CT Real Estate Investment Trust

TSX:CRT.UN

Earnings Call Transcript 2020-Q4

[Operator]

Good morning. My name is Alana, and I will be your conference operator today. At this time, I would like to welcome everyone to CT REIT's Q4 and Full Year 2020 Earnings Results Conference Call. [Operator Instructions] The speakers on the call today are Ken Silver, Chief Executive Officer of CT REIT; Lesley Gibson, Chief Financial Officer of CT REIT; and Kevin Salsberg, Chief Operating Officer of CT REIT. Today's discussion may include forward-looking statements. Such statements are based on management's assumptions and beliefs.These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see CT REIT's public filings for a discussion of these risk factors, which are included in their 2020 MD&A and AIF, which can be found on CT REIT's website and on SEDAR.I will now turn the call over to Ken Silver, Chief Executive Officer of CT REIT. Ken?

[Kenneth Silver, President, CEO & Trustee]

Thank you, operator, and good morning, everyone. Thank you all for joining us for CT REIT's Fourth Quarter 2020 Investor Conference Call. 2020 was clearly not a year any of us expected or planned for. We have all been challenged to navigate the twists and turns, road blocks and U-turns that the pandemic has thrown us, both personally and professionally.The toll in our communities, our economy and on countless individual lives has been immeasurable. Yet we continue to work together to get through this, and we have much to be grateful for. Among the things I'm grateful for is the CT REIT team who have risen to the occasion to support one another, our tenants and their communities to get the job done, no matter the obstacle. While daily case and death rates continue to dominate the headlines, we do see the light at the end of the tunnel.Spring will come and vaccines will eventually roll out. In that spirit, I'm pleased to report on the highlights of 2020. Since our IPO in 2013, we have used the tagline "growing reliable and durable" to describe CT REIT. And while we have consistently delivered performance that supports that description, 2020 certainly provided a significant stress test. And CT REIT, once again, delivered with healthy growth in AFFO per unit for the year, over $200 million in new investments. Occupancy and rent collections both slightly north of 99% in Q4.Stronger debt and credit metrics and 2 distribution increases for a total of 7 since our IPO. This combination of growth and resilience is the hallmark of CT REIT. In Q4, we reached the milestones of 10 million square feet of GLA, added to the portfolio or committed and $2 billion invested since our IPO. This growth in assets has delivered compound annual growth in AFFO per unit that has been amongst the strongest in the REIT sector. Our business model, focused on net lease assets with investment-grade tenants and long lease terms, combined with conservative financial management, provides a significant level of resilience to complement our growth.Our privileged relationship with Canadian Tire, our largest tenant and majority unitholder provides strategic insight, growth opportunities and a distinct competitive advantage. Our significant portfolio of low-risk assets is the platform upon which we can add special value-add opportunities.A case in point is our joint venture with Oxford Properties at Canada Square at Yonge and Eglinton in Toronto. In December 2020, Oxford submitted an exciting redevelopment application to the city of Toronto for this landmark 9-acre site on 2 subway lines in this growing node in Midtown Toronto. We look forward to the project obtaining the necessary approvals and proceeding to construction in the next couple of years. 2021 is off to a good start. In early January, we closed on our successful unsecured debenture offering launched in December 2020, and redeemed a series of maturing debentures, leaving no further maturities to refinance this year. I'm pleased we've hit the ground running with our newly announced investments and the disposition of one of our completed redevelopment projects.Last but not least, I'm delighted to congratulate Kevin Salsberg on his being named as President and Chief Operating Officer of CT REIT, effective March 1. His promotion is a reflection of the growth of the REIT and his evolving organizational needs and, of course, on Kevin's performance, his contribution to the REIT's evolution and the leadership qualities he's shown since joining the REIT almost 5 years ago. With that, I'll turn things over to Kevin and Lesley to discuss our results in more detail. Kevin?

[Kevin Salsberg, Chief Operating Officer]

Thanks, Ken, and good morning, everyone. As outlined in yesterday's press release, we are pleased to announce 4 new investments this quarter that will require an estimated $65 million to complete. These new projects include the vend in of a Canadian Tire store and Canadian Tire Gas+, Gas Bar in Québec City, Québec; the vend in of a Canadian Tire store in Lower Sackville, Nova Scotia and the expansion of an existing Canadian Tire store in Cochrane, Ontario.Also included is the expansion of the Canadian Tire distribution center in Coteau-du-Lac, Québec just outside Montreal. Upon completion, this industrial asset, which serves the Canadian Tire store network in Eastern Ontario, Québec and Atlantic Canada will grow by over 320,000 square feet to a total GLA of nearly 2 million square feet. When completed, these investments are expected to earn a weighted average cap rate of 6.41% and represent approximately 510,000 square feet of incremental GLA. With respect to previously announced investments, in the fourth quarter, CT REIT completed the third-party acquisition of 3 Canadian Tire stores in Drayton Valley and Leduc, Alberta and Saint-Jean-sur-Richelieu, Québec, acquired a property from a third-party consisting of 2 freestanding buildings leased to Mark's and Tim Hortons and Yellowknife Northwest territories, completed the first phase of its development in Fort St. John, BC consisting of new Canadian Tire and Mark's stores, completed Phase 1 of the redevelopment of the Orillia Square Mall in Orillia, Ontario, which comprised the development of a new Canadian Tire store in the former vacant target box and completed the intensification of an existing Canadian Tire store in Buckingham, Québec. The REIT invested approximately $139 million in these previously announced projects, which added approximately 440,000 square feet of incremental GLA in the quarter. Subsequent to quarter end, CT REIT sold its Arnprior Mall property in Arnprior, Ontario for approximately $21 million. After redeveloping this enclosed mall and bringing occupancy from 53% at the time it was acquired, to 97% currently and delivering a new store to Canadian Tire in the process, we received at unsolicited offer to purchase the property at a price that was equivalent to our IFRS value. The REIT continues to hone its focus on net lease assets, and it was determined that in line with our core strategy, and based on the fact that we had successfully added value to this property, we would move forward with this sale.Highlighting our full year activity, and despite an initial pullback in capital spending to preserve liquidity at the outset of the pandemic, CT REIT invested approximately $209 million in 2020 and grew the portfolio by approximately 800,000 square feet. At the end of the fourth quarter, CT REIT had 16 properties that were at various stages of development. These projects represent a total committed investment of approximately $191 million, $57.9 million of which has been spent to date and $32 million of which we anticipate will be spent in the next 12 months.Excluding the Canada Square redevelopment in Toronto, Ontario and the development lands that we own in Calgary, Alberta, these projects will add a total incremental gross leasable area of approximately 690,000 square feet to the portfolio upon completion, over 93% of which has been pre-leased.As at year-end, CT REIT's occupancy rate was 99.3%, slightly better than the 2019 year-end occupancy rate of 99.1%, and an improvement over the occupancy as of Q3 2020 due to the lease-up of the 11 Dufferin Place Southeast industrial property in Calgary, Alberta. With respect to the impact of COVID-19 on our property operations, we are pleased to share that tenants representing approximately 99.4% of annual base minimum rent fulfilled their January 2021 financial obligations to the REIT, a slight improvement relative to the 99.2% for December and November 2020 and the 99.1% received in October 2020.With that, I will turn it over to Lesley for her review of our financial results.

[Lesley Patricia Gibson, Senior VP & CFO]

Thanks, Kevin, and good morning, everyone. Despite challenges from the ongoing pandemic, we are very pleased with the strong Q4 and full year results delivered by the REIT. In the quarter, we reported a diluted AFFO per unit of $0.26, an increase of 3.2% compared to $0.252 per unit in Q4 of 2019. The this brings the full year reported diluted AFFO per unit to $1.032, representing growth of 2.5% versus 2019.In the quarter, diluted FFO per unit increased 1% to $0.296 versus $0.293 in the prior year. On a full year basis, 2020 diluted FFO per unit increased by 0.5% to $1.181. Net operating income was $96.9 million, a 3.7% increase over the $93.4 million in Q4 of 2019. We break this headline growth into its components being a 1.2% growth on a same-store basis, 1.8% growth on a same-property basis and the balance, as a result of net acquisition, disposition and development activities.Full year reported NOI was $381.6 million, a 3.5% increase over the $368.8 million in 2019. The 1.2% same-store NOI for Q4 is the result of the contractual rent escalations, contributing nearly $1.8 million, which includes the $1.5 million annual rent escalations, on average, contained within the Canadian Tire store leases, partially offset by the expected credit losses for tenants who are significantly impacted by the pandemic, including the bad debt expense related to the rental abatements. For Q4 2020, G&A expenses, as a percent of property revenue, were 2.5%, which is in line with the 2.4% for Q4 2019.Our AFFO payout ratio at the year-end was 76.8%, an increase of 2.1% from the same period in 2019 due to the increase in monthly distribution rate exceeding the increase in the AFFO per unit.Not affecting AFFO, but perhaps noteworthy, the rechanged valuation methodology that had been using for its single-tenanted properties from the overall capitalization rate approach to the discounted cash flow approach.All properties are now valued on the discounted cash flow approach. This better allows to the updating of assumptions based on changing market conditions to be incorporated into the REIT's property valuations. In Q4, the REIT recorded a relatively small 0.9% in negative fair value adjustment, which reflects the resilience of our core portfolio despite continuing challenges from the broader retail sector.With respect to the balance sheet, the financial position continues to be strong and liquid. The interest coverage ratio increased to 3.5x in Q4 compared to 3.44 for the fourth quarter of 2019. The interest -- the increase in interest coverage ratio is primarily due to the growth in EBITFV, excluding the growth in interest and other financing charges despite the inclusion of the debenture prepayment cost in the Q4 financing charges.The quarter-over-quarter interest expense decreased primarily due to the rate reset of the Class C LP Units that took place in the second quarter of 2020. The continued resilience of our business model was put to the test in 2020, and the results underscore our continued belief that this is the right model for us.We maintained a conservative 76.8% AFFO payout ratio, while increasing distributions and continued our trend of low debt to gross book value of 42.9%. We have just under $300 million available through our committed credit facilities and cash on hand, coupled with no debt maturities for the balance of 2021. CT reached $6.2 billion assets or 97% unencumbered. And with the redevelopment progression, Ken mentioned, on our Canada Square development, we moved Phase 1 of that project into PUD at the end of Q4.In addition, as of December 31, 2020, the REIT's book value per unit was $14.62, which is slightly higher than our 2019 year-end value of $14.61, primarily due to net income exceeding distributions. And this is despite a negative fair value adjustment that is included in this year's net income, as a result from the impact of the pandemic. Before I pass it back to Ken, a brief remark on our debt profile. As Ken mentioned, on January 6, this year, CT REIT successfully completed the issuance of $150 million of unsecured debentures with a 10-year term at a coupon of 2.371%.The proceeds were used -- then used to complete the early redemption of the $150 million unsecured debentures, originally set to mature on June 1, 2021. With this early refinancing completed, we have no further debt maturities until Q2 of 2022. At the time of issuance, the interest rate on the new series of the unsecured debentures was the lowest ever interest rate on a 10-year bond issued by Canadian REIT.After these transactions, CT REIT's weighted average term to debt maturity has increased from 7.5 years to 8.1 years. And with that, I'll turn things back to you, Ken.

[Kenneth Silver, President, CEO & Trustee]

Thank you, Lesley. While I'm proud of CT REIT's 2020 results, I'm sure you, like me, are glad to see 2020 in the rearview mirror. While 2021 continues to be challenging, we have cause for optimism and look forward to a return to normal life. I know it's a busy time for many of our listeners. So I will turn the call back to the operator for any questions.

[Operator]

[Operator Instructions] The first question is from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, Analyst]

Just for the new investments, it includes intensification of over 300,000 on the existing distribution center in Québec. Just wondering how much are you looking to spend here on a dollar per foot basis? And what are the time lines there?

[Kevin Salsberg, Chief Operating Officer]

Himanshu, it's Kevin speaking. So the investment in that particular intensification is just over $30 million, and it'll probably be spent in the early part of 2023. So it's about $100 a foot.

[Himanshu Gupta, Analyst]

Got it. And do you see any more opportunities in the near term, where Canadian Tire is looking to add or expand distribution centers?

[Kevin Salsberg, Chief Operating Officer]

We're definitely in dialogue with Canadian Tire and their real estate group on the supply chain needs and as well as the supply chain group within Canadian Tire. I think that's an evolving story as they continue to obviously benefit from increased sales related to the circumstances of the last year. So stay tuned on that one.

[Himanshu Gupta, Analyst]

Fair enough. And just staying on the transaction activity, the disposition of Arnprior Mall for $21 million. What was the cap rate on that property? I know you mentioned the sale price was in line with the IFRS value. Anything on the valuation there?

[Kevin Salsberg, Chief Operating Officer]

Yes. We're not disclosing the actual cap rate, but I can indicate it was, call it, a mid- to high 6% cap.

[Himanshu Gupta, Analyst]

Mid- to high 6% cap. Okay, that's great. And then just one more question on the lease expiries in 2021. I know it is very small, but there are some Canadian Tire leases also coming up for renewal. Do you know how the market rents compared to the Canadian Tire rents which are coming up for renewal? So my question is, just wondering, how the market rents for Canadian Tire have performed over the last, say, 5 to 7 years?

[Kevin Salsberg, Chief Operating Officer]

Sure. I can take that one, too. So I think in 2021, we actually only have 1 Canadian Tire lease coming up that's expiring. And that was a property we acquired from a third party. So I think the rent is actually preset for the extension term. More broadly, I think our belief is the Canadian Tire rents are at market.

[Operator]

The next question is from Sam Damiani with TD Securities.

[Sam Damiani, Director, Institutional Equity Research]

And I'll like to do congratulations as well, Kevin. And I'll keep the questioning at you as well. Just looking at the rent collections, which -- great to see them ticking higher and higher, any impact from the recent lockdowns at all that you're seeing? Maybe any comment you can make on February to date? I know it's still early in the month.

[Kevin Salsberg, Chief Operating Officer]

Yes. I mean the trends we're seeing in February are pretty similar to January, thus far. Obviously, there's a negative impact on retailers more broadly. Obviously, we have a high percentage of open and essential needs of retailers. So that benefits our portfolio.We're starting to see the benefits of the CERS program come through, which is helping, obviously, from a rent collection perspective. I mean, one note I would make on CERS relative to CECRA, is from a landlord's perspective, things have gotten a little bit more opaque. In CECRA, which we were, obviously, the counter party to make the application and there's a lot more information sharing in order to make the necessary submission, whereas CERS is entirely on the tenants to deal with those forms and application portals, and therefore, the information flow we're seeing has slowed down a little bit.So it's a little bit more qualitative at this point, in terms of the ongoing conversations we're having. Obviously, if somebody, for one reason or another, isn't receiving the benefit of a CERS payment or needs to come to us for additional rent relief, those are when we would have more access to information. So although CECRA, administratively, was not a great program, at least from a visibility perspective, as a landlord we saw a little bit more.

[Sam Damiani, Director, Institutional Equity Research]

That's helpful. And the tenants, I guess, benefited in -- from the CECRA program, are they also benefiting from CERS in the sense that it hasn't had any negative impact on overall rent collections. It's perhaps been a positive impact of the switching program?

[Kevin Salsberg, Chief Operating Officer]

I think so. I think so. I think CERS is doing a better job than CECRA did, supporting tenants in their ability to pay the rents.

[Sam Damiani, Director, Institutional Equity Research]

Okay. That's helpful. Maybe over to Ken. Looking at the distributions that were increased a little bit during the, I guess, the third quarter of last year. There was no follow-on distribution increase in 2020. When you look to 2021, is this a temporary sort of pullback on the sort of annual bumps with perhaps a catch-up sort of outsized bump maybe potentially later on in 2021, assuming everything starts to get back to normal in a meaningful way? Or how should we think about distribution bumps going forward?

[Kenneth Silver, President, CEO & Trustee]

Well, Sam, of course, we review the monthly distributions and the Board approves them every month. And we were on a pretty regular cycle until the pandemic struck. So clearly, we're monitoring both the REIT's financial situation, but also the external marketplace. I mean, today, obviously, we're in second wave of the pandemic and lockdowns haven't been lifted. So it's a situation we'll continue to monitor into '21.

[Sam Damiani, Director, Institutional Equity Research]

Okay. And I guess just looking out also on '21, you resumed your investment activity a few months back, do you anticipate maintaining that pace? And are you starting to see more third-party acquisition opportunities?

[Kevin Salsberg, Chief Operating Officer]

I'll take that, Sam. I think the pace has picked back up, and I think our expectation is it would continue. Obviously, there were some deferred projects and some delays and some of the stuff we were working on as the pandemic hit. So I think you'll see, hopefully, some continued announcements from our part in the same course.Completions for '21, though, obviously, will be a little quieter than in previous years. On the third-party front, I would say, the year has started off slowly. I think there was some transaction volume heading into year-end, that picked up off the strength of the late summer, early fall and the reopenings of various businesses and health of some of the essential needs of retailers. There's still lots of interest in grocery anchored, essential needs anchored, retail. We obviously got our Arnprior Mall, properties sold at the beginning of the year, which was great for us. But I think there is still a bit of a gap between buyers and sellers, a little bit of price discovery still going on, low bond yields, obviously supporting transactions more broadly in hard assets.So I think there's an appetite, and there's a lot of cash on the sidelines waiting. It's, I think, finding the right product at the right price. That's the challenge right now.

[Operator]

The next question is from Jenny Ma with BMO Capital Markets.

[Jenny Ma, Analyst]

Kevin, congratulations on your promotion. A quick question back to Arnprior Mall. Just wondering, if you could share with us the rough profile of the buyer and whether or not you could comment on what the -- what you think their investment thesis or reasoning or interest in the property was?

[Kevin Salsberg, Chief Operating Officer]

The buyer was private, private individual. I think their interest in the property was based on the strength of the underlying leases. I mean, as we've detailed, we bought them all, it was half empty. We brought Canadian Tire in, we expanded the grocery store on site. We were calling it an enclosed mall, but we pretty much eliminated the majority of the enclosed mall components of the property.So I think 85% of the NOI was from investment-grade anchor tenants. And then there was a stub piece with some smaller tenants in it. So all in all, a fairly stable property withlong-term leases that, I guess, based on where bond yields are trading, the investor felt return was decent and being private, probably levered it up and got a nice levered IRR associated with the cash flow profile.

[Jenny Ma, Analyst]

And was this a relatively local investor?

[Kevin Salsberg, Chief Operating Officer]

No. No, not a local investor.

[Jenny Ma, Analyst]

Domestic?

[Kevin Salsberg, Chief Operating Officer]

Domestic. Yes. Yes.

[Jenny Ma, Analyst]

Okay. Okay. That's good to know. I wanted to turn to the change in the valuation methodology. What really led to that change in the approach? And I see that the terminal cap rates have moved up a bit. And I'm not sure if that's due to a change in some of your assumptions or maybe it's just a rating change, given that the majority of assets were under OCR. So I'm not sure if it's just a formula driven change or if there's a market condition change behind it?

[Lesley Patricia Gibson, Senior VP & CFO]

Jenny, it's Lesley. I think the OCR approach for the majority of those in stand-alone, single-tenanted properties, have been a use since the IPO and appropriately so. But as obviously, we go down from sort of an average 15-year term at IPO, down to sort of 9, and it continues to shrink just as time goes forward.I think we really felt that the OCR wasn't necessarily the right approach as we continue to shrink as things continue to get smaller. It's a bit tougher with that approach to put in changes. So with changes in the DCF and the changes in the metrics that you noted, are predominantly, I would say, market, market assumptions and changes. That they're still sort of continue -- some continued pressures on some of the retail real estate.And so when we move things over. We're also updating that. Now that there are a few transactions here and there in the marketplace. Obviously, with transactions being fairly SPAR still, there's definitely -- we're definitely looking at what that could be. But yes, the transactions are really more market-driven, et cetera, but that's really our ability to sort of change those -- to change the inputs in those assumptions is something that we think is going to be the right move for the rest of the years.

[Jenny Ma, Analyst]

Okay. And it looks like the hold period went up a bit from 10 to 12 years, but you mentioned that the lease terms are kind of coming down. So how do I reconcile those changes? Or the change in the whole period.

[Lesley Patricia Gibson, Senior VP & CFO]

I think that there's no change in the whole period. I probably wouldn't read too much into that. I think we have pretty good visibility to the Canadian Tire stores and have a high degree of confidence that those stores will continue to be there. And I think just from modeling purposes, we'll be moving things over as -- we don't typically use the whole period if we have to roll over and expiries from those ones. So it could just really be as we moved and shifted the portfolio over to the DCF, but that ticked up a little bit. But I think we're -- the whole period there's nothing sort of magic different about that other than that sort of just what we looked at and probably had to move a few things around as we looked at what rolled over in year 10.

[Jenny Ma, Analyst]

Okay. That's fair. And then last question. With regards to the prepayment of the Series C debentures, there was a prepayment fee that was incurred in Q4. How much was that fee? And I assume that it was all expensed in Q4, not expected to recur in Q1?

[Lesley Patricia Gibson, Senior VP & CFO]

Yes, Jenny, the prepayment penalty on the Series C was about $750,000, and that was all expensed in Q4.

[Operator]

And the next question is from Pammi Bir with RBC Capital Markets.

[Pammi Bir, Analyst]

Just with respect to Canada Square, what can you share with us with respect to the first phase, what that will look like? When it may start? And I guess, some of the potential costs that you expect for that phase?

[Kenneth Silver, President, CEO & Trustee]

Pammi, it's Ken. The first phase of the Canada Square redevelopment would be the north end of the site and would incorporate a mixed-use commercial residential tower above a replace bus depot that is currently operating on the site. So it will be relocated to the north end of the site. And there will be some public amenities that will be included in that first phase, as well, above and beyond the bus depot, including the new transit entrances and some public green space.With respect to costs for that phase, we're still working through the costing exercise, or Oxford Properties is, on our behalf. So I don't have anything to share with you on that front at this point. From a timing perspective, we continue to aim to start construction when we get the land that we would be building on, in essence, back from Crosslinx, which is the contractor developing the Eglinton Crosstown LRT. So it's largely driven by firstly, the municipal approval process; and secondly, when the LRT is completed.

[Pammi Bir, Analyst]

Got it. I guess just on the mixed-use tower. Would that be a condo? Or would that be rent to residential, with retail just or office, just -- sorry, some color there?

[Kenneth Silver, President, CEO & Trustee]

At this point, we're contemplating that it will be a residential rental, pardon me. With some retail at the base of the building.

[Pammi Bir, Analyst]

Got it. Just one more. I guess, looking at the development pipeline, Kevin, I think you mentioned that this year -- or sorry, might have been Ken sorry, you mentioned this year will be kind of light. It looks like it's more heavily weighted toward 2022 in terms of the completions. So as you think about the year ahead for this year, what are your thoughts with respect to putting capital to work, whether it's in acquisitions? Or overall development spending?

[Kevin Salsberg, Chief Operating Officer]

Yes, Pammi, it's Kevin. We'll obviously look for third-party acquisition opportunities as we have in the past, which is basically, opportunistically. If there's something out there that we feel suits our criteria and fits our strategy and is financially worthwhile, we'll pursue it. There is some activity that we are funding and working through some of our other development programs, our pad developments or third-party developments and a few Canadian Tire related activities, that we'll see completion in the year, but we've made a decision to preserve liquidity at the outset of the COVID-19 pandemic. And obviously, development has a longer lead time. So we'll work a little harder on the organic growth side and look at for the opportunistic third-party deals as well.

[Operator]

The next question is from Tal Woolley with National Bank Financial.

[Tal Woolley, Research Analyst]

Can you hear me, okay?

[Kenneth Silver, President, CEO & Trustee]

Yes. We can hear you great, Tal. Thank you.

[Tal Woolley, Research Analyst]

Perfect. So maybe just to start, like, I guess it's probably best for Ken. Just from your perspective, like from the CT REIT perspective, going through this past year with higher, like has there been any sort of shift to your -- in your sense about how they're looking at their store base, going forward?

[Kenneth Silver, President, CEO & Trustee]

Well, I think it's a continuation. And with many pandemic impacts we might see even an acceleration. But I would say that the pressure that we had been seeing from Canadian Tire in recent years was to make the stores larger.So we had already expanded or had approved expanding 50, 60 stores over the last number of years, and our recent announcements include further expansion. So I think the impact of the pandemic has probably reinforced the importance of the store network in a multichannel retail environment. And obviously, the Canadian Tire, and we think the Canadian Tire store network is particularly well placed, both in terms of the configuration of the stores. And the location of the stores across the country to work in a multichannel distribution system.

[Tal Woolley, Research Analyst]

Okay. And then just -- I think it was Jenny's earlier questions just about the methodology change and the auditor language around that. So the primary rationale for making this shift was that the maturity of the Canadian Tire leases was starting to shorten. Do I have that correct?

[Lesley Patricia Gibson, Senior VP & CFO]

Tal, it's Lesley. Yes, that was. That was -- we've been looking at this sort of change for a little while, and that was sort of the primary driver. And I think also coupled with that wanting to be able to make potential cash flow changes to models and put other assumptions in that the DCF with them more suited to that.

[Tal Woolley, Research Analyst]

Okay. And so like from your perspective, because I know like, obviously doing a valuation change like the -- there's lots of irritations that come along, frictional costs that sort of come along with it. Can you just sort of explain maybe why you think this is sort of a better approach going forward?

[Lesley Patricia Gibson, Senior VP & CFO]

The -- I think, probably, the better approach for us, and it again enables us to take a look at particular markets or make assumptions about a store, whether it's growing or shrinking or putting other things into there.Applying a renewal probability, I think, whereas the direct cap approach, obviously, was very linear and what it delivers. So I think, obviously, in this pandemic, when we're taking a much more tighter view about every one of the assumptions in the models and what's going in the marketplace that reinforced our decision to move to the DCF method.

[Tal Woolley, Research Analyst]

So if I'm paraphrasing this correctly, it's that there's -- the fact of the pandemic like, and the volatility that it sort of creates the fact that you sort of get -- this DCF allows you to kind of like play with those interim years a little bit more like or figure -- not play with, but like you're able to do a better job sort of like forecasting the interim steps. Is that maybe a better way to think about it?

[Lesley Patricia Gibson, Senior VP & CFO]

It would be for, I guess, the multi tenant properties. Obviously, the vast majority of what we switched over from OCR is single tenant Canadian Tire. And so there's not a lot of moving parts in those leases really until we get to sort of the maturities. And the rents even after that are fairly -- they're within bands and sort of have floors and ceilings on them. So I mean, yes, we can play within those, a little bit more easily. But I think it was driven by that -- the lease term was probably the primary driver. And I think just the things in the pandemic made us solidify and really cement that decision.

[Kenneth Silver, President, CEO & Trustee]

Yes, Tal, it's Ken. I just would add that we contemplated doing this in advance of the pandemic. It wasn't as a result of the pandemic. And we just felt from a methodology perspective, it was more appropriate and flexible going forward. It just happened to coincide with the pandemic.

[Kevin Salsberg, Chief Operating Officer]

I was just going to add, it also aligns with the way we would underwrite our own investing strategy where the longer the lease term, the more cap rate base, we would -- we might look at something. But as the lease term gets shorter and shorter, we would obviously have to start making some assumptions about what would happen on rollover and to the market rents and renewal probabilities and all that stuff. So I think just as from a general investment valuations perspective, we're now just aligned more broadly across our spectrum of assets and the way we view them.

[Operator]

[Operator Instructions] The next question is a follow-up question from Sam Damiani with TD Securities.

[Sam Damiani, Director, Institutional Equity Research]

Just a couple of follow-ups for Leslie. Just on the IFRS, just to sort of make sure I understand this. The net result was a $54 million provision in the fourth quarter. I mean apples-to-apples, is it a result of a change in terminal cap rates and discount rates? Or is it more a change of cash flows that you're forecasting? Like how should we think about that?

[Lesley Patricia Gibson, Senior VP & CFO]

Sam, it was a little bit of both. When we moved the properties over to the DCF method, we did look, as Kevin mentioned, about renewal probabilities, lease-up assumptions downtime. So there were changes to the cash flows. And we also looked at the cap rates of the marketplace. So a combination of both.

[Sam Damiani, Director, Institutional Equity Research]

Okay. And the previous pool of assets that were valued on a DCF, like did those metrics changed materially? Or was the bulk of the $54 million result -- as a result of the pool switching from OCR to DCF?

[Lesley Patricia Gibson, Senior VP & CFO]

There were some changes made to all the assets, but I would say the bulk of the change related to the assets that were moved.

[Sam Damiani, Director, Institutional Equity Research]

Okay. Okay. And just finally, I noticed that the withdrew on the Canadian Tire credit facility, not the bank facility? Just curious, I guess, there was a reason for that?

[Lesley Patricia Gibson, Senior VP & CFO]

There's not a financial reason. Our terms of borrowing are equal under the same. So it's more effective for us to borrow under the CTC facility.

[Operator]

Thank you. As there are no further questions at this time. I will turn the call over to Ken Silver, CEO, for any closing remarks.

[Kenneth Silver, President, CEO & Trustee]

Thank you, operator, and thank you all for joining us today. We look forward to speaking with you in May. Have a good day.

[Operator]

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