Primaris Real Estate Investment Trust

TSX:PMZ.UN

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, everyone. And welcome to the Primaris First Quarter 2024 Results Conference Call. [Operator Instructions]I'll now like to turn the call over to Claire Mahaney, Vice President of Investor Relations and ESG. Please go ahead.

[Claire Mahaney, executive]

Thank you, operator. During this call, management of Primaris REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Primaris' REITS control that could cause actual results to differ materially from those that are disclosed and/or implied by such forward-looking information. Additional information about these assumptions, risks and uncertainties are contained in Primaris REIT's filings with securities regulators. These filings are also available on Primaris REIT's website at www.primarisreit.com.I'll nowturn the call over to Alex Avery, Primaris' Chief Executive Officer.

[Alexander Avery, executive]

Thank you, Claire. Good morning. And thanks for joining Primaris REIT's first quarter 2024 conference call. Joining me today are Pat Sullivan, President and COO; Rags Davloor, CFO; Leslie Buist, SVP, Finance; Mordecai Bobrowsky, SVP, Legal; Graham Procter, SVP, Asset Management; and Claire Mahaney, VP, IR and ESG.We are pleased to report continued growth in our business in first quarter, spanning same property NOI growth, occupancy, and conversion of preferential [ indiscernible ] standard business. We have maintained and slightly increased our guidance measures, reflecting a strong start of the year and see several more years of our outlook [ growth ahead ].From a platform perspective, the acquisition completed in 2023. Our larger national footprint and high asset quality continues to increase our relevance with both business tenants and new and exciting new-to-market retailers. This dynamic [ indiscernible ] feedback that we expect to continue to accelerate and leverage our platform and do new investments.We continue to be very active in discussions of several acquisition and dispositions, following our $400 million unsecured bond offering in November and the upsizing of our $100 million credit facility, we have robust liquidity and are finding a lot of attractive opportunities. We have capacity for more than [ $1.5 billion ] acquisitions and require financing disposition on [ new deals ]. This profile is a well-capitalized [ indiscernible ] in the market and a real differentiator in what is a very challenging transaction market for many participants.Subsequent to quarter end, we entered into an agreement to sell Garden City in Winnipeg, Manitoba for $31 million. This is our first non-core income company swap property decision entered into Spinoff and aligns with our strategy focused on owning a growing high-quality portfolio of marketing and enclosed shopping centers in Canada. This disposition improves our overall portfolio quality and growth profile and further demonstrates Primaris' ability to interact.We are currently engaged in discussions with prospects that purchase us for further business positions. Our capital [ indiscernible ] program is a key pillar supporting our profile as a buyer of marketing malls and positions as well as capitalizing future opportunities.I now turn the call over to Pat to discuss operating leasing results followed by Rags to discuss the financial results.

[Patrick Sullivan, executive]

Thank you, Alex. Primaris is now the largest owner and manager [ indiscernible ] shopping centers in Canada as measured by my mall count. This means that we have very good visibility into the performance of a wide network of stores across many retailers nationwide. Given the nature of our business and our unique structure, the majority of [ indiscernible ] tenants or tenants under 15,000 square feet are required to report sales they generate in our malls.The analysis of tenant sales enables proactive management of re-merchandising, the identification of trends, and insights into tenant financial health in advance of any [ indiscernible ] corporate closures. Analysis of tenant form enables the management of merchandise techniques in order to maximize revenue and mitigate risk associated with tenant [ indiscernible ].We review monthly sales reported for changes in trend specific to tenants and categories in each of our properties in [ indiscernible ] are now national portfolios. [ Property merchandise ] plans are crafted to optimize size and tenant composition of each category to maximize potential revenue growth. Our leasing and operation team worked diligently to identify new brands that would complement and enhance the tenant mix while proactively working to reduce exposure to those tenants that are losing relevance with the consumer.From a retail tenant perspective, tenants continue looking to optimize their portfolio stores, opening new stores in locations where there's strong demand and closing underperforming stores. Store rationalization is a regular business as retailers look to optimize their portfolios to drive profitability and increase brand awareness allocating capital, where they believe it will generate return.E-commerce has provided valuable information regarding their customers, and retailers have come to recognize the importance of having a physical store presence in markets where they have strong online sales. The rise of e-commerce activity has become an important tool for retailers in evaluating portfolios for stores, with tenants rationalizing their number of locations in a given market, focusing on market coverage from the highest traffic locations as opposed to [ indiscernible ]. Primary focus has been and will continue to be on owning market-leading [ indiscernible ] malls in Canada.With that background on the visibility, we have in tenant performance and profitability, the financial health of tenants continues to be quite favorable, and the dialogue with tenants looking for new and expansion opportunities remains robust.Our NOI growth in the first quarter is supported by both the strong fundamentals we are experiencing, low supply, rising sales, population growth, and increasing tenant demand for quality space, as well as our national full-service platform and team. Specifically, growth is coming from a number of sources, including rising occupancy, re-merchandising [ of ] former anchor premises, increasing sales, falling non-recoverable expenses, and improving recovery ratios. As a result, same property's cash NOI was up 2% for the quarter as compared to Q1 2023.In Q1, portfolio in-place occupancy was 92%, relatively flat versus Q4, as over 100,000 square feet at Halifax Shopping Centre came online, offsetting the typical decline in the in-place occupancy as a result of the Q4 holiday shopping season. Committed occupancy was also remained flat at 94.1%.As compared to Q1 2023, same property in-place occupancy increased by 1.2% to 91.6%. We remain focused on driving our occupancy back to historical levels of 95% over the next few years.During Q1 2024, we signed 26 new deals for 150,700 square feet and are in advanced stages of negotiation with a number of large format tenants, which we anticipate to close over the next 2 quarters.Same property same store sales productivity is at an all-time high of $628 per square foot, and including Conestoga and Halifax, productivity rises to $677 per square foot. Tenant sales remain very strong across all categories, and we continue to see strong sales growth in Alberta due to high population growth.In Q1 2024, renewal rents increased 7.4% over previous in-place rents. We anticipate continued positive growth in rental rates due to strong fundamentals in the enclosed shopping center industry, being a 30-year low in per-capital enclosed mall square footage in Canada, coupled with high tenant sales.Not captured by our renewal leasing spread is the conversion of leases with preferred rental terms, such as percentage rent in lieu of base rent, back to net leases. The implication being that there are additional rental gains beyond those that are captured by the traditional net-to-net leasing spread analysis, and our leasing spreads understate the growth we are experiencing.At quarter end, approximately 9.2% of our tenant base was on preferred rental structures compared to 11% at year end and 15% at the beginning of 2023. With a number of other leases completed and commencing later in the year, this figure will continue to decline during the balance of the year, which will have a significant positive impact on our NOI for 2024 and beyond.We have made significant progress in addressing our 2024 maturities and have 883,000 square feet of expired remaining, of which 580,000 square feet is CRU. We are well advanced in discussions with our 2024 expiry tenants and have no concerns pertaining to completion of outstanding negotiations.To conclude, we are pleased to announce the $54 million redevelopment of the former Sears space at Halifax Shopping Centre, which was substantially completed prior to our acquisition in November of 2023, is now open. The redevelopment includes a 56,200 square foot Simons, a 38,500 square foot Winners, a 13,000 square foot Dollarama, and a 15,000 square foot PetSmart, all of which opened prior to the end of March.The first to market Simons opened to a large and enthusiastic crowd. Simons' location at Halifax Shopping Centre is their only location east of Quebec, and we believe Simons, in addition to other stores unique to the region, including Apple, Aritzia, and Zara, will continue to make the shopping center the leading retail center in the Maritime.And with that, I'll turn the call over to Rags to discuss our financial results.

[Raghunath Davloor, executive]

Thank you, Pat, and good morning, everyone. Strategically, we continue to focus on our differentiated financial model represented by low leverage, low payout ratio, and significant free cash flow, which we believe is a major strategic advantage for Primaris REIT.Keeping in line with best practice and transparency and reflecting strong results to date and the strength of our business, we are raising our 2024 cash NOI guidance range by 2 million to $265 million to $270 million, and the FFO per unit guidance range by a $0.01 to $1.61 to $1.64 per unit.Other changes to guidance include a $1 million increase in G&A range to $31 million to $33 million, and straight-line rent in rental revenue to $4.8 million to $5 million. The above guidance does not contemplate future acquisitions nor the deployment of the $74 million of cash on hand. Further details of our 2024 guidance can be found in Section 4 of the MD&A, titled Current Business Environment and Outlook.With regards to disposition, we currently have $124 million of assets out for sale, inclusive of Garden City, which is currently under contract, and are in various stages of discussions on the majority of the disposition asset pool. The team is continuing to progress on ESG initiatives, including the development of ESG performance objectives and targets that align to our business strategy, formalizing a climate strategy, aligning to IFRS S1 and S2 standards, preparing our second [ GRAS ] submission, and wrapping up the successful implementation of a utility data collection system.Our operating and financial results for the quarter remain very strong. Tenant health is strong across our portfolio, and our many operating metrics are continuing to improve, capture, and grow. For the quarter, FFO per unit was $0.388 as compared to $0.369 cents for the same quarter last year, an increase of 5.2%.Our average net debt to adjusted EBITDA was 5.7x, relatively unchanged from Q4, and within our range of 4x to 6x. As a reminder, this range forms part of our executive compensation structure with the top end of the range of 6x a hard line in the sand of which we will not breach.The unsecured syndicated revolving term facility was upsized to $600 million from $400 million in Q4, significantly increasing liquidity. At present, we have nothing drawn on the facility and are ready to capitalize on potential acquisition opportunities.We refinanced two JV assets with secured debt, Cataraqui Town Centre and Regent Mall, replacing maturing debt for these properties. The rate on the $35 million loan on Cataraqui is 5.29%, and the $40 million loan on Regent is floating at adjusted core at plus 1.45%.Our exposure to floating rate debt is very low at 1.5% of total debt as we hedge [ $20 million ] of the variable rate debt subsequent to quarter end.During the quarter, we incurred a favorable fair value adjustment of approximately $13.1 million primarily driven by rising cash flows on our properties. During the quarter, our best-in-class capital structure was reaffirmed as DBRS Morningstar reconfirmed our BBB high stable rating.With unencumbered assets of $3.3 billion, unsecured debt totaling 78% of total debt, the only maturing debt in 2024 is a $50 million mortgage and full availability of our $600 million operating line with significant cash on hand, we are well positioned with reduced refinancing risk and access to liquidity.Our total available liquidity at quarter end was $684 million, giving us lots of room to capitalize on future investment opportunities.Primaris has been in the market continuously repurchasing units since March 9, 2022, under the NCIB. As that quarter end, we have repurchased for cancellation 8.5 million units with an average value per unit of approximately $13.81 or an approximate 36.8% discount to NAV of $21.86. This program is very accretive to unit holders.Maintaining a conservative financial model and generating free cash flow after distributions and operating capital is a core focus which we will not deviate from.And with that, I'll turn the call back to Alex.

[Alexander Avery, executive]

Thank you, Rags. I wouldn't be doing my job if I didn't mention our differentiated financial model. I'll draw everyone's attention to the fact that our IFRS NAV per unit rose year-over-year and sequentially, while the going-in cap rate used to value our properties rose modestly again year-over-year and sequentially. The going-in cap rate rose primarily due to stable values and a growing NOI.It is worth looking at the detailed metrics used in our IFRS values, including a 7.16% going-in cap rate, an 8.34% discount rate, and a 7.31% terminal cap rate. Notably, these metrics provide a very healthy 150 to 200 basis point positive cap rate spread over Primaris' current cost of debt. This level of cap rate spread over financing has historically been a very attractive spread for real estate investors.Primaris' differentiated financial model eliminates the incentives for Primaris that other organizations face, making them reluctant to reflect higher cap rates to value their properties, a fact highlighted in the public markets by the scarcity of Canadian REITs with IFRS values that offer significant positive cap rate spreads over the cost of financing.The incentives I mentioned include compensation tied to IFRS NAV and asset fair values, as well as the hurdles that arise for refinancing properties where fair values have been reduced, as well as executive compensation benchmarking based on total assets. In reality, it's just a timing issue. Users of our financial statements should be aware that we have seen the metrics embedded in our IFRS NAV move more significantly than our peers and currently reflect very conservative values.Our confidence in the REIT IFRS NAV is underscored by the continuous repurchase of units under our normal course issuer bid every day since march 9th of 2022. As a result, Primaris is materially better positioned to see NAV and cash flow per unit growth over the next few years, driven by internal growth, reinvestment of excess free cash flow, and stable valuation metrics.For those looking to better understand our business, we're looking forward to showcasing our latest acquisition, the Halifax Shopping Centre, at an Investor Day and property tour we are hosting in Halifax, Nova Scotia in September. We hope you can join us.To conclude, we spend a lot of time talking about the differentiated financial model, because of the very significant advantages it offers to our unit holders, including superior FFO and NAV per unit growth, as well as the financial flexibility to execute on the REITs corporate strategy to grow the scale and quality of our business.We'd now be pleased to answer any questions from call participants. Operator, please open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Mark Rothschild from Canaccord.

[Mark Rothschild, analyst]

In regard to the asset sale, and potential additional sales, I'm not sure if you disclosed the cap rate, but I assume it would be higher than where your core portfolio is. I assume it's maybe even somewhat dilutive on an FFO per unit basis. So I'm wondering if you could just expand on how you think about the cap rate, if you can disclose any more information on that, and whether you're looking at it with regard to the impact on NAV with unit buybacks, with regard to where you think the market is, or how would impacts that [ FFO ] units or just how this fits into your strategy?

[Alexander Avery, executive]

Yes, thanks, Mark. I know that we have some sensitivity around the cap rate from the purchaser's perspective. What I think would be a reasonable assumption is if you took the average for our IFRS fair values, it would be in that range. I think 7.16% is the going in cap rate. When we think about it, FFO impact is not really the primary criteria that we're looking at. It's not a large enough transaction to have any material impact on our overall metrics in any event. But when we're looking at it, really what we're looking at is that these non-core assets that are generally not enclosed shopping centers are capital that we can recycle into enclosed shopping centers, which is our strategic focus. So we're pursuing several of these transactions. Generally, they're smaller. Generally, they're unenclosed retail, although we have an industrial property that's asset held for sale as well, some land parcels, things like that. And what we're really focused on is really more managing the balance sheet. So these dispositions provide fuel for further acquisitions of our core focus being market-leading shopping centers.

[Raghunath Davloor, executive]

And just to add to that, Mark, so the cap rates generally are higher, as would be expected, in the assets we're selling. But we're also selling raw land. And so when we're selling the land, there's no dilution. It's accretive. It's just pure cash. So that sort of balances out some of the dilution from the income producing assets we're selling.

[Mark Rothschild, analyst]

And maybe just to follow-up on that, you noted that you've been buying units back in the market pretty much every day, I guess, that you're allowed to. To what extent are you comfortable continuing, doing that? And I recognize there's a big discount to NAV considering that it does eat into the liquidity of the units in the market?

[Alexander Avery, executive]

Yes. I would say number one, we are very comfortable continuing to buy back units. When you do the math exercise around what the return on invested capital looks like, there's nothing that comes remotely close. I made some comments about the IFRS spread that we have over our cost of financing, the going in cap rate versus the marginal cost of debt. If you look at our units, they're implying somewhere in the mid to high 9% cap rate and that's a 400 to 500 basis point spread over our cost of financing. It's just a really remarkable return.But to your second or your follow-up question points, we are very cognizant of the impact that we have on trading liquidity and on float. And generally, what we do is we fund any and all NCI repurchases out of excess retained free cash flow. So in effect we're not actually shrinking the business. And that to contrast that with what the alternative would be, it would be either levering up the balance sheet to buy back stock or selling assets to buy back stock. And those are 2 things that we haven't done. We're not contemplating doing those things. We're very focused on our business and pursuing our strategic objective of becoming the first call for retailers when they come to Canada and that is assembling a market leading shopping center portfolio across the country.And as we pursue that role, we are very keen on increasing the trading liquidity in our stock. And it sort of a positive feedback loop, the better the trading liquidity gets, the less the concern is about trading liquidity. The higher the valuation, the better the trading liquidity becomes. So it is something that we think about a lot and if you look our filings every day in 2024, so far we've bought 2,500 units a day. It's not a very big number. To put that in context there were large chunks of Q4 when we were buying 30,000 units a day. So we're continuing to allocate capital there, but we're also balancing that with some of the other strategic objectives that we're working on.

[Operator]

Our next question comes from Lorne Kalmar from Desjardins.

[Lorne Kalmar, analyst]

Just looking at the gap between in place and committed occupancy, it looks like it's kind of consistently widened out now, I think a little over 200 basis points. What has been the driver of that? And do you see that gap narrowing over the balance of the year?

[Patrick Sullivan, executive]

We still have a lot of deals that are coming in. Q2 should be very productive in terms of leasing as well. And there is a lag between the time we do the deal and the time the tenant opens. And there is lot of these stores that are large format. So there is -- when -- there are bigger stores they typically take longer to get open. So I expect our committed occupancy is actually going to jump next quarter as well. But we do see store openings happening. It's just a matter of timing.

[Raghunath Davloor, executive]

And we are experiencing some delays in the fit out just because of the municipal approval process and that's causing some headaches just on the build-out side. So that's caused some of the widening, and that should come back in and start to fix itself in Q3, Q4.

[Lorne Kalmar, analyst]

And we're hearing a lot about retailer expansion plans across Canada and lack of space. I know, one of your open-air peers is saying, they don't think that a lot of retailers actually able to accomplish those expansion plans. How do you think the enclosed mall kind of plays into this whole dynamic?

[Patrick Sullivan, executive]

I think for us it's a great opportunity. We do have space, as you know, like we are working on driving our occupancy materially higher, and we've been successful in the last couple of years of making great progress. There's still a lot of retailers looking for expansion premises. We do have tenants continuing to relocate from other centers in our market into the shopping center. And part of that is driven -- there's a number of factors. One is the availability of space in our malls compared to other developments. Another is just the more secure nature of the enclosed shopping center in terms of shrinkage. So there's a number of factors driving our occupancy gains.

[Operator]

Our next question comes from Brad Sturges from Raymond James.

[Bradley Sturges, analyst]

Just to go back to the asset sale discussion there and looking at your assets held for sale, it looks like the composition changed from year end to the end of Q1. Just, one land parcel might have been removed and it looks like a couple of income-producing assets added. Just curious, is that just simply a function of the discussions you're having today? Or is there another reason or catalyst for the composition change?

[Patrick Sullivan, executive]

It really is just a function of the latter, what you said. It's just a function of the discussions we're having. One of the land parcels we did have for sale, there was servicing issues for the site. It's not that it's being taken off for good, it's just -- there's just a delay, and so the discussion we had get moved out. But generally, the composition is more or less aligned with where we started. It's just the ebb and flow of the people we're discussing with.

[Bradley Sturges, analyst]

And in terms of the 2024 guidance as it relates to FFO, does that include asset sales? And if so, I guess beyond Garden City, would there -- I guess how much of -- how much in terms of dispositions would be included in that figure if they are included?

[Raghunath Davloor, executive]

Yes, they're all included, but it tends to -- we have a bunch that we've assumed will close in like October and the balance in December, so it really doesn't have a big impact on the FFO. On the flip side, we haven't modeled in any acquisitions, and on the cash that we're holding, that's obviously slightly diluted. I mean, you do get a good return today on deposits, so we've assumed that we earn 5% on the cash. So if we do redeploy, then that should be accretive to FFO. So that's sort of how we've put the model together.

[Operator]

Our next question comes from Matt Kornack from National Bank Financial.

[Matt Kornack, analyst]

Just quickly, the renewal spreads were quite strong this quarter, and I know they jump around a bit. But can you tell us, just in terms of the relationship between the large format versus the CRU, it looks like you've done a bit better on large format than CRU. Do you expect that dynamic to change in time as kind of occupancy moves higher and you can push more on the CRU? Or am I reading into that incorrectly?

[Patrick Sullivan, executive]

No, I think one of the factors that plays in here is we do quite a few more renewals with small tenants than we do large, and there's only a handful of large format tenants, so it's somewhat a function of which tenants are expiring and what their current rent is and such for it. I do think as our occupancy is driving higher and with the lack of alternative space and our sales continuing to rise, there is good momentum in driving rents higher. It typically does come back to the subset of tenants that are expiring in that quarter, but I do expect over the course of 2024 to continue to show good, strong, and positive rental growth in our renewals.

[Matt Kornack, analyst]

And then 2 quick follow-up, but just it looks like the leasing costs associated with [ both ] has been fairly consistent, so I'd assume that you'd expect that going forward. But also just on the cash flow statement with regards to CapEx, is there a reason that that differs from your capital expenditure disclosure and then the IPP schedule? It just looks a little higher. I was wondering which--

[Raghunath Davloor, executive]

Yes, the reason why is the cash flow statement is on a pure cash basis, while the financial statements are on an accrual basis. So if we've committed and sort of let's say the invoice is in, it's accrued for, so the sitting in account is payable, but it may not be running through the cash flow statement. So you do run into some noise as far as trying to reconcile the 2 numbers.

[Matt Kornack, analyst]

And just in terms of modeling, is it better to use the disclosed CapEx schedule as opposed to the cashless payment?

[Raghunath Davloor, executive]

Yes, you know, it's a difficult one because what we disclose is what we sort of spend. We don't look at the timing of actually writing the check. So that's actually done more on an accrual basis. So it really depends on how much it's carried forward from the prior year. But it shouldn't deviate materially.

[Operator]

Our next question comes from Sam Damiani from TD Securities.

[Sam Damiani, analyst]

Maybe just to -- maybe looking just for a bit of an update on Northland Village and the former Sears at Devonshire. What are the sort of the latest and greatest in terms of what's going on there?

[Patrick Sullivan, executive]

Devonshire, we have tendered out the demolition of the Sears box. We got very good pricing in. We'll be starting the demolition in the next 60 days. We've just about completed leases with 2 tenants on the interior portion of the mall. So we're resetting the interior portion, which has been predominantly vacant since we bought the property before that. So that's a significant pick up in occupancy in that property, and those leases should be done in the next -- it would either be this quarter or next.In terms of Northland, we've made great strides in terms of pre-leasing the remaining pad opportunities. We're basically 100% pre-leased on the pads, and so our plan is to start those up right away. It's probably still about 24 months to completion, but we're tracking towards around a 7% return on the project.

[Sam Damiani, analyst]

Have the rents evolved since the start of the project to today on Northland?

[Patrick Sullivan, executive]

The rents are higher than our original pro forma. And costs have gone up, but they've been offset by a big increase in our rental revenue as well.

[Sam Damiani, analyst]

Last one from me. Just like, the business doing well. All of the sort of metrics are moving nicely in the right direction. Just wondering if you could, if there's any regional disparities worth mentioning that would be helpful for us to understand in terms of maybe how you're thinking about capital allocation going forward as well?

[Patrick Sullivan, executive]

I don't really know that there's any significant regional differences. Alberta and actually the Maritimes are seeing very strong sales right now. All the markets are seeing strong sales, but Alberta especially with the population growth in that market is very buoyant right now. I think our capital allocation in terms of the properties, we are selective. There are properties that have great upside potential and we're going to be allocating capital to those properties and there's some on our disposition list that we're going to be clearly not spending a lot of money on those properties going forward outside of what is required.

[Operator]

[Operator Instructions] Our next question comes from Sumayya Syed from CIBC.

[Sumayya Hussain, analyst]

Just on your disposition strategy, what appetite are you seeing for non-grocery open air centers? And how would you characterize your willingness to structure future sales similarly i.e., utilizing the vendor take that component?

[Alexander Avery, executive]

Thanks, Sumayya. Yes, I mean, I think there's quite strong buyer interest in the assets that we're looking to sell. And it's really not anything specific about the assets that we're looking to sell other than that they're the right size. The private buyer market is pretty deep. And people are interested in investing. As I touched on earlier, we've been fairly hands-off in terms of our IFRS fair values. The cap rates that the appraisers recommend are the ones that show up in our financial results.And as a result, as I mentioned, there's a pretty healthy spread between where we're carrying the assets from a cap rate perspective and the cost of financing. So there's a pretty deep buyer pool for these assets. And as it relates to the structure, the purchaser in this case requested a vendor take back mortgage and that mortgage is 6 months, 9 months. Pretty short term and we were happy to oblige. It's really only really enough time to put in place more permanent financing, so it's not -- we don't think the loan to value is a challenge. We don't think that this buyer will have any difficulty arranging a mortgage. And it's quite small in the context of what that asset represents as a percentage of our total.And as a general rule, I think Primaris is very keen on having a reputation in the market as a group that can transact efficiently and get things done. So I think that's just another example that's on the buy side and on the sell side.

[Sumayya Hussain, analyst]

And then secondly, just moving on to your leasing activity, I noticed fairly long lease terms for new and large format tenants, I think around 13.8 years to be exact. So when you do leases of that land, how are the contractual rent steps structured if it's annual and what the rate of growth there would be on average?

[Patrick Sullivan, executive]

Typically, we're pushing for 2% annual increases. With the larger format tenants, you sometimes get that, and sometimes you just get steps every 3 to 5 years. So it just varies depending on the tenant. But our goal is to push for 2% annual increases.

[Operator]

Our next question comes from Mario Saric from Scotiabank.

[Mario Saric, analyst]

So just the first question, I just wanted to touch on the slight increase in the guidance. I recognize that the numbers are pretty small. I'm curious in terms of what the key drivers were behind the $2 million increase in cash NOI, the $1.3 million increase in straight-line rent, and the $1 million increase in G&A?

[Raghunath Davloor, executive]

Yes, so the NOI was really driven by the strong performance of the recent acquisition. So that was the main driver behind that. So almost all the $2 billion was in connection with Halifax and Conestoga coming in stronger.What was the other one? Sorry? Yes, straight line rent was really Halifax, just the timing because of the Simons and all of that, there was some significant straight line rent in Q1, so we just sort of adjusted the numbers up. And then G&A is really just the increase in compensation and personnel, just added a little bit more than we expected.

[Mario Saric, analyst]

And then my second question would just be, on Dufferin Grove, just given the magnitude of the potential opportunity there, there's been a lot of macro headlines with respect to provincial and federal governments looking to accelerate new supply growth on the residential side. There's been some commentary about planned reforms to immigration, that should be announced later this year by the federal government. I was curious if you can share kind of where that process stands today, whether there's been any change in terms of timing on a potential transaction there, and just some incremental thoughts on whether anything has changed in the last 3 to 4 months at that property.

[Alexander Avery, executive]

Thanks, Mario. Dufferin Grove and Dufferin Mall are topics of continuous discussion in our management meetings and Board meetings. I think you referenced the potential changes in terms of development rules and regulations. There's nothing as yet that's concrete that we can really respond to.I think when we think about Dufferin Grove and try to frame the opportunity, It's a fantastic development site. There are 2 developers right across the fence that are developing residential purpose built and condo right now. So to the extent that someone was to come along and want to buy Dufferin Grove and break ground, there is an appropriate period of time to allow the market to absorb the other 2 projects. I don't think there's a whole lot more time before someone might want to break ground on our site, but it's also a very sizable development parcel, a lot of value, and as you mentioned, there's a lack of clarity right now that has led to a decline in construction starts for both purpose-built and for condo. So we're not in a position where we have to do something. We think about this asset as a very valuable asset to us, and we want to optimize the timing and pricing on that asset. So in a long-winded way, not a whole lot has changed in the last 90 days or 60 days since we last had our Q4 results. But I think, it's definitely something that we talk about. We do see it as a real lever that we can pull in the business. As Rags mentioned, when you sell land, you lose no EBITDA, but you do get a whole lot of cash. And that's something that we do discuss on an ongoing basis.

[Operator]

We currently have no further questions, so I'd like to hand the call back to the management team for closing remarks. Thank you.

[Claire Mahaney, executive]

Thank you, Bruno. With no further questions, we'll close today's call. On behalf of the Primaris team, we thank you for participating, and we look forward to speaking with you again on our next call. Thank you, and have a great weekend.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.