BTB Real Estate Investment Trust (BTBUN) Earnings Call Transcript & Summary

Good morning. My name is Julie, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the BTB Real Estate Investment Trust 2022 Third Quarter Results Conference Call. for which management will discuss the quarter ended September 30, 2022. All lines are placed on mute to avoid any background noise. Should you wish to follow the presentation in greater detail, Madame [indiscernible] has made a presentation available on BTB's website at www.btbreit.com and Investor Relations, Quarterly and Annual Meeting presentations. After the speaker's remarks, there will be a question-and-answer period reserved exclusively for analysts. [Operator Instructions] Before turning the meeting over to management, please be advised that some of the statements that may be made during this call may be forward-looking in nature. Such statements involve numerous factors and assumptions and are subject to inherent risks and uncertainties, both general and specific, which give rise to the visibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Several important factors could cause BTB Real Estate Investment Trust, actual results to differ materially from the expectations expressed or implied by such forward-looking statements. These risks, uncertainties and other factors that could influence actual results are described in BTB Real Estate Investment Trust Management Discussion and Analysis and in its annual information form, which are filed on SEDAR and on BTB's website at www.btbreit.com. I would like to remind everyone that this conference call is being recorded. Thank you. I would like to turn the conference over to Michel Leonard, President and Chief Executive Officer; Mr. Mathieu Bolte, Vice President and Chief Financial Officer; and Mr. Peter Picciola, Vice President and Chief Investment Officer. Mr. Leonard, you may begin the conference.

Hi. This is the BTB REIT. We didn't hear the presentation from the receptionist at Cision. So is present with Mathieu Bolte, Peter Piccola,so we are here to present the results for the Q2 2022, so September 30 of this year. We're very proud of the results and the performance of BTB for the semester and year-to-date also. I'd like to just briefly go through the evolution of our portfolio because the evolution of our portfolio is one of the reasons why the stellar performance for the year so far. In December 2020, we -- our ownership as far as fair market value is concerned and the Industrial segment was $164 million or 18% and -- and in September 2022, the industrial segment represents 28% of our holding for $333 million, doubling the size of the portfolio. And our objective in 4 years' time is to have an industrial component that will represent $1.2 billion or 60% of our portfolio. As far as the off-core office segment that we own in the December -- on December 30, 2020, we owned almost $500 million of that asset class, representing almost 55% of our ownership. Today, the off-core office segment is down to 50.7%, representing $598 million, and our target in 4 years' time again, is to go down to 30% with $600 million as far as fair market value of the off-core office. -- necessity-based retail in -- on December 31, 2020, we own 27% of the necessity base and for $246 million. At the end of September, that asset class represented 21% of our portfolio for $249 million, and our target is for necessity-based retail to go down to 10% of our portfolio or $200 million. So if you -- if we total the portfolio per se, so in December 2020, the total value of our portfolio was $904 million. Today, we're at $1.18 million -- $1 billion and our objective in 4 years' time, December 31, 2026, would be at $2 billion. So I think it's important to put this in light of the fact that we did announce and we did -- we are performing regarding the evolution of our portfolio towards a good weight in the industrial segment. Regarding our key metrics, the leasable area of BTB today is almost 6 million square feet. We were able to renew and conclude new leases for 150 -- almost 154,000 square feet. Our occupancy rate at 93.5%. Our total debt ratio at 58.6%. We concluded during the quarter 1 acquisition, we concluded on disposition. A notable fact is, again, our same-property NOI is increasing by 5.3%, and this is a number of successive quarters where we're seeing our same-property NOI increase. The recurring FFO per unit is up by 21%, and the year-to-date recurring AFFO payout ratio is at almost 74%. I will ask Peter to go through the leasing and our renewal activity for the quarter and the year in the year so far for 2, I should say, until September 30 of this year.

Good morning, everybody, and thank you for being there. I'd like to start by saying that we dialed in on time, but the lady who inadvertently cut us off must be feeling modified. And we just wanted to say we forgive you, and we will be back next quarter just the way we were this quarter. So just here to give you a high-level review of the leasing activities [indiscernible], we are at 93.5% of occupancy on the heels of effectively 154,000 feet of transactions we completed between new deals and renewals. -- healthy activity across all asset classes, led mostly by the industrial asset class in Western Canada, renewals with CNH Industrial Canada and Saputo and large office renewal with National Bank of Canada. In our off-core office portfolio in the suburban region of Montreal. We've achieved an 8.8% average increase in renewal rates across the quarter for all of the business segments combined, all of them showing some healthy growth at 13% for the industrial 4.5% for the office and 13.3% for the necessity-based retail. Highlights on the office leasing side includes CAA excellent covenant for 11,500 feet of office space in Ottawa in the Lansdowne district, further underscoring the smart buy that was completed last year. On the retail space, KD Electro sort of high-end housewares and appliances in Quebec City and Dek hockey continue with expansion in Montreal, which leads me into outlining that the FX [indiscernible] property we took over and Sportium vacated, is now fully leased at 100% post-sports departure, which happened in Q1 of 2021. dek hockey having completed its work being in occupancy and the same being true for [indiscernible]. What we've seen last quarter and leading into the beginning of this quarter was just continued vigor in retail leasing interest overall. Velocity is getting higher in terms of information requests and property visits. -- so we foresee that that's going to help us into Q4 and well into next year. So if you'll indulge me, I'll take you through rapidly on sort of like the portfolio construction in terms of a general overview. We stand at 5.9 million feet in 75 properties, pushing right up against that $1.2 billion mark that we were striving to achieve this year. The last acquisition we did in Q3 was 100% occupied single tenant, 72,000-foot long-term lease acquisition. This is the last in a string of 4 industrial acquisitions, all of which have been single-tenant long-term leased. You can read into that what you should. On the disposition side, we completed the disposition of a small off-core office asset in Montreal, and we continue to prune the portfolio so that we can recycle the capital and redeploy in areas where we think we can do a better job on a return given having maximize the value rotation in some of these asset classes. So we're looking at disposing of about 80,000 feet of office space in 3 properties, one at 81 outbuild in San [indiscernible], 48.98 [indiscernible] and 7001 with [indiscernible]. Some of these are already under contract and far along the way in terms of being able to crystallize dispositions this year. On the densification side of the equation, we have continued to advance on the one major redevelopment scenario we have. We've presented our proposal to the city and the municipal authorities have basically given us the green light to continue in that vein. They're very keen to see change of use and densification -- so a lot of value that is sitting there is not crystallized yet until we have a formal zoning completion. I think we've mentioned before, we have a deal with a third-party partner on the sale of air rights for the development of product and one of these sites, subject to the zoning being completed. So we think we're well on our way. That's an exercise that started some time ago, and there's a similar exercise we've started, although we are at earlier stages of that exercise than all of Montreal, Quebec sitting in the Ottawa region, we've identified 6 properties in our portfolio where similar opportunities exist, which would mean densification and possible addition of different locations of uses. Broadly speaking, on the investment side, our focus continues to be to go toward that $1.2 billion in industrial assets. We're doing it assiduously, but we are being disciplined. We will only execute where we see strong fundamentals and a good pipeline of value creation and where we see opportunities to sell assets where we maximize value, we continue to do that and redeploy the cash. Finally, I think just it's important to note that we continue to diversify the providence of our income across the country and across the asset class. I think in Q3, the company is better balanced than it was in Q2. And then in Q4, that trend is going to continue. You'll notice that the NOI coming from the industrial asset class is up 6.5% and it's only natural that then diminishes in the office and necessity-based asset classes given that the weighting of the industrial portfolio is becoming heavier and heavier. And we have been, for a long time, the company largely invested in Quebec, and we're taking that knowledge and expertise and spreading it across the country, and you can sort of start to see the impact of the platform getting bigger in the rest of Canada and Saskatoon, Edmonton, Ottawa and the correlation being that it is decreasing in Quebec City. And though we are largely still in Quebec, we have a lot more of our portfolio across the rest of the country. And so with that, I'll turn it over to my colleague -- thank you.

Thanks, Peter, and good morning, everyone. We're pleased to share good operating performance of the portfolio in the context of a bit market turbulence that we are generally facing. The accretive acquisitions over the last 12 months continue to contribute to the financial metrics. Year-over-year rental revenue is up almost 20%, and NOI showed almost 25% increase. Same property NOI increased by 5.3% for the third quarter and 4.4% year-to-date, mainly due to the combination of leasing efforts made during the previous quarters, resulting in an increase of the occupancy rate of 1.5% and compared to the same quarter last year and the increase in the average lease renewal rate of 13.9% year-to-date. FFO per unit was $0.115 and is up for a third consecutive quarter and is up $0.02 as compared to the same quarter last year. Year-to-date FFO per unit is up 8%. And if we were to exclude the retrospective $2.3 million of additional recoveries recorded last year, the recurring FFO per unit would have increased by 20.8% for the cumulative 9-month period. Also to consider the macroeconomic climate we're currently experiencing, BTB has proactively reassessed the market values of the large part of its portfolio. So as of September of this year, BTB had 64% of its portfolio appraised by external appraisers representing a total value of $755 million. Overall, the recommendation was a 25 basis point upward adjustment to cap rates for office and retail assets. The impact on these valuations on F&Ds was offset by the good performance of the industrial portfolio and mainly the one in Western Canada acquired at the end of last year. The rest of the portfolio was also part of an internal review considering observations of our external appraisers. So overall, cap rates for the industrial portfolio went down 13 basis points to 5.59%. For the [indiscernible] downtown core office, we see an average increase of 15 basis points to 6.56%. And for an SSD-based retail, we see an average increase of 20 basis points to 6.82%. So as such, we recognized a net reduction in the market value of the assets of $1.2 million, representing any material adjustment across the portfolio. So we believe the resilience of BTB's portfolio is fully demonstrated. Looking at the capital structure, BTB concluded the quarter with a total debt ratio of 58.6%, recording an improvement of 0.2% compared to the previous quarter and an improvement of 1.9% compared to year-end of 2021. The weighted average interest rate for mortgages was 3.64%. So it's an increase of 11 basis points compared to last year because of the recent acquisitions that we did and the refinancing. For the remaining of 2022, the trust has $16 million less for 2 mortgages under refinancing. And we also believe BTB is in a good position for next year where roughly $50 million of mortgages are coming to maturity. BTB over the last 3 years, refinanced on a long-term basis, 58% of its mortgage resulting in lower rates in our in-place debt. The average time maturity of our mortgage debt is 4.4 years. Finally, last night, we communicated that the TSX has approved the normal course issue EBIT for the NCIB program authorized by the Board of trustees to give the option to repurchase approximately 7% of the Trust's outstanding units at our discretion and in accordance with TSX rules from November 10 this year to November 9 of next year. So we have a 1-year period program at arise. So with this, it completes our presentation, and we'll move to the Q&A.

[Operator Instructions] Your first question comes from Tom Callaghan from RBC Capital Markets.

Just to start, maybe to stick with the NCIB there, but just curious on any updated thoughts around capital allocation and kind of how you guys are thinking about that. Obviously, a clear bias for growth. But just with respect to the NCIB, is that something you expect to be active on or kind of just take a wait to see approach here given the volatility in the market.

Well, Tom, I think the idea here is just to have an additional tool for us. I think we saw there was -- across the REIT, there's been a lot of repurchase. I don't think short term, that's what we're initially planning to do. But the -- again, I think it's just an additional tool that we want to make sure as we think about capital allocation of additional acquisition, disposition and the NCIB, I think it's obvious that we have to consider.

Got it. And then just secondly, maybe switching over to the acquisitions and just side of things. But maybe just curious on any updated commentary in terms of what you guys are seeing in the market in terms of bid-ask spreads or kind of how expectations have perhaps adjusted here over the last quarter?

Well, listen, we've been out there scouring the market for opportunities. I think there's no question there's been some softening, but nothing dramatic in terms of the bid-ask spread. I think what's helping is that seems to be pretty clear that the large institutions are kind of penciled down probably since about mid-summer. And so there's just less demand on that side, which makes it a little bit easier for us to transact, and it is helping to adjust expectations a little bit on the vendor side, but nothing dramatic at this point.

And as far as the properties that we are on the market that are either under contract or closed to be under contract, all these properties are at a sales price that are north of our book value for these properties. So the -- we could argue that these are smaller properties and given the fact that they're smaller that there's more of a market for these properties. Private investors are still looking at making acquisitions for smaller properties, and we're hitting the mark as far as that's concerned because we're talking between $4 million to, say, $10 million on an individual basis regarding the sale of these properties. So we're still -- I think the sales that we're trying to conclude are still good for BTB as far as the purchase price is concerned.

Got it. And then just one last quick one for me, and I'll turn it back. But just in terms of the zoning on that first densification opportunity, still kind of expectation there or hope that, that zoning comes through kind of late this year, early next year.

Yes. As Peter mentioned, we have a great project. And obviously, there's a lot of eyes on our project given the size of it, given the size for the relevant municipality. But it is something that is beneficial and the elected officials are basically looking at it with an extremely positive eye. We all know across the country that cities are looking for densification opportunities. We saw in Ontario yesterday that the government has put in place more densification possibilities than expected. And that's for Ontario, obviously, it's as a result of the growth of population. But also, I mean, there's an underlying factor that is important is the tax base. So by developing, by creating housing and so on, overall, the benefit for municipality is financial. Yes, it's going to receive more increase in the population, but the financial reward of taxation becomes very important. And it's not something that you can basically put in front of elected officials basically saying, my project is fantastic because you're going to make more money. It's not something that you can say However, it is something that is definitely known and it's an underlying factor that is extremely important.

Your next question comes from Gaurav Mathur for from IA Capital Markets.

So firstly, just beating the recession drum and focusing on the office portfolio. Can you comment on where you see growth coming from in the next 18 to 24 months, which can offset that rising cap rate?

Well, I think that the key element is to lease the empty space leasing the empty space is going to create more NOI. And by creating more NOI, if the cap rate goes up by 25 basis points or 50 basis points, all of a sudden, you still have more value for your property. And so it's all hands on deck in order to pursue leasing opportunities and also ensuring that we don't lose tenants. And I like you, and I'm not going to hide it, then I mean it's going to be very upfront. We want to ensure that the headwinds that may come in the office sector, and I remind you, Gaurav that in a suburban environment, the headwinds may be less than in the downtown environment. And we're seeing it where Peter has mentioned that in the [indiscernible] District in Ottawa, we were able to lease 15% of the space that was vacant in that property. So as a result of this 2 professional firms. So we're seeing a lot of demand from professional firms. Also a point that is important to note is the fact that a relocation for an office tenant is extremely important as far as the budget is concerned. So typically, to -- let's say that to relocate to build a new space elsewhere is $100 a square foot, it could be 150, could be $200 a square foot. It depends on your wishes. But generally, let's call it, $100 a square foot. $100 a square foot that our landlord would have to pay means that it's about $14.50 per square foot for 10 years that the tenant will have to amortize in the lease. And let's say that the net effective rates go down to, say, $8 or $10. So it means that the face rent is going to be anywhere between $22 to $24 net. In our environment, the lease rate or the face rates are, say, between $14 and $16 net. So before a tenant is going to look at relocating, they're going to consider the fact that staying is at $16 or moving is $24. So if you want to reduce costs by moving, you're going to have to shrink down your operation in a tremendous fashion. So overall, I think that yes, there are headwinds on one side, basically saying larger firms may want to shrink their operation. And we don't -- by the way, we do have a few tenants. And when I say a few, I mean a few tenants that want to downsize at this point. And we're not talking about anything substantial. We're talking about 10%, and even shrinking by 10% is very costly as far as the amortization that you have to put on to the lease that you renew or a new lease in place. But all this to say that what we're seeing also is the fact that they don't know. So -- and this is basically the biggest issue that we have, which is the tenants that can't make a decision regarding their space taking. They're basically -- I don't know if I want to shrink. I don't know if I'm going to need the space. So as a result, what am I doing? So there are different ways to put a place in a lease to give some flexibility to the tenant, and that's what we intend to do. So our first priority is to keep our tenants. The second priority is obviously to fill our spaces. And so overall, we're getting ready for the headwinds, but we're not really seeing it in our portfolio right now. So we hear about it. We speak to brokers. They talk about tenants shrinking and stuff like that. But as far as our properties are concerned, we see it a little bit, but it's not something that's dominating the discussions.

Gaurav, I would just add to that to your -- I think the key part of your question was 18 to 24 months. So in the short term, we're on the same page. Somebody shoot the snow blow, it's a bit fuzzy and people are not really sure what they're doing. It's a bit murky. To that, I would say, given our expiry schedule over the next 18 to 24 months, we are not concerned that even if things were not to go exactly the way we wanted them to go that it would have a material impact on the performance of the REIT. But I do think that in 18 to 24 months, we're going to be on the other side of whatever -- I mean I think we may already be in a recession technically, but I guess it depends who you're reading. I think we're going to be on the other side of it. And long term, we believe more people are coming back to the office more often than they are right now. And that will translate into office demand on the other side of the recovery of whatever is happening or about to happen over the course of the next quarter or 2.

Okay. And just staying on the office team here for a moment. And Michel, you and Peter discussed the asset recycling program in place and the fact that there are a number of smaller private investors. How strong is that appetite for assets in the Quebec office market? And have you seen any notable changes within that buyer pool? -- given that most of the institutions are still pinned down, but these guys still seem to be very active.

If I may just -- and Peter may comment also, when we're selling our smaller off-core properties, Gaurav, they're small. So we're not going to get an institution interested in these properties. So the advantage that we have is the fact that our target buyer is a smaller mom-and-pop kind of operation, and I don't say this with ill thoughts. But it's smaller type investors that have the money. A lot of them made money in different fields, and now they have monies to invest. -- and real estate for them is a great opportunity. And not a lot of these buyers are managing monies for others. It's like a mini family office environment, if I can call it that way. So it's one property that we're selling, it's a family that's buying it and a family that sold a very well-known business in the province of Quebec. And now they're basically redeploying their capital elsewhere, and they're looking at opportunities in real estate. So -- and they have the money, we know they can close. They don't need a mortgage to close. So it's just -- and so that's the type of buyer that we do have. And -- are there are many of those -- for sure, they are a lot less than professional buyers and institutions and so on. But the target market for these properties are definitely not institutional. So yes, we have demand in every property that we have on the market. We have a target -- we haven't identified purchasers and so on. So we don't feel that we're in no man's land as far as the buyers are concerned.

Okay. Great. And just my last question and focusing on the industrial acquisition pipeline. Can you comment on what kind of stabilized cap rates you're focusing on when you're looking at different products in different markets? And how that sort of changed since the beginning of the year?

Well, the large acquisition that we concluded back in December of last year in Edmonton and Saskatoon, we concluded it at a 6.9% cap rate. And the last purchases that we have made that we concluded this year, again, in Edmonton are north of 6%. Although the market is -- as we understand it from Otis, it's at less than 6% cap rate. So we were able to basically harvest great properties at a great price, and we're very, very happy with these transactions. And we're still -- we've never bought a property at a 3.5% cap rate or a 4% cap rate. So our portfolio, that's why you're seeing the results. It's the fact that -- we call it, I think Peter called it disciplined earlier. And I think that it's -- when we're purchasing, we want to make money with these purchases. So the negotiations are that -- and we know the sweet spot in order to make money and be accretive for us. So -- and that we are effectively disciplined, and we're not buying below our accretion level.

The other thing, Gaurav in terms of considering the valuation proposal is not just the cap rate but the rental growth. And what I will say is though cap rates have softened a little since the beginning of the year. The thing that is for sure, standing out for me is in April, if we were looking at a possible acquisition, usually sort of single tenant, single occupant long-term lease. Those leases in April were largely sort of rental bumps every 5 years. And nowadays, the things we're looking at are you have rental growth every year. The vendor is keenly aware over the last year that something was happening eventually and that it wouldn't go to last forever and that in order to make an asset more saleable, you need to be able to show some incremental growth in cash flow. So compared not just against the cap rate, but looking at what does this thing look like on a 10-year IRR basis, what's the cash flow look like? How confident are we -- it's looking better from that perspective. And I think it's about time that landlords got more disciplined with regards to demanding rental growth from their tenants. And I think this is a function of -- I think the industrial market has been on fire probably for 3 years. And in a historical setting, that's not a lot of time to turn some of those leases. And so where we see opportunities, we take the plunge. So just underscore what Michel said before, we're seeing a fair amount of demand from the smaller size of investors, which will usually be local. They are also keen when they do need them to see that the debt that we have on the existing properties that are happy to assume because as Mathieu mentioned it, on average, less than 4%, whereas if you're refinancing the same thing today would be easily 50% more. And the other thing is on the acquisition side, we're talking less than a handful and sometimes less than a handful of bidders means less than 3. And I don't want to speak out of turn, but I think we'll have something positive on the horizon, in part because this is a better opportunity for us than it might have been when people were [indiscernible] stuff at 3.5% and 4% cap rates just to get their hands no matter what the cost was. We will not deviate from the disciplined approach we need so that we can grow sustainably and make sure that everybody is happy with the performance.

Your next question comes from Chris Koutsikaloudis from Canaccord.

Hey yes, thanks, good morning everyone, Just one for me here. Most of my questions have already been answered. But we're seeing average market rent for Montreal industrial space pushing up close to $15. I'm just wondering what your best guess of market rent would be for your industrial properties.

I'll answer the first part of the question, and I'll let Peter answer the second part of the question. The unfortunate outcome for BTB is that we don't have a lot of industrial spaces or leases coming to maturity next year. And I would say not -- if not substantially all of our net rents from our industrial landscape are way below market. So in your model, if the question is for your model, I don't think that you can forecast a lot of growth because we don't have a lot of expirations next year. But if you want to look further down, we're definitely way below market. So if your market is 15%, we would be close to 50% of that number. But in the renewal, you try to push the envelope, but I don't think that we would push below to $15, but we can definitely push it to $12 or $13.

Yes. Look, I think Michel is right. You know, What it does mean, though, is that if somebody wanted to try that loose from us, that cap rate would be significantly lower based on the opportunity for the growth. And I'm a little bit more bullish than Michel, I've seen in recent weeks, even in Montreal, for what little vacancy we do have, I mean, it's infinitesimally small. We're hearing stories about tenants being thrown out of their buildings, even though they've agreed to terms because they realize a week later that it's worth 10% more than what they had agreed to. So I say it's easily mid-teens, and we've seen industrial rents across the country, basically ranging from 12 to 24, 24 being the upper echelon refrigerated facilities, but we're still talking about a 28 to 36 foot box, renting for $24 and higher in Vancouver and in the 20s in Alberta and even in those numbers in Ontario. So for us, there's just plenty of room to run. I must remind you that for about 20 years from 1997 to 2017, rents in Montreal were $4. And so there's a reeducation of the consumer of that type of space, more sophisticated investors have come to town and sort of told everybody, "Hey, this is what's happening in the rest of the planet, you need to get back to reality. And I think we're at the beginning of an amazing run, which is in part driving our acquisition strategy.

[Operator Instructions] Next question comes from Anthony Bogdan from National Bank Financial.

Hey yes, How should we think of straight line rent? Will it convert to cash? Or will it remain elevated just going forward?

We didn't hear your question. There was a noise on the line. We couldn't...

Can you hear me now?

Yes, now it's good.

Great. How should we think of straight-line rent going forward? It's a little elevated? Will that be converting to cash? Or should we expect it to stay high for a bit...

Well, should -- we can look at the specifics, but Anthony, but the -- we should expect to convert to cash, yes.

Great. Next question is, you mentioned that your maturity profile is pushed out and it's not overly cumbersome in the near term on the refinancing front. But can you speak to the availability of financing or any changes to LTV or pricing for debt in recent months?

Well, pricing for LTV in general, we price around 60%. We don't want to push further in the past. We were closing closer to 65%, but I think our target as well is to continue to work on overall leverage to bring it down, but we wouldn't go further than 60. We even see today between 55 and 60 for some of the refinancing that we did.

And as far as availability for us, and I'm not speaking for everybody that's operating in real estate, but for us, there is availability of capital. So it's not an issue as far as financing or refinancing. And also the -- we see that there are new players. We also see that some people, as Peter mentioned earlier, were penciled down in August and all of a sudden, they're pencil up again. So there is a little bit -- where they said that there were no capital left in the pool for the year. All of a sudden, we see that there is a little bit of capital from the same people. So overall, we don't see any issue regarding funding our maturities for next year and also funding the little mortgages that we have to renew before the year's end.

Great. Just one more for me. Are there any large single tenant maturities through to 2023? Are you expecting these to renew? And if so, do you have any prospects for some space that might be coming online?

There is no large maturity next year.

At this time, there are no further questions. Please go ahead, Mr. Leonard.

Thank you very much for listening to our presentation this morning. We're very proud of our results, and we're seeing -- and we've been harping on the fact that ever since 2018, we upgraded the portfolio changed the different weighting in every segment of our investments. And all of a sudden, ever since 2019, it's bearing fruit. And so we were proactive in asking [indiscernible] to appraise our portfolio. We didn't want to wait for the end of the year in order to do so. And we did reflect the -- as Mathieu mentioned, the 25 basis point increase in our cap rates for the office segment and the retail segment. Although we think that the retail segment is going to do very well in the coming year. And that's basically on the basis of the activity that we're receiving in the retail segment where we're seeing that large users are deploying and increasing the number of stores or reincreasing the number of stores from which they operate. So we're very pleased with our retail segment. It's doing very well. Not only that, but we're also seeing that there is densification potential on some of our retail.

Glad to again, post a 5.3% increase in SP NOI. It's a number of quarters in a row that we're seeing an increase and a substantial increase at 5.3%. Our AFFO and FFO were still below 80%. Very proud of that, very happy with the fact that we remain at that level and that our properties are basically contributed to this great fact. So our debt next year, Mathieu mentioned it, we have very few renewals to conclude. It's about $50 million. The nut is about $50 million. It's not substantial. And we're very confident that we're going to be able to do so. And doing so may mean that we're going to basically go short. So although in the last years, we concluded a good number of mortgages for 10 years, 7 years and 10 years, I should say. Now we're going to look at it on a short-term basis. Obviously, fees come into play in a renegotiation of our mortgage and in order to basically calculate what's the cost on a longer-term basis. So we are looking at this on a 2- to 3-year renegotiation.

So our capital, as Peter mentioned, our capital recycling program is still ongoing and good offers on the table for the properties that we have on the market today. And the properties that we have on the market today are in the off-core segment. So we're still selling the smaller off-core segment. It doesn't mean that they are bad properties on the contrary. The reason that we have buyers is the fact that they're good properties. They're good for them. But for us, they don't fit the bill on a long-term basis. The acquisitions as far as acquisitions, I should say, in the Industrial segment, that's going to continue. And we're seeing opportunities that are very interesting for BTB and that we will wish to seize. So in order to seize those for now, obviously, we're not going to the market. We're not raising capital in the market. So it's basically the recycling of capital that is going to support our acquisitions for the time being. So with this, thank you very much for being here this morning, and we're looking forward to meeting you again for the next quarter's results. Thank you very much. Have a great day.

This concludes today's conference call. You may now disconnect.