First Capital Real Estate Investment Trust
TSX:FCR.UN
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First Capital Real Estate Investment Trust
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Ladies and gentlemen, thank you for standing by. Welcome to the First Capital REIT's Q4 and Year-end Results Conference Call. [Operator Instructions]I would now like to turn the conference over to Alison. Please proceed with your presentation.
Thank you, and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's conference 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 forward-looking statements.A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our MD&A for the year ended December 31, 2020, and our current AIF, which are available on SEDAR and on our website. These forward-looking statements are made as of today's date. And except as required by securities law, we undertake no obligation to publicly update or revise any such statements.During today's call, we will also be referencing certain financial measures that are non-IFRS 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 measures 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 conference call.I'll now turn the call over to Adam.
Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our year-end conference call. Our business started 2020 with a lot of momentum as a result of the important work and progress we made in 2019. But we were required to veer off our planned course very quickly as things changed in March when COVID-19 became a global pandemic and the first set of lockdowns were implemented across most of the markets in which we operate.We revisited our priorities and recalibrated to ensure the safety and well-being of our employees, tenants and the business in general. There were a lot of things we didn't know then. However, one thing we did note is that we'd have quite the storm to weather through. We knew the work would be hard and not particularly fun, but we also knew that we had the tools and the people to do the job. Our team has been incredible. I look back on that period, especially the springtime, with enormous pride for the sacrifices, compassion and tenant-centric focus that our team displayed.Once we started coming out of the first round of lockdowns and our tenants, who were deemed nonessential, began reopening, we were very encouraged as customers flocked back and things were heading in the right direction. Then in the late fall, we were hit with the virus' second wave. Unfortunately, the health aspects of the second wave were much worse, even though there was much less of an impact on our business. This defies logic a bit and we believe things unfolded this way for a few reasons. The first is the strength and resiliency of our tenants. We have a significant percentage of tenants that are deemed essential. And in general, through the adaptation of their operating models, our tenants were more prepared by the time wave 2 arrived.The second reason relates to the quality of our real estate. There were weak tenants that didn't make it through to the second wave. Due to the strength of our locations, some of the space had already been released with stronger tenants in place. With restrictions reintroduced in many areas towards the end of last year, we aren't out of the woods yet, and we'll take on the inevitable bumps ahead with vigor, but we also see the light in the distance.In short, we have never been tested like we have been over the last year. Our team and our real estate strategy were up to the test. I saw firsthand how our passionate team responded. Our executive team and our Board are extremely proud. FCR's values have been demonstrated in real time when they mattered most.A review of our operating metrics also speaks volumes. Rent collections troughed in Q2 when 75% of our rent was collected, notwithstanding the closure of roughly half of our tenants. We have collected a lot more of the Q2 rent owing since then. As for the balance, we view most of it as an important investment in our small business tenant base by supporting them through CECRA and our own small business program, among other things.For the year, we collected 94% of our total gross rent. Certainly not a typical statistic, but considering the degree and length of the unusual restrictions that were in place throughout 2020, we view this collection percentage as a testament to the resiliency of our tenants and the quality of our real estate.Our leasing efforts were a bright light in 2020. In fact, all of our leasing metrics are indicative of what would have been a great year under normal conditions, not the circumstances presented by the pandemic. We completed a total of approximately 2.8 million square feet of leasing activity across 599 transactions during 2020. As always, the majority of the activity were lease renewals, which spanned a wide array of tenant categories from grocery stores to medical, to restaurants, to gyms.At FCR share, the average rent increase for our 2020 renewals was a healthy 9.3%. This compares well with our 5- and 10-year averages of 8.4% and 9.0%, respectively. Our new tenants included both traditional retailers to FCR, but also some new retail concepts, Kay will touch on. This leasing activity contributed to the highest in place net rental rate we have ever achieved at $21.89 per square foot. All of these leasing metrics are very consistent with our prepandemic expectations.Moving on to the investment markets, which were quite unusual this year, although that didn't stop us from numerous achievements. Our development projects, all of which are exceptionally well located in super urban markets progressed well. Acquisitions were tempered in size, but not in impact as we expanded and improved some of our strategic positions and development sites such as in Liberty Village in Yorkville and Yonge & Roselawn, among others.On the disposition side, we completed a handful of transactions totaling $251 million, included the full sale of our Windsor and Sherbrooke properties, resulting in FCR exiting those markets entirely as well as strategic joint ventures on stable grocery-anchored centers and the monetization of development density. A great effort by our investments team in a challenging market last year.In part owing to our investment activity, our demographic profile continued to improve. One of our most important demographic metrics is the population density surrounding our properties. Two years ago, we set an objective to achieve greater than 300,000 people within 5 kilometers of our properties on average. This was an ambitious target, given we were at 250,000 people at the time, which was already well ahead of all of our peers. This quarter, we achieved our objective on time with an average of 304,000 people.Following year-end, after extensive consideration by management and the Board, we announced a 50% reduction in unitholder distributions. Given our strong liquidity position, low payout ratio, conservative financial leverage and many other factors, we were afforded the luxury of time to assess the impact of the pandemic on FCR. While we don't believe there has been any permanent impairment to cash flows, we do believe the business is much better off to have the flexibility that the additional $95 million per annum provides. It puts us in a much better position to advance our real estate strategy while also further strengthening our balance sheet. This will lead to higher FFO per unit, higher NAV per unit and lower financial leverage than would otherwise be the case, which is the reason we made the change.Although 2020 required a refocusing of immediate priorities, we continue to make significant progress on our ESG mandate, further embedding environmental, social and governance principles into our business and culture. From a people and social perspective, we remain focused on fostering a corporate culture that ensures equal opportunity and well-being for all employees. We were again recognized by the Globe and Mail as one of Greater Toronto's top 100 employers and we were honored to be listed in the Report on Business magazine in a new benchmark called Women Lead Here, a designation recognizing strong gender diversity metrics at senior levels.Building on our well recognized gender diversity, we created our equity, diversity and inclusion council, which is focused on company-wide initiatives to further enhance inclusion in our culture and develop a diverse talent in our organization. We are also proud to have signed The BlackNorth Initiative CEO Pledge to end anti-black and systemic racism in Canada.For many years, First Capital has been a leader in supporting the communities where we operate through our public art program and our charitable giving. And in 2020, we advanced this directive by establishing the FCR Thriving Neighborhoods Foundation. Our foundation's mandate is to support charitable initiatives that are making an impact in the neighborhoods where we operate and is a natural complement to our business as we continue to make a long-term, sustainable commitment to the communities we serve. As an employee-led registered charity, the foundation also empowers FCR employees to work together as one team with one purpose to engage in a common goal of helping FCR Neighborhoods Thrive.As strictly a starting point, this past holiday season, the foundation raised over $65,000 as part of its food drive in support of food banks across Canada within FCR neighborhoods. Every dollar was raised internally this year, for which I would like to personally thank all our employees and Board members who contributed.From a governance perspective, our strength in ESG standards and disclosure was validated through numerous ratings, including achieving a AAA rating, the highest possible in the Morgan Stanley Capital International ESG ratings assessment, which we have done for the last 3 years as well as achieving high ESG quality scores from ISS.Looking forward, we remain committed to ESG as a perpetual process of improvement. And at the end of 2020, we were very pleased to launch our 5-year ESG road map. The road map identifies ESG initiatives that have direct alignment with our real estate strategy as well as our company's culture. It strategically prioritizes our activities over a defined period to ensure our ESG efforts are focused across the organization and that responsibilities for executing our ESG mandate are properly resourced, implemented and managed to generate value for all of our stakeholders.On the people side, I would like to formally welcome Neil Downey to FCR, who joined us earlier this year. Our industry is very familiar with Neil. So I will simply say that I feel fortunate that we attracted someone of Neil's skill set and caliber. He has already started making an impact and look forward to him joining this call next quarter.You're also very familiar with Kay Brekken. When I arrived at FCR just over 6 years ago, I inherited a lot of great things. One being a very experienced CFO, who I was told was new to real estate, having grown up in the retail world. Well, the new to real estate description faded quickly as Kay was recognized early on as a leading CFO in our industry. We've accomplished a lot of things under Kay's tenure. Project BEST is a complete overhaul and implementation of our technology platform was definitely one of the biggest. It set us on a path of being at the leading edge of technological advancement and adoption with some amazing things coming on the foundation that we have built under Kay. Our reconversion of all strategy and brand, the Gazit transaction and the over $4 billion of capital raised during her tenure are just a few. Her personality and calm demeanor also added an element of professionalism, humbleness and compassion to our culture, traits that will continue to live on.Kay, on behalf of the Board, the executive team and our employees, thank you for your tremendous contributions to FCR over the last nearly 7 years. I know we all wish you nothing but the best in your next phase of life.And with that, Kay, I will now pass things over to you.
Thank you, Adam. Good afternoon, everyone, and thank you for joining us today. 2020 was certainly not the year any of us were expecting. And if you had asked us a year ago, these were certainly not the 2020 financial results we were expecting to report. However, we are pleased with how well our team navigated through an ever-changing environment and how our business performed in the face of truly unprecedented challenges. A number of our key operating metrics for 2020 were above their historical averages, despite the challenges created by the pandemic.We collected 94% of the gross rent due for the year, which far exceeded our expectations at the start of the pandemic. Our rent collection numbers continue to improve throughout the year as we receive payments from the Federal and Quebec government as part of the secular program, and our tenants continue to make payments as we finalized arrangements with them and as they receive funds under the new CERS program.To date, we have collected 91% of the gross rent due for the month of January. We expect this number to increase as it did in prior months, as all final payments are received and processed. It's important to note that tenants have up to 6 months from the end of each 30-day reporting period to apply for the CERS program. So payments for any particular month may flow in well after the original due date.Adam noted earlier, our robust leasing activity in 2020 despite the pandemic. I would like to touch specifically on some progress our team made in Yorkville Village, shown on Slide 6. In 2020, Yorkville Village was the top destination for international retailers entering the Canadian market. 13 new retailers entered the market in 2020, and 23% of them chose Yorkville Village for their first Canadian location. This includes Ba&sh, a contemporary women's fashion brand from France; Couple Diamonds, lab grown, sustainable diamonds and engagement rings from the U.S.; and Polestar, a high-performance electric car brand from Sweden. What's even more encouraging is that Yorkville Village's momentum continues in 2021. We are pleased to announce that the Webster, a multi-brand luxury retailer from the U.S., has also chosen Yorkville Village for their first Canadian location, which is slated to open later this year.Now turning to our fourth quarter results. On Page 8 of our conference call slide. Our FFO per diluted unit for the fourth quarter decreased only $0.01 over the prior year period. The decrease was primarily due to the impact of property dispositions completed over the past 12 months, increased bad debt expense and lower variable revenues from our hotel operations and from parking. These declines were partially offset by reduced interest and corporate expenses and nonrecurring REIT conversion costs in 2019.Our FFO for the full year declined $0.23 per diluted unit over the prior year. More than half of this decline was expected due to successful property dispositions and repayment of outstanding loan receivables that occurred during 2019 and 2020 and by $7.8 million of nonrecurring fee and dividend income earned in 2019. This decline in FFO was partially offset by lower interest expense as we reduced outstanding debt and by a reduction in shares outstanding due to share buyback transaction in 2019. Increased bad debt expense of $22.2 million contributed to $0.10 of the FFO decline, which was partially offset by lower corporate expenses.Moving to Slide 9. Q4 same-property NOI decreased 4.3% and 2020 same-property NOI decreased 7.1% over the respective prior year periods. The decrease in both periods was primarily due to increased bad debt expense and lower variable revenues from our hotel operations and from parking, which I previously mentioned. Additionally, the full year period was impacted by a $4.3 million year-over-year decline in lease termination fees as we recorded above-average fees in 2019.On Slide 10, we highlight our Q4 and 2020 lease renewal activity. Our 2020 lease renewal rate increase was quite strong at 9.3% and exceeded the average annual increase over the past 5 years of 8.4%.On Slide 11, our 2020 average net rental rate grew a solid 3% over the prior year, as our above-average renewal lifts built in rent escalations, new tenants opening at higher rates, developments coming online and the impact of our disposition program, all drove higher rental rates.Moving to Slide 12. Our total portfolio occupancy rate improved by 20 basis points during the fourth quarter and remained quite healthy at year-end at 96.2%. This is above our 5-year average occupancy rate of 95.9% and just 70 points shy of our all-time high occupancy rate of 96.9%, which we achieved at the end of 2019.Slide 13 highlights the investments we made in development during 2020 and our largest active developments, which are primarily residential projects located in super urban neighborhoods in Toronto. These investment activities were funded by our disposition program. During 2020, we completed $251 million in dispositions, bringing our total dispositions over the past 2 years to $1.1 billion, putting us more than 70% of the way to achieving our $1.5 billion disposition goal.As a result of the significant progress we made in 2019 and in 2020 against our disposition targets, while continuing to make strategic investments in targeted super urban neighborhoods, our portfolio today has higher-quality assets with increased density and stronger growth profiles and less downside risk, making it overall a more desirable and attractive portfolio.Slide 14 shows the factors impacting FFO and the year-over-year changes, which I previously discussed.Slide 15 touches on our other gains, losses and expenses, which are included in FFO and summarizes our ACFO metric. ACFO for the fourth quarter and full year decreased primarily due to lower NOI, partially offset by lower interest and corporate expenses, which I previously mentioned.Slide 17 shows our financing activities for the year. We continue to take proactive measures to improve our liquidity and maintain our financial strength, which provides us with greater flexibility to navigate through the pandemic. In January, we announced a temporary reduction in our monthly distribution, which will provide us with an additional $95 million of retained cash annually. Additionally, one of the measures we announced in the first quarter of 2020 to maintain financial strength and flexibility was our cost reduction program. Through this program, we had a goal to achieve $75 million in savings versus our planned spend from April through December of this year. This program included a reduction in property operating costs, general and administrative expenses, development spend and elective maintenance CapEx. I am pleased to report that we exceeded our $75 million target for the year by $10 million.Slide 18 touches on our financial strength and flexibility. At quarter end, we had approximately $7 billion or 70% of our assets unencumbered, including the vast majority of our best assets. Our liquidity position as of February 9 remained strong and includes approximately $890 million of cash and undrawn credit facilities.Our term debt maturities are shown on Slide 19. We have 5.4% or $238 million of our total debt maturing in 2021 at a weighted average interest rate of 4.7%. All of this debt could be funded by our existing liquidity or with long-term debt at substantially lower rates.Looking forward to 2021. Given the uncertainty created by the second wave of the pandemic, we will not be providing 2021 guidance. However, I will speak to our expectations for our development program. We expect to invest approximately $150 million in development in 2021. We expect development completion to exceed our spend, and we expect to take minimal space offline through development.That concludes my comments on our Q4 and year-end results. As you all know, this is my last conference call. After 3 CFO roles, across 3 different industries in 2 different countries and 17 years of Audit Committee reporting, I have decided it's time to retire. I would like to pay a special thank you to Dori, who asked me to join FCR 7 years ago, to Adam for his great partnership over my tenure and the entire FCR team for their support in taking FCR to the next level of corporate performance. It has been quite a journey, and I am very, very proud of all that the FCR team has accomplished.I would also like to say a special thank you to all of the FCR stakeholders and business partners, who supported me in my role and supported FCR in achieving its strategic objectives. Retirement is never an easy decision when you work for an outstanding, dynamic company with a team of top-notch professionals for not only your colleagues, but also close personal friends. However, it's certainly easier when you know you're passing the baton to one of the outstanding leaders in the real estate industry, Neil Downey, who have had the opportunity to work with very closely over the past 6 weeks. I look forward to continuing to see the company flourish and grow under Neil's leadership.That concludes my comments. Lori, can you please open the call for questions.
[Operator Instructions] And the first question is from Dean Wilkinson.
I guess I'll start with congratulations, Kay. You beat me, but I'm on the Freedom 95 plan. Adam, maybe just on the rightsizing, if we can call that a bit of the distribution. There's -- you've got a 2-year runway on that. Is that a hard stop or are there other metrics that you're looking at, either be it where your payout ratio is or where leverage may sit that might have you redress the issue of that distribution before that 2-year window?
Well, look, I mean, the way the Board made the decision was, as you saw, we took our time to really try and wrap our arms around what we believe the impact will be on FCR and as time went on and we saw how the business performed under the most adverse conditions that we had seen, we grew more and more comfortable that this was a short-term issue for us and not a medium- or long-term issue. So no permanent impairment.And then obviously, we're running all sorts of forecasts that go into your decision-making around things like distribution policy, looking at FFO, looking at free cash flow, importantly, looking at taxable income. And based on everything that we had been looking at recently, it became pretty clear that, that's the likely path that the Board would take. And so we were just transparent about that vis-a-vis our disclosure.
Okay. Fair enough. And then in terms of the additional $190 million that you're going to accrue over the next 2 years, how do you see spending that? Is the preference to pay down debt? Is it more development capital or given the fact that you're trading some 30-some-odd percent below book value, is buying back shares at this juncture with that excess capital maybe the path of least resistance?
Yes. Look, we're going to look at it. And the flexibility it provides is what -- obviously, it's not an easy decision. But what we're excited about is part of it is the flexibility it provides. So there's no question that a -- likely the most meaningful portion will go to debt reduction. And certainly, that's -- on an interim basis, that's the default source of where that capital will go. I'll be very disappointed if that's the -- what we use 100% of it for, because I think we will find pockets of opportunities to use some of that capital offensively to grow FFO, to grow NAV and to strategically enhance some of our positions.So I would expect and hope that a portion of it is used for that type of investment. And on the opportunistic side, everything would be on the table, including our stock. So we will take our time to kind of assess that. So lion's share should be used for debt reduction, but we also expect a meaningful portion will be used for growth -- used as growth capital.
Okay, great. Those are my 2 questions. And welcome aboard, Neil.
The next question is from Sam Damiani.
And I'll start off by congratulating you, Kay, wish you all the best in your retirement, we'll call it. I'm sure you won't be thinking of us as you're snowboarding and mountain biking down the hills. Just on the quarter, could you tell us if the bad debt expense included any reversal of previously booked provisions?
No, Sam, there is no reversal in the quarter.
And on the same-property NOI, could you give it to us, excluding the hotel?
I don't have the number right off the top of my head, Sam, but it's certainly something we can follow up with you on.
Okay. And just on the renewal uplift, it did narrow to 5.5% in the fourth quarter. Was there anything unusual there from a leasing perspective or would you just attribute it to slowest during the pandemic?
Sam, it's Carm. Let's keep in mind that quarterly leasing spread stats have a high degree of variability, sometimes positively, sometimes negatively, than do the annual leasing spreads. We saw this play out in Q1 when we had a 16.7% lift mainly driven by a food store that was resetting their rent to market. And then we experienced this again in Q4, where we had several fixed flat renewals, including 150,000 square foot Walmart. These types of impacts have the tendency to normalize over the course of the year, as you know. So we had a tough year, but we thought we were very pleased with the 9.3%.
Yes, we just had an above-average amount of flat or fixed renewals in Q4. So we always encourage people to look at these, as Carm says, over at least a 1-year period. Because you can get a lot of volatility in any given quarter. And that's what we told everyone, remember in Q1 when it was the other way, too. So at least we're consistent.
How is the leasing going in 2021 year-to-date? Certainly, you had a pretty good fourth quarter.
Sam, it's Carm again. The pipeline is pretty strong. So far, we've got, I'd say, about 1 million square feet in the pipeline, 700,000 square feet of renewals, another 300,000 square feet of new deals. And those aren't far off from our typical averages.
Yes. Similar to what you saw in 2020, things look -- sorry, even though they're not, they look very normal when you look at our leasing stats, and that has continued into 2021 thus far.
The next question is from Pammi Bir.
Just as you think about maybe the year ahead and maybe sticking with the leasing line of questioning, what segments of the tenant base are you perhaps maybe a bit concerned about and how you sort of see occupancy trending over the course of the year?
All right. They told me that there'd be a lot of questions on leasing today. So that's 2 questions. So I'll answer the first one. We're seeing strong demand from several categories, from QSR, food stores, drugstores, dollar stores, daycares, pets, medical and these are -- users are usually traditionally FCR-type tenants that we are always actively pursuing. We're really not seeing any softness in these categories.In terms of trends, I think one thing that is coming out is tenants are requesting a little more time for fixturing to work through their potential third-party delays associated with licensing, construction and building permits. And I can all add that some deals are taking longer to get done as companies are overwhelmed with COVID issues, including the respective legal departments. There's been some lag in getting deals turned around.In terms of occupancy, as you know, we're coming off of a record 96.9% in Q4 2019. And after almost 3 quarters of COVID, we feel our occupancy has held up pretty well. We would not be surprised to see some erosion in occupancy in Q1, stemming from any remaining COVID fall and normal tenant seasonal churn. Under the current circumstances, it's hard to give an estimate beyond a quarter, but I think goal will be close to our existing occupancy, minus some 10 bps.
Yes. We're -- it's coming through in the leasing statistics, Pammi. We're not seeing softness, but we're -- we believe there is likely softness again, given our exposure to this. We're not necessarily speaking out of firsthand, but likely in cinema use, I got to imagine that, that's a soft use right now and a mid-fashion -- mid-tier apparel, so not luxury, which -- that we do have some exposure to and is much better than we would have anticipated, both in terms of sales activity in those spaces, but also interest in expanding the footprint. Kay touched on some of those -- the neighborhood we have that use is at Yorkville. But -- and then the value or discount end of the apparel spectrum appears to be doing quite well. That mid-tier, though, we would imagine is still going through a bit of a tough slug. But we're not seeing softness in our core categories. And when you look at the leasing statistics, that certainly corroborates that.
Thanks for that. No. That's good color. And I guess just sticking with this sole discussion on the spreads that you were able to accomplish last year, again, pretty good numbers, certainly in a pandemic. Is it similar expectations for 2021 in terms of being able to be in that sort of high single-digit range? Or again, perhaps be a bit of softening if there is perhaps some occupancy erosion?
Yes. Look, we think the numbers were good even in a nonpandemic environment. But we don't see anything at this stage that would indicate that there will be any material erosion in those renewal spreads in 2021 or beyond.
Got it. Just maybe switching gears, looking at the assets that are held for sale, what can you share in terms of the mix between the income-producing versus perhaps density? And then secondly, have you seen any perhaps noticeable change with respect to the appetite maybe for grocery-anchored assets?
Yes. Your latter point is quite an interesting one, and it's a dynamic market. So things have been changing quite a bit. The mix that's sitting in-held for sale is very similar to the mix of assets we sold last year, except there's a little more weighting in development density where we are planning to monetize some of that where we plan to bring in a strategic partner given their platform expertise for the uses other than retail in these mixed-use projects.So there's a decent chunk of development density that's in there. There is a small component of some still small, what I call, remnant assets that we've decided don't fit our business anymore, where we'll look to monetize 100%. These are now small given how much has changed. And when you look at the bottom of the portfolio, there's very little of that left.And then there'll be a handful of what we believe will be stable shopping centers similar to the transaction or one of the transactions we closed late last year where we brought in a strategic partner to co-own those with where FCR is the managing partner. And that just allows us to be more efficient with our capital, retain the benefits of scale and ideally grow in markets that may not be super urban, so will allow us to grow by owning more properties at 50% than fewer properties at 100%. So I think there'll be some -- there's some of that in the held-for-sale bucket as well.On your last point -- sorry, on your last point regarding grocery-anchored centers, there has been what appears to be a heightened level of interest in some of the available capital looking for real estate investments, where I think early on, a lot of that capital immediately gravitated towards the industrial and multifamily sector and that's really pushed pricing up for those assets. And certainly, on a relative basis, there's a keen interest in the value proposition, because we have not seen cap rate compression yet for good stable assets. I think that's likely if this interest rate environment remains. With rates as low as they are and expected to be for at least some reasonable period of time, every dollar generated from a cash flowing asset should be worth more. And so assets that are grocery-anchored centers that are stable and have proved that through this pandemic, I wouldn't be surprised if they're repriced in a positive way because the gap between cap rates today on those assets and bond rates, as you know, is exceptionally wide. And that's very unlikely to last. So...
I guess just on that point -- or sorry, on the overall program, do you see yourselves hitting that $1.5 billion target at some point this year?
That's possible, but we're not going to be disappointed if we don't. We're in a very unique period of time right now where we feel like we're kind of getting towards the end of the pandemic in terms of the major restrictions that have been imposed. Vaccinations, while it's been slow out of the gate, that's going to ramp up in a big way over the next several months. And so we own great real estate. They're cash flowing. Things continue to get better. We're not interested in selling any assets cheap or at a discount. So these are all the factors that will weigh.One of the other things that the distribution adjustment did is it gave us additional flexibility on that front. So we'll use that to our benefit. And we will actively pursue dispositions. I think it's safe to say that whatever we do, do this year is much more likely to be second half year loaded versus front half. But we're not going to tell you that over the next 10 months, we're definitely going to get to that goal. We are definitely going to get to that goal. I'm just not going to limit it to that time frame given the state of the world.
The next question is from Tal Woolley.
Just back to leasing for a second, I'm wondering like when you speak with some of the weaker tenants that you've -- you probably had to deal with on CECRA negotiations and things like that, do you have any sense like from them that, you know what, like they feel like these programs are going to help them sort of get through to the other side of this? Or as the longer this is kind of dragging on that there might be a little bit of, I don't know, like we're going to -- we might be exiting the business, if not, once these programs end? Has the tone, I guess, shifted from your tenants -- some of the weaker tenants over the course of the pandemic?
Yes, it has changed there quite a bit, Tal. Unfortunately, this has gone on for whatever at 10 or 11 months now. The positive side of that is it's flushed through the vast majority of the weak tenants. So our belief, based on our discussions with tenants today and our observations with tenants today, is that, by and large, if they've made it this far, they're making it all the way through.And there's a small handful where they still are under a lot of pressure given the restrictions and the nature of their business. We have looked at these tenants and the ones we have left that fit into that category. We are of the strong belief based on their track record and our view of the world and some of the social mobility habits that are likely to resume as we saw in the summer, and we expect they'll resume once these lockdowns are lifted. We believe that they're very successful businesses that are going to be great fits for our merchandising mix as they always have been. And so we're going to keep working with those.But the weak ones that were -- and they were all weak prior to COVID. And fortunately, we didn't have a lot of them. They're gone. They're done. And so to make it this far, it's hard to imagine the majority of them are just hitting their endpoints at this stage, given how much pain a lot of them have endured.
Okay. That's good. If we look at like the stronger part of your tenant role, are you seeing any sort of movement on the side of retailers like trying to be a little bit more hard nosed, because they think they might have a little bit of the upper hand now through this period or not? Like I think like the grocers, pharmacist, doctor, those kind of retailers. I know they're sharp all the time, but I just thought I'd ask.
Yes. Not so much them. If we have to describe it based on a broad category, unfortunately, some of the large U.S.-based retailers have tried to, what I'll call, play hard ball. I don't know if that was a term you referenced, but tried us on for size. Like I said, we understand the value of our real estate. We're not invested in our tenants per se, we're invested in the real estate and we know that over time, tenants will change. We're not afraid of that. And so the discussions are -- have been pretty short, but we've been tried on for size, absolutely.
Okay. The loan and mortgage book, that's been running down in size over the last couple of years. How should we think about that going forward? Is that something you just continue to kind of wind down here, that's a source of potential liquidity for you? Or do you expect to keep that at a certain level?
Yes. No, we -- even though it's a small part of our business, we would view it as a core part of our business. And so you will see a fluctuation in loan balances strictly based on opportunity. But we look at that part of the business and what we see is very attractive, risk-adjusted returns. But more importantly, almost every loan that we have outstanding is done on a piece of real estate that we would be happy to own. And so not necessarily through default, but through other means, a lot of this is merchant developers.So we hope and expect it will continue to be a pipeline for additional real estate on the equity side over time. And so it's a great combination for us because we are in a great current risk-adjusted return, and there's a possibility that we could get into some of this real estate on a longer-term basis through equity. So -- but based on the opportunities, that's where that loan balance will fluctuate. And so it's certainly operating at the low end of where it's run, and I wouldn't expect it to go down materially from here.
Okay. And then Christie Cookie, just wondering if we could get an update on when you might expect zoning and transit decisions for that site?
It's Jordie. So it is a process, as you can imagine, that we're involved in -- we're reluctant to comment because we are in the midst of that process. I can tell you, in general terms, the process is running certainly better than we had expected. And I would say we will look forward to providing further color probably in the next quarter or two.
And some of the transit decisions that were sort of past last peeking council, like it looks like a Liberty Village station. There's no major changes there. The only one I didn't know is like the Park Lawn station. Did that -- is that like officially a go or not?
That was not part of that announcement. You are right about the King Liberty station, which will have certainly a positive impact in our holdings in Liberty Village in particular. But with respect to the Park Lawn station, that was not part of that announcement, notwithstanding we are making progress in that regard as well.
Although I believe they did put it on the map.
They didn't put it in the text, but there's a green go dot on the property. So...
Yes. And I guess my last question is for Kay. Congratulations. I think I followed you at 2 of your 3 CFO jobs. So wish you the best of luck. The March 21 notes, is there a plan in place for those or is that on the to-do list for your successor?
Tal, thanks for the congratulations. Yes, when we did our last debenture offering, we did say we were prefunding that maturity. So I would say that was the plan when we did the financing last fall. But we will continue to opportunistically look at our term-debt ladder in light of how attractive current financing is and see if there's opportunities to extend term within the ladder, but nothing specific right now to speak to.
[Operator Instructions] The next question is from Jenny Ma.
Kay, congratulations. It's been a pleasure working with you, and I wish you all the best going forward. I wanted to touch on the development projects. I know in the past, you talked about a development yield sort of plus or minus 5% for the projects. And I'm just wondering for the current slate that's active, is that still a fair expectation?
Yes. And we update that every quarter, as you know, in our MD&A. So we haven't seen much movement there or at least we did until recently. So they're still tracking based on the latest disclosure. So for the active projects, they're still tracking to that same yield.
Okay. Great. And then when we think about how you're looking at future projects and how you're underwriting them, just wondering is there any change in the development yield expectation, particularly on the multifamily side, given that there's an intersection between where bond yields have gone and what that's meant for cap rates versus, I guess, a heightened development risk or sense of development risk and maybe some short-term pressures on multifamily rents on the higher end? How do you think about that going forward? Has your decision-making process changed or evolved a bit?
It's definitely evolved. So we're looking at it very carefully. And certainly, at this stage, we're taking a more cautious approach to new starts. And new start decisions will be impacted by a variety of factors, including the position of our balance sheet, progress on dispositions, the risk of the development, whether it'd be on the cost or the revenue side and general market conditions.Yes, there's no question that multifamily rental property cap rates, there's been enough data points to make it clear that the cap rates are lower, which would generally imply development yields will follow to some degree. So we will watch that carefully. Because especially out West, like we have a -- it's a small project, but we have a small, mainly residential rental project with a little bit of retail in North Vancouver. And the cap rates are staggering. So even though you develop to a lower yield, the profit is actually quite astounding.So there's no question that given everything that's occurring in the world, our thinking on it has evolved. And I expect that's going to continue, Jenny, so -- just given how dynamic the environment is. So it is something we're watching carefully and definitely a more cautious approach to making any major new commitment in the immediate future.
Okay. Does that suggest that you made -- in terms of timing that your approach may have slowed a bit, because part of it is that you're cautious -- more cautious overall, but these things obviously take time? So I guess as an argument to be made that you can sort of look past it, because you're not going to be renting any of this until 5-plus years out. So maybe it's less of an issue and you can sort of pass it?
Yes, that's certainly not lost on us. But when Kay referenced an anticipated development spend of $150 million next year, that's not an atypical number for us, but it is meaningfully lower than what we thought it would be 12 to 18 months ago. So we did take it down. And we deferred certain projects that have income in place where that affords us the luxury. It's different when you're sitting on a non-income-producing property that costs you more every month you hold it.The majority of our development pipeline sits in the form of productive income-producing properties today where we have redevelopment rights and the timing and when we trigger those is in our control. And so we've chosen to not trigger them in some cases. So the development spend is down from what we expected it to be a little over a year ago.
There are no further questions registered at this time. I'll turn the meeting back over to Adam Paul.
Okay. Thank you very much, Lori. Thank you, everyone, for taking the time today to join us on our year-end conference call. Have a great day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.