Properties anticipates approximately $60 million in lease surrender income in the latter half of 2024, which will assist in offsetting restructuring costs. Despite expected modest occupancy declines due to known vacancies, the outlook for 2024 remains stable. The company aims to maintain its current operational trajectory, focused on delivering consistent cash flows and long-term value.

Market Dynamics and Future Outlook

While some discretionary retail sectors face challenges due to a cost-conscious consumer base, the demand for necessity-based retail properties remains strong. Choice Properties' focus on grocery-anchored locations provides a buffer against market volatility. With several development projects underway and a growing residential asset pool, the company is well-positioned to capitalize on long-term demographic trends.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by. This is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Choice Properties Real Estate Investment Trust Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Erin Johnston, Senior VP of Finance. Please go ahead.

[Erin Johnston, executive]

Thank you. Good morning, and welcome to Choice Properties Q2 2024 Conference Call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer; Mario Barrafato, Chief Financial Officer; and Niall Collins, Chief Operating Officer. Rael will start the call today by providing a brief recap of our second quarter performance and provide an update on our transaction and development activity in the quarter. Now we'll discuss our operational results, followed by Mario, who will conclude the call with a review of our financial results before we open the lines for Q&A.

Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook and similar statements concerning anticipated future events, results, circumstances, performance or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusion in these forward-looking statements.

Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying in making these statements can be found in our recently filed Q2 2024 financial statements and management discussion and analysis, which are available on our website and on SEDAR. And with that, I will turn the call over to Rael.

[Rael Diamond, executive]

Thank you, Erin, and good morning, everyone. We're very pleased with our performance this quarter as, once again, we delivered solid operating and financial results. Our portfolio continues to deliver stable and growing cash flow. We maintained near full occupancy in the quarter, at 98%, achieved strong leasing spreads of 48.2% and delivered same-asset cash NOI growth of 4.4%. Our strong operating metrics this quarter reflect the strength and resilience of our portfolio.

FFO for the quarter was impacted by the timing of lease termination income and certain onetime costs related to our continued focus on operational efficiency. Excluding these impacts, FFO increased 5.7% year-over-year.

On the retail side, we are seeing certain discretionary retail tenants impacted by the overall health of the Canadian consumer. However, grocery-anchored necessity-based retail portfolio is performing exceptionally well. The demand plus space is strong. Our leasing team is actively working with many of our tenants who are looking to further expand their footprints.

In Industrial, despite the slowdown in rent growth, demand for well-located, high-quality assets remain strong as evidenced by leasing activity this quarter. We remain confident in our ability to deliver growth through our industrial development pipeline.

Our prime locations, large contiguous blocks of land and attractive land costs allow us to deliver high-quality product into the right segment of the market at competitive rental rates.

Our residential assets are also performing well with 2 newer assets, both over 80% leased and are expected to stabilize this year. Although the current environment will impact certain developers focused on condos, limited residential construction start and overall lack of housing availability provide long-term tailwinds for the residential asset class.

Turning back to activity in the quarter. In pursuit of maintaining our market-leading portfolio, we continue to execute on our capital recycling program. This involves completing approximately $114 million in total real estate transactions in the quarter. Specifically, we acquired 2 grocery-anchored retail assets worth $33 million and successfully disposed of 4 properties totaling $81 million. The first was the acquisition of Cornerstone Shopping Center in Fort Saskatchewan, Alberta by purchasing our partner's 50% stake of about $21 million. We now fully own this 200,000 square foot high-quality grocery-anchored shopping center.

The second acquisition was a vacant 13,000 square foot stand-alone retail property in Toronto for approximately $12 million and concurrently leased it to Loblaw for 15 years. Loblaw plans to open a small format [indiscernible] on the site as part of their overall small format store expansion plan. This transaction is an example of the strategic benefits of our relationship to both Choice and Loblaw.

[indiscernible] activity included the sale of our non-managing partnership interest in 2 retail properties in Alberta and 2 retail partners in Saskatchewan for a total proceed of approximately $81 million in the quarter, both will continue to add value through our development pipeline with a near-term focus on commercial development.

During the quarter, we transferred approximately 44,000 square feet of retail GLA through ongoing intensifications of our neighborhood centers. This intensification included a 17,000 square foot Shoppers Drug Mart in Alberta and a ground lease to Nautical Lands Group in Bradford, Ontario. This is the first of 6 ground leases with Nautical Lands, with our developing independent living options for adults over 65 -- 35, sorry. This is a great partnership for Choice as it is complementary to our retail size and will generate a stable and growing cash flow stream for Choice.

Our active industrial developments are progressing well. At Choice Caledon Business Park, we're progressing on the first 2 phases, providing 1.75 million square feet of new logistics space. The first phase is a land leased to Loblaw with site servicing underway. The second phase leased to a leading logistics provider is in the tendering stage with construction expected to start later this year.

Our portfolio's performance and our ability to deliver on our strategic priorities regardless of the economic climate, is entirely supported by the strength of our balance sheet and the quality of our products. I often speak about the importance of prudent capital management and risk management. Despite encouraging inflation fronts and the Bank of Canada making its first interest rate cut in June, the interest rate environment remains volatile. We do not foresee a substantial drop in long-term interest rates in the near future. We believe that companies with strong balance sheets like ours will consistently outperform in the long run.

As a result of our team -- as a result, our team is committed to preserving our industry-leading balance sheet. They demonstrated their ability to do just this through our financing activities and the credit rating upgrade we received in the quarter, which Mario will speak to shortly. But first, I'll pass the call over to Niall to discuss our operational results. Niall?

[Niall Collins, executive]

Thank you, Rael, and good morning, everyone. As Rael mentioned, our portfolio continues to perform well, and we are pleased with our operating performance for the quarter. Occupancy remained strong, ending the quarter at near full occupancy at 98%. During the quarter, our portfolio had approximately 816,000 square feet of lease expiries. We renewed 743,000, achieving a 91% tenant retention. These renewals were completed at an average rent spread of 48.2%. We also completed 88,000 square feet of new leasing, contributing to positive absorption of 15,000 square feet.

Our retail portfolio occupancy remained stable at 97.7%. During the quarter, 390,000 square feet expired and we renewed 350,000 square feet at an 89.7% retention. The lease renewal spreads averaged 12.8% of all expiring rents. The majority of our lease renewals were in Ontario with strong spreads across several retail categories. We also completed 41,000 square feet of new retail leasing in the quarter, offsetting 40,000 square feet of expiries not renewing in the quarter. Of the non-renewed space, approximately half has backfill commitments that was achieved, on average, 13.4% higher net rents compared to previous tenancy, and we have strong interest in the remaining space.

As Rael mentioned, demand for necessity-based tenants remained strong as retailers continue to seek out well-located, well-anchored properties. However, in the current economic environment, consumers continue to be more cost-conscious, creating pressure for tenants whose businesses rely on discretionary spending. Fortunately, we have a small number of these tenants on our watch list. As most of our tenants are necessity based, we do not expect a significant impact on our 2024 performance.

During the second quarter, we generated $1.2 million in lease surrender revenue, $800,000 was for the settlement of our [indiscernible] location in Edmonton, Alberta. We also continue with our Loblaw store optimization program, generating $400,000 of lease surrender revenue at the grocery store in Camrose, Alberta. This space was backfilled by a new tenant at higher rental rates.

We turn our attention to 2025 for a moment. We have 48 Loblaw locations up for renewal, consisting of 47 retail locations and 1 industrial site, totaling 3.2 million square feet. Subsequent to the quarter, we renewed 46 of these locations totaling 3.1 million square feet at a weighted average term of 5 years. The base rent for the 46 locations increased on average by 8.4% over expiring rent. The 2 sites that were not renewed are stores that have gone dark. The first is in Coquitlam, BC, a site with a long-term redevelopment plan. The second site in Laval, Quebec, we intend to sell as part of our capital recycling program.

Our industrial portfolio occupancy also remained stable at 98.8%, with 424,000 square feet of expiries, and we renewed 391,000 square feet for a tenant retention of 92.2%. The lease renewal spreads averaged 105.9% of expiry. This was largely driven by 180,000 square feet of renewals in Ontario at spreads of 184.3%. We also completed 47,000 square feet of new leasing.

While I recognize that the growth in the industrial market has slowed, we still have a significant embedded rental growth in our portfolio as our average in-place rent is $9.32, compared to $9.16 last quarter. For the remainder of the year, we expect a modest decline in occupancy due to a few known vacancies, which were contemplated in our plans and outlook. Our team are actively working on backfilling this space. And I will now pass it over to Mario to discuss our financial performance.

[Mario Barrafato, executive]

Thank you, Niall. Good morning, everyone. Once again, we're pleased with our financial performance for the second quarter. Our business is strong operationally and remains well positioned to continue to deliver high occupancy and strong same-asset NOI and FFO growth.

Our reported funds from operations for the second quarter was $184.7 million or $0.255 per unit. FFO in the quarter was impacted by certain nonrecurring items, including restructuring costs of $3.3 million, related to the outsourcing of a portion of our accounting function, offset by the reversal of a $1.7 million provision related to a tenant dispute in our industrial portfolio and lease surrender revenue of $1.2 million, for a net cost of $400,000 to FFO.

On a per unit diluted basis, our reported second quarter FFO of $0.255 per unit reflects an increase of approximately 0.4% from the second quarter of 2023. When normalizing for year-over-year nonrecurring items, including the $8.4 million lease surrender income reported in Q2 of last year, FFO per unit increased 5.7%, and this increase was driven by strong same asset and transaction NOI, partially offset by higher interest expense, net of higher interest income.

Strong leasing activity contributed to same-asset cash NOI growth of $10.2 million or 4.4%, compared to the second quarter of 2023. By asset class, retail same asset cash NOI increased by $5.5 million or 3%. The increase was primarily driven by higher base rent on renewals, new leasing and contractual rent steps and higher capital and operating recoveries.

Industrial same asset cash NOI increased by approximately $4.7 million or 11.8%. This increase was primarily due to higher base rent from leasing activity, higher capital recoveries and the reversal of the provision following the resolution of a tenant dispute. And excluding the tenant's dispute resolution, our industrial portfolio increased by 7.4% year-over-year.

Now turning to our balance sheet. Our IFRS NAV for the quarter was $13.79 per unit, an increase of $76.6 million or 0.7% over the last quarter. Our NAV growth was driven by the contribution of $47.2 million from operations, fair value gains of $25.5 million on our investment properties and income resulting from the reversal of a prior year transaction-related provision of $38.6 million, which was partially offset by a fair value loss of $27.9 million on our investment in units of Allied Properties where we're required under IFRS to mark-to-market this investment to its trading price at the end of each period.

Our fair value gain on investment properties in the quarter was largely driven by cash flow growth in the retail industrial portfolio, partially offset by a 7 basis point cap rate expansion within our industrial portfolio due to continued price discovery in certain GTA and Vancouver assets. In our retail portfolio, we reported a fair value gain related to cash flow growth and minor cap rate adjustments. In our industrial portfolio, we recorded a fair value loss primarily due to cap rate expansion on certain properties with longer-term leases. This was partially offset by gains from cash flow growth as leases roll over to market rental rates. Our mixed-use and residential portfolio was relatively flat.

Now turning to financial activities for the quarter. We continue to focus on prudent capital management and ended the quarter in a solid financial position with strong debt metrics and ample liquidity. Our debt-to-EBITDA ratio was 6.9x when you factor in the cash raised on our recent unsecured debenture issue, which I will expand on shortly. We also have $1.5 billion available on our credit facility and approximately $12.8 billion of unencumbered properties.

During the quarter, we completed $788 million of new debt financings for an average term of 10 years and an interest rate of 5%. This includes the issuance of $500 million in unsecured debentures at 5.03% for a term of approximately 7 years. The proceeds have been invested in a fixed-rate GIC, earning 5.5% interest until September when we will apply the funds to repay a portion of the maturing $550 million Series K senior unsecured debentures. For our debt-to-EBITDA computation, we have netted the cash against the debt to avoid a double count.

Additionally, we completed a series of mortgage financings totaling $288 million at a weighted average rate of approximately 5% and a term of approximately 15 years. This included a $120 million 10-year loan secured by a 6-property industrial park in Edmonton. A $90 million 25-year loan secured by our 25-year Loblaw land lease at our Choice Eastway Industrial Center and the assumption of mortgages totaling $45 million on disposed assets at an average rate of approximately 3.4%.

These proceeds were used to repay approximately $82 million of construction debt and the remainder used for general purpose or reinvested at attractive yields. Having completed these financings, we have limited remaining debt exposure for 2024. We're also pleased to have received a credit rating upgrade from Standard & Poor's to BBB+ who cited the strength of our grocery-anchored retail properties, our strategic relationship with Loblaw and our commitment to maintaining prudent credit measures as reasons for the upgrade.

Before I conclude, I wanted to provide a bit more color on our restructuring costs in the quarter and the impact to our full year outlook. In an effort to drive operational effectiveness and after thoughtful analysis, we've decided to outsource a portion of the company's operational accounting platform to a third-party vendor to create process efficiency and advance the use of technology across our business. We anticipate that the total restructuring costs for 2024 related to this outsourcing will be approximately $7 million.

Given the strength of our overall performance this year, as well as additional Loblaw rightsizing income anticipated in the second half of 2024. We do not expect this restructuring to impact our 2024 financial outlook. And with that now, Rael, Niall, Erin and I will be glad to answer your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Lorne Kalmar from Desjardins Securities.

[Lorne Kalmar, analyst]

Maybe just on the retail side. I think this is maybe one of the first times we kind of heard you guys mentioned the watch list versus us asking about the watch list. Just wondering what types of tenants are these. Are they maybe more individual or sole proprietorships? And what's the appetite for backfilling like?

[Rael Diamond, executive]

Lorne, the backfill is quite strong. It's not -- as we said, we have very few tenants on our watch list as most of our tenants are really necessity-based grocery and the like. It's -- we're really seeing problems around discretionary spending. So it's largely big box, fashion and power centers, small CRU where the QSRs and like mid-price sit-down restaurants. That's where we're seeing some weakness. But we're monitoring it. And as I said, there's not a lot of those in our category.

[Lorne Kalmar, analyst]

And just in terms of the backfilling side of it, like who would you guys be expecting to sort of step in, in the event some of these went dark? What type of [indiscernible]?

[Rael Diamond, executive]

Look, it's more where there's franchisees and they're trying to either pay back debt or sell out their business. But we are replacing [indiscernible], and we don't have challenges. We're using Loblaw's mall format and value retailers to backfill as well. So we're not having a challenge backfilling the real estate.

[Lorne Kalmar, analyst]

Okay. That's very helpful. And then maybe just flipping to the industrial side of things. You mentioned a couple of nonrenewals. Could you maybe quantify what you expect the impact on occupancy and maybe just the NOI to be over the balance of the year from those?

[Rael Diamond, executive]

We expect the -- conservatively we were looking at around 200,000 square feet of potential vacancy, which were pulled from about 98.8%, maybe down to high 97% or just under 98%. As we said in our notes, a lot of this was planned for. So we're expecting it and it's included in our outlook.

[Lorne Kalmar, analyst]

Okay. Perfect. And then maybe just lastly, I think when we last spoke in May, Rael, I believe you mentioned you guys were hoping to do about $150 million to $200 million of the Loblaw's transactions. If that is, in fact, I'm recalling that correctly, how do you sort of see the balance of the year evolving on that front?

[Rael Diamond, executive]

Lorne, thanks for the question. So you are correct. It's pretty closer to the $150 million number, and it will start in Q3 and then some of it may trickle into Q4.

[Operator]

[Operator Instructions] Your next question comes from the line of Sam Damiani with TD Securities.

[Sam Damiani, analyst]

Thank you. I hope you all can hear me.

[Erin Johnston, executive]

Yes.

[Sam Damiani, analyst]

Great. So just -- I guess, first question is on the industrial development pipeline, the 2 active projects. The cost did increase about 3.5% quarter-over-quarter. I wonder if you can give a little more detail what drove that. And if the rents didn't change, that would change the yields by about 25 basis points if my math is correct. So just curious, I guess, what was going on there.

[Rael Diamond, executive]

Yes, Sam, I don't think it's anything significant. It was just really a small increase in, I'd say, internal allocations, interest, G&A and then the phasing of the master plan costs to those phases. Like it was minor tweaks, I would say. The yields are still in line with where we previously disclosed.

[Sam Damiani, analyst]

Okay. Okay. Fair enough. And just, I guess, on the industrial side, are you getting closer to starting another project -- sorry, construction on another project either with or without pre-leasing?

[Rael Diamond, executive]

Look, we're actively marketing the site. I think what the broker -- I think why the broker communities are very pleased because they see all the activity on our side where others say they're going and they definitely are stalled. We've got so much work on the site at the moment with all the servicing with the Loblaw building and with the spec development. The earnings we actually [indiscernible] Q1, Q2 of '25. And we'll have to assess where the market is then. But right now, we feel very confident that we should be in a position to go at that time.

[Sam Damiani, analyst]

Great, great. And I tried to catch what you're saying, Rael, on the, I guess, the deal with Nautical Lands.

[Rael Diamond, executive]

Sam, can you hear us?

[Sam Damiani, analyst]

Yes. Can you hear me fine? Hello. Is this better?

[Rael Diamond, executive]

Sam, did you hear us?

[Sam Damiani, analyst]

I did hear you. Can you hear me?

[Rael Diamond, executive]

Now we can. We didn't hear you after we completed our -- just spoke about the industrial development.

[Sam Damiani, analyst]

Okay. I know I did hear. And my next question is just on the retail side. Looks like about 160-odd thousand square feet of new active starts in the retail development pipeline year-to-date. And I guess a lot of it is with this Nautical Lands Group. And I just wanted to clarify, you said there's 6 sites that you're doing with them? And just to be clear, are there ground leases and there -- what sort of use is the development?

[Rael Diamond, executive]

Yes, they're building rental communities focused on a population segment, 55 and older. And we view it as very complementary to our sites. One of the 6 ground leases we've already transferred and the other 5 will come over the next, call it, 2 years or so. Two this year.

[Sam Damiani, analyst]

Comparable yields to if you're going to develop ground-based retail yourself?

[Rael Diamond, executive]

Superior yields to that.

[Sam Damiani, analyst]

Are these high-rise or low rise? What sort of projects are they doing?

[Rael Diamond, executive]

Generally around 6 stories. So they're -- they're midrise.

[Sam Damiani, analyst]

Okay. Great. Fantastic. Okay. Last question for me. Mario, I think you mentioned you got a mortgage on the Choice Eastway Development. I didn't quite hear the numbers. Could you -- sorry, could you just repeat that?

[Mario Barrafato, executive]

Yes, it was a mortgage -- I think it was what?

[Erin Johnston, executive]

25-year market.

[Mario Barrafato, executive]

The 25-year mortgage was about 5% and I just -- I don't recall the number, but it was with a life co. Probably about $90 million mortgage, Sam.

[Sam Damiani, analyst]

Is the $90 million at your Choice's share or at 100%?

[Mario Barrafato, executive]

Choice's share.

[Sam Damiani, analyst]

If I'm not mistaken, that was -- the cost on that was $94 million. So that's a pretty good -- pretty good capital payback.

[Mario Barrafato, executive]

Yes. This is overall a great deal.

[Operator]

And your next question comes from the line of Pammi Bir with RBC Capital Markets.

[Pammi Bir, analyst]

I just wanted to come back to the industrial portfolio again. And maybe can you maybe just expand on some of the commentary from a leasing standpoint, some of the dynamics you're seeing. Is it taking any longer to get leases done? Are you offering any sort of concessions or extended free-rent periods or any change in terms that you're seeing?

[Niall Collins, executive]

Pammi, it's Niall. No, at the moment, we're not offering any concessions. We're still seeing a lot of interest. And I think the value is our -- in place rents at the moment and the uplift. Our spreads, our retention, I think what was reflected in the quarter is a good indication of where we'll finish the year where we're getting high retention and strong spreads. So we're not seeing that kind of weakness in our portfolio based on our locations.

[Pammi Bir, analyst]

Okay. And then just in terms of the some of the occupancy slippage in the industrial portfolio that you do expect, I think, later this year, which markets were those? And what's your sense of timing of getting that space re-leased?

[Niall Collins, executive]

So the biggest is probably in the West, and it's smaller bay units, 1,500 to 3,000 square feet where it's local operators. That's where we're seeing some weakness. And Ontario as well -- as I said, we've got some planned, but it's the re-leasing of it. We've been conservative about our re-leasing assumptions, both on raise and downtime.

[Pammi Bir, analyst]

Got it. Mario, can you just come back to your comments on the -- I think you mentioned some of the factors that made your 2024 guidance for FFO pretty much intact. But I think you mentioned in that comment that you expect some, I think, some additional income from Loblaw's portfolio optimization, if I'm not mistaken. Can you just maybe expand on that?

[Mario Barrafato, executive]

Yes, Pammi. So look, in our outlook, so the incremental cost from the restructuring will be more than offset by some lease surrender income. So for the second half of the year, with the rightsizing, we probably expect about [ $60 million ] of lease surrender maybe 4 -- around 4 of the third quarter and 2 in Q4. And so when you factor that against the costs, our outlook remains the same.

[Pammi Bir, analyst]

And then, I guess, the re-leasing or the outlook for those additional properties where they expect to surrender, what is the thinking go forward on those?

[Rael Diamond, executive]

We're working through -- really a lot of those leases are already negotiated as we kind of finish out the year. So as Mario said, we don't expect it to have an impact on the quarter or going back in at higher rents.

[Pammi Bir, analyst]

Okay. At higher rents. Got it. And then just from a capital recycling standpoint, still fairly active, I guess, on dispositions. What's sort of the outlook for the balance of the year as you think about that pipeline?

[Mario Barrafato, executive]

Yes, Pammi, as we said over the last, call it, 2 years that we, again, very focused on trying to be balanced. So our expectation is that the dispositions would be very close to the amount of acquisitions. So for this year, call it -- no, I don't know, roughly $200 million of acquisitions and $200 million of dispositions.

[Operator]

Your next question comes from the line of Sumayya Syed with CIBC.

[Sumayya Hussain, analyst]

Just firstly, on the Loblaw Industrial leases, wondering if the renewal options there are structured the same as the retail ones. And what was the lift on industrial versus retail in that 8.4% average spread that you achieved in the quarter?

[Rael Diamond, executive]

We had one industrial and the spread was 10%.

[Sumayya Hussain, analyst]

Okay. And then, I guess, looking at the lease renewals that you have now addressed about half of next year's maturities. So for any of the third-party leases that roll next year, are you finding that leasing spreads are holding in the high single-digit range? Or where are they landing?

[Rael Diamond, executive]

Correct. I agree.

[Sumayya Hussain, analyst]

Okay. And then just lastly, Rael, maybe an updated commentary on the transaction market, if you're seeing if the buyer pool has changed or still largely local, private and just thoughts around the availability of financing with the group that you usually transact with.

[Rael Diamond, executive]

Yes. Look, I think it's very similar to what it was last quarter, where there continues to be this big bid-ask spread between [indiscernible] and what buyers are willing to pay. We have been able to transact because, as you said, we're more focused on that private market. And given the quality of the assets and the tenancies generally in place, they are able to get financing. And in a few cases, we've given VTBs, but they're not significant amount of VTBs, just to help bridge the purchase at a short period of time.

[Sumayya Hussain, analyst]

Okay. And what is the average term on the VTBs you have?

[Rael Diamond, executive]

Generally 1 year.

[Operator]

I would now like to turn the call back over to Rael Diamond, CEO, for closing remarks. Please go ahead.

[Rael Diamond, executive]

Thank you, Eric, and thanks to everyone for your interest, your investment in Choice and for joining us this morning. Hope you all have a great weekend.

[Operator]

This concludes today's call. Thank you all for joining. You may now disconnect.