First Capital Real Estate Investment Trust (FCRUN) Earnings Call Transcript & Summary

Good morning, and welcome to First Capital REIT's Annual and Special Meeting of Unitholders. I'm Paul Douglas, and I serve as the Chair of First Capital REIT's Board of Trustees. Each year, we look forward to the opportunity to speak with our unitholders at our Annual General Meeting. Our meeting is being held in a hybrid format virtually through the Lumi platform and in person at the offices of Stikeman Elliott in Toronto, which provides all unitholders whether attending the meeting virtually or in person with an opportunity to participate and engage with trustees and management of First Capital REIT. As we just hosted an Investor Day in February, presenting the Trust's strategy, business and operations, we will not provide a presentation following the formal portion of today's AGM. If you were not able to join us for that Investor Day, you can find a recording on the First Capital website. Members of First Capital's Board and trustee nominees as well as First Capital's executive leadership team are attending today's meeting either in person or remotely. I will chair the meeting, and Alison Harnick will act as Secretary. First, we would like to discuss how voting and questions will be answered [Technical Difficulty] in this hybrid format. Usually, and this year is no exception, vast majority of unitholders submit proxies or voting instructions in advance of the meeting, with only a small number of unitholders opting to vote the units at the meeting. Registered unitholders or duly appointed proxy holders who wish to vote at the meeting may vote either in person or online through the online platform. Registered unitholders who submitted a valid proxy in advance of the meeting do not need to vote again by electronic ballot or at the meeting. If you do not vote at the meeting, your previously submitted proxy will continue to be counted in the vote tabulation. Voting in person on all matters will take place by the ballot that was provided to you when you arrived today. The ballot distributed to you includes each of the items of business being voted on today. You will be given the opportunity to vote on each business item after the presentation of all such business items. Please do not return your ballot until told to do so. At that time, the scrutineer will come around and collect your ballot. Once the ballots are collected, we will take a short recess to allow the scrutineer to tabulate the valid results and report the results of the vote. For the purposes of the meeting today, voting online will be conducted by a single electronic ballot. Registered unitholders and duly appointed proxy holders will be given the opportunity to vote on each business item after the presentation of all such business items. Registered unitholders who choose to vote by electronic ballot at the meeting will be revoking any previously submitted proxies. And only the electronic ballots submitted at the meeting will be counted in the vote tabulation. Again, if you have previously voted, there is no need to vote again. When registered holders -- registered unitholders and duly appointed proxy holders are given the opportunity to vote, you will receive a message on the Lumi virtual interface requesting you to register your votes should you choose to do so. Please note that you will only have a certain amount of time to vote. In this hybrid format, questions will be accepted from registered unitholders and proxy holders in person and through the online platform. Once all motions being considered as part of the formal business portion of the meeting have been introduced and prior to the voting period, we will address any questions related to such motions. We will address any general questions that do not pertain to the formal business of the meeting during our question-and-answer period after the formal portion of the meeting has concluded. When prompted, registered unitholders or the duly appointed proxy holders attending the meeting in person may raise questions in respect of a motion by raising their hand and when recognized by the chair, addressing their questions or comments to the chair. When asking a question, please indicate your name, which entity you represent, if any, and confirm if you are a registered unitholder or a duly appointed proxy holder. If applicable, please also specify which formal business item your question pertains. For those attending and meeting virtually, questions in respect of a motion may be submitted by any registered unitholder or duly appointed proxy holder using the instant messaging service of the Lumi virtual interface during the formal portion of the meeting. Please note that there will be a slight delay in the publication of the questions received. We will address any questions relating to the formal business portion of the meeting after the introduction of all business items and prior to the voting period. When asking a question, please indicate your name, which entity you represent, if any, and confirm if you are a registered unitholder or a duly appointed proxy holder. If applicable, please also specify which formal business item your question pertains to. We will address general questions received online that do not pertain to the formal business portion of the meeting during our question-and-answer period after the formal portion of the meeting has concluded. To ensure fairness for all attendees, The Chair will decide on the amount of time allocated on each question and may limit, consolidate or decline questions. Questions with common themes may be grouped together for efficiency. In the unlikely event of a serious technological failure that prevents the meeting from continuing, The Chair may determine to postpone the meeting. To make the best use of our time, certain unitholders have been asked to move and second the proposals, which are called for in the notice of the meeting. Before we start, I would ask Alison to provide the necessary caution regarding forward-looking statements.

Thanks, and good morning, everyone. On behalf of those speaking today, I would like to note that their comments may include forward-looking information and forward-looking statements within the meaning of applicable Canadian securities laws and they may refer to non-IFRS financial measures. Details regarding forward-looking statements and non-IFRS financial measures are on screen and can be found in our various securities filings, including First Capital's most recent MD&A, current annual information form and annual report to unitholders. These can be found on SEDAR+ and on the REIT's website. Actual results could differ materially from the forecast, projections and conclusions in the forward-looking statements made today. All of the forward-looking information and statements that we may provide, which includes all information other than statements of current and historical fact are qualified by the cautionary statement posted on the screen.

Thank you, Alison. The meeting will now come to order. Representatives of Computershare Trust Company of Canada, the REIT's transfer agent, have been appointed to act as scrutineer. Notice of the meeting including the agenda for today was mailed to unitholders on or about March 24, 2024. The scrutineer has confirmed that proxies representing over 72% of the units entitled to vote at the meeting have been properly deposited prior to the meeting and that a quorum is present. I now declare the meeting is properly constituted for the transaction of business. The first item of business is the tabling of our 2023 audited consolidated financial statements, together with the auditor's report, these can be retrieved from the Investors section of the First Capital website or SEDAR+. Please note, we will address any questions respecting the financial statements in the question-and-answer period following the formal portion of the meeting. I will now proceed with the next item of business, the election of trustees. 10 trustees are to be elected and detailed information regarding each of the 10 nominees is set out in the circular. The Board has adopted a majority voting policy that permits unitholders to vote in favor of or withhold from voting for separately for each nominee. Details concerning the policy are available in the circular and the full policy is available on our website. Based on the proxies received by the scrutineer in advance of the meeting, each trustee nominated received votes in favor from a range of at least 90% to over 99% of the votes cast. Pursuant to Section 6.7 of the declaration of trust of the REIT, trustee nominations were required to be received 30 days prior to the meeting. As no such nominations were otherwise received, no one other than the proposed nominees are eligible to be nominated. As mentioned, I have taken the liberty of asking certain unitholders to make the motions for the election of trustees and other motions today. Could I please have a motion for the election of [ trustees ].

Mr. Chair, my name is Jane Camara, and I'm a unitholder of First Capital REIT. I nominate the following persons for election as trustees of First Capital Real Estate Investment Trust to hold office as trustees of the REIT until the next annual meeting of unitholders or until their successors are duly elected or appointed; Paul Douglas, Adam Paul, Leonard Abramsky, Sheila Botting, Ian Clarke, Dayna Gibbs, Ira Gluskin, Annalisa King, Al Mawani and Richard Nesbitt.

Mr. Chair, my name is Noah Parker, and I'm a unitholder of First Capital REIT. I second the motion.

Thank you. As mentioned at the beginning of this meeting, voting today will be conducted by a single ballot for those in person or an electronic ballot for those voting online. We will, therefore, continue with the next item of business, which is the appointment of the REIT's auditors, and you will be prompted to vote on the election of each trustee after the presentation of all business items for this meeting. We will now move to the appointment of the auditors and authorization of the trustees to fix their remuneration. Based on the proxies received by the scrutineer in advance of the meeting, the auditors have received votes in favor representing at least 99% of the votes cast. May I have a motion to appoint the auditors and authorize the trustees to fix the remuneration.

Mr. Chair, I move that Ernst & Young LLP be reappointed auditors of First Capital REIT to hold office until the next annual meeting of unitholders or until their successors are appointed and to authorize the trustees to fix the remuneration.

Mr. Chair, I second the motion.

Thank you. You will be prompted to vote on the appointment of the auditors after the presentation of all business items for this meeting. The next item of business is the advisory resolution regarding First Capital's approach to executive compensation, which is disclosed in detail in the circular. A copy of the resolution is set out in the circular. Based on the proxies received by the scrutineer in advance of the meeting, a say-on-pay advisory vote has received votes in favor, representing at least 89% from the votes cast. May I have a motion to approve on a nonbinding advisory basis, First Capital's approach to executive compensation.

Mr. Chair, I move that the nonbinding advisory resolution on the REIT's approach to executive compensation in the form set out in the circular be approved.

Mr. Chair, I second the motion.

Thank you. You will be prompted to vote on a nonbinding advisory basis on First Capital's approach to executive compensation after the presentation of all business items for this meeting. The next item of business to consider, and if deemed advisable, pass a resolution authorizing amendments to the REIT's deferred trust unit plan. A copy of the resolution is set out as Appendix A to the circular. Over 95% of the votes cast in advance of this meeting are in favor of the resolution to approve the proposed amendments to the REIT's deferred trust unit plan. May I have a motion that the resolution in the form of tax as Appendix A to the circular authorizing amendments to the REIT's deferred trust unit plan be approved.

Mr. Chair, I move that the resolution in the form attached as Appendix A to the circular, authorizing amendments to the REIT's deferred trust unit plan be approved.

Mr. Chair, I second the motion.

The next item of business is to consider, and if deemed advisable, pass a resolution authorizing the proposed amendments to the REIT's Restricted Trust Unit plan. Copy of the resolution set out as Appendix B to the circular. Over 92% of the votes cast in advance of this meeting are in favor of the resolution to authorize the amendment to the REIT's Restricted Trust Unit plan. May I have a motion that the resolution in the form of tax as Appendix B to the circular, authorizing amendments to the REIT's Restricted Trust Unit plan be approved.

Mr. Chair, I move that the resolution in the form attached as Appendix B to the circular, authorizing amendments to the REIT's Restricted Trust Unit Plan be approved.

Mr. Chair, I second the motion.

Thank you, Jane and Noah. As this is the last item of business to be voted on, Alison, were there any questions or comments submitted online in respect of today's business items.

No, we haven't received any questions online.

Thank you. Are there any questions or comments from in-person attendees in respect of today's business items, Mr. Segal.

I have 2 questions, one on the Board and one on the compensation. Page 92 of the circular shows a pie chart where it's goes over the length of term of each director. So first, let's make the fact clear because the pie chart is not very clear. 20% of the Board has served between 7 to 10 years. That would be Annalisa King and Adam Paul. Is that correct? And Annalisa has been on the Board for 7 years, and the CEO who is not an independent director, we all know that is the only one who's been on the Board for 10 years. When you look at the pie chart, it looks very balanced. I just wanted to make sure that I understand the facts correctly. It's only Annalisa who has been on the Board for 7 years. And the reason why I'm asking this, Mr. Chairman, [indiscernible] last year were courtesy of Mr. Annalisa King and the Governance Committee, a fundamental policy was removed to First Capital circular last year, which says that there should be Board members with institutional memory on the Board who understand the history and the performance of the company before the last few years, that sentence was removed, and there's no longer a need. And when you look at the Board today, other than Annalisa King who have rolled in spending $10 million last year defending the company, I don't know against what -- [ $10 million of our money ] [indiscernible]. All the Board has been served less than 5 years with the exception of Mr. Mawani, who's been on the board for 6 years, which means I don't understand how that serves the heading of the whole chapter of Board, which is provided proper oversight and challenged management most of the Board, the fundamental part of the Board. Doesn't really know how this company operated or [ acted ] when it was actually successful.

I don't think I would read anything in particular to that sentence being removed. The strategy around corporate governance would have a range of tenure on the board. That's still the case. It is also considered the governance that once a director or a trustee has been on the Board more than 10 years, they've become less and less "independent." Our proxy rating agencies certainly look at that. If you recall, the people who have left the Board recently have been replaced by some of the members that you mentioned. I had served for a very long time, indeed, more than 20 years. And that also is considered weak governance. So we're trying to find the right balance between tenure and going too long.

Obviously, it's not my place to debate it. I just wanted to stress the point I obviously disagree with the fact, I think the only diversification this Board has is anybody who doesn't agree with what happens [ is out ]. So the second question is Page 80 to the compensation list -- sorry, to the circular list 2 comps in terms of pay for management. One is Empire and one is H&R. What was the judgment of putting Empire rather than Crombie and H&R rather than the spin-off Primaris, which are probably the direct. You can get more peer group than Crombie and choice -- you agree with me is a supermarket-anchored REIT, which I think is one of the First Capital's strength. I finally recognized last year -- sorry, last month in the investor meeting. Before I remind you, we were super urban developers and blah, blah, blah and all this nonsense that we earned in 2 years. And then H&R obviously, H&R been a comp than Primaris.

Every year, with the help of consultants, we look at the peers that we're going to use for comparison, we've made changes over the years. I believe the reason Empire was considered a comp was because of the retail aspect that company and comparing it, we are a retail REIT. In any case, we have made further changes since then.

Because you have choice [indiscernible]. I'm just finding out...

Okay. Are there any other questions.

You will now be prompted to register your vote in respect of each of today's business items. For those of you attending the meeting in person, please complete the ballot that was provided to you when you arrived today. When you arrive -- once voting is complete, the scrutineer will collect your ballot. For those of you attending the meeting online, please register your votes by accessing the voting page when prompted and make your selections in respect of each of today's business items. Once the electronic balloting closes, the voting page will disappear, and your votes will be automatically submitted. We will wait for a few moments for the completion of the ballots and then move on at the remainder of the meeting. We will provide registered unitholders and duly appointed proxy holders approximately 2 minutes to complete the balance. Once voting is completed, I would ask that the scrutineer compile the report -- the reports regarding the results of voting on all business matters, we will reconvene in a few moments with the scrutineer's report and the voting results. [Voting]

This brings us to the end of the voting on items of business before this meeting, and I, therefore, declare the polls closed. Thank you for casting your votes. The scrutineer will tabulate the votes cast, and we will report back on the results momentarily. Following the formal portion of the meeting, there will be a question-and-answer period. I'm pleased to report we have now received the preliminary voting results from the scrutineer on the 5 items of business. The formal voting results will be made available on SEDAR following the meeting. On the election of trustees, the voting results show that each trustee nominee has received the required number of votes in favor of his or her election. Accordingly, I declare that the proposed trustee nominees have been duly elected as trustees. Our First Capital REIT to hold our office until the next Annual General Meeting of unitholders or until they resign or their successors are duly elected or appointed. On the election of auditors, voting results show that the required number of votes cast were in favor of the reappointment of Ernst & Young LLP as the auditors of First Capital REIT. I declare that Ernst & Young LLP are reappointed auditors of First Capital REIT and that the trustees are authorized to fix the auditor's remuneration. On the advisory vote, our First Capital's approach to executive compensation, the required number of votes cast were voted in favor of First Capital's approach to executive compensation. Motion is carried and the resolution is approved. On the authorization of the amendments to the REIT's Deferred Trust Unit Plan set out in the resolution attached as Appendix A to the circular, the required number of votes cast were voted in favor of the resolution. The motion is carried and the resolution is approved. On the authorization of the amendments to the REIT's Restricted Trust Unit Plan set out in the resolution attached as Appendix B to the circular, the required number of the votes cast were voted in favor of the resolution. The motion is carried and the resolution is approved. As we've come to the end of the formal portion of the meeting, we will terminate the meeting now. May I have a motion to terminate the meeting.

Mr. Chair, I move that the meeting terminate.

Mr. Chair, I second the motion.

Thank you. I declare the meeting terminated. Before we open the question-and-answer portion of the meeting, I would like to pass the meeting over to Adam Paul, President and CEO of First Capital REIT.

Thank you very much, Paul. Good morning, everyone. My remarks today will be brief given we're on the heels of a very comprehensive Investor Day during which we outlined where First Capital's business is currently, where we're taking the business and how we're going to get there. We covered several of our core competencies and our competitive advantages in that regard. All tied to the business of grocery-anchored retail and the rezoning of future development sites. Most importantly, we laid out our key objectives for our investors, which our strategy is specifically designed to deliver and that is consistent growth in FFO per unit, NAV per unit and distributions per unit. Part of delivering those is a stronger balance sheet. We also laid out our expectations across several key metrics that we expect to achieve both this year and over the next 3 years. We made a lot of progress over the last year, and the business is in great shape, but we still have a lot of work to do. We have everything we need to do it, including exceptional fundamentals. The massive increase in Canada's population over the last few years has increased the customer base of our tenants. Against that backdrop, we've seen next to no new supply of grocery anchor centers for many years for both physical and now economic barriers to entry for that supply. We also know that inflation has been a net positive for the majority of our tenants. One has to look no further than our top 20 tenants, 75% of them are public companies. So we get a good window into what's going on in their business. We know that inflation has driven top line sales, but equally as important, profit margins have been protected. And what that's done is it's improved store profitability and consequently, rent paying capability. Needless to say, your Board and Management team are very, very confident in our strategy. We're very focused, and we're excited to continue to successfully execute our strategy. So I'd like to thank our Board of Trustees for your wisdom and your guidance. I'd like to thank my partners on the executive leadership team for your passion, your commitment and your teamwork. I'd like to thank all of our employees for their tireless efforts, and I'd like to thank you, our investors, for your continued trust and support. And with that, I will now turn it back over to you, Paul.

Thank you, Adam. We're now at the informal part of the meeting, and we will open the floor for questions. And either Adam in all likelihood or I will answer the call.

Jeff?

I was just curious [Technical Difficulty] the question that was posed earlier by Mr. Segal about the compensation. I suspect they don't feel it was particularly -- the essence of this question was addressed. My recollection was that in response to the question, you noted that Empire is in the retail business, which leaves accurate, but Crombie's in the retail real estate business as is First Capital. So it seems you have a number of more direct peers. I think the essence of the question is why award those peers? H&R and Primaris is a great example because, as you know, Primaris in the retail business, H&R is not. So it seems it was very particularly constructive, and I'm wondering what was the reason for doing so and if you have any sense, what would have been the implications if other more direct peers' choice RioCan smart centers, perhaps, I have no idea what the answer is, but I'm curious?

I don't have the list in front of me, but some of those companies are in the group of peers that you just -- RioCan, for instance, and others. And we do change them as time goes by and the business evolves and the market evolves, and we take advice on doing that. We made changes last year to the peer group. And the result of it was that our executive team did move slightly in the range, but they were well within the range, and we were comfortable.

I want to talk about -- I want to ask about the business itself and its performance because that's actual. The Investor Day emphasized, I think, rightfully so, and I think everybody here probably agrees the First Capital is the best portfolio among all its peers, particularly when it comes to supermarket-anchored shopping centers. I think anybody would disagree with that. In other words, the cards we were dealt with are pretty good. If I look at our 2 direct peers, which is Choice and Crombie, they are supermarket-anchored shopping centers. In the last 5 years, we have significantly underperformed those 2 entities, double digits. And in case -- the case of Choice, the underperformance is material. A decade before that, we outperformed those 2 entities. I'm really scratching my head to try to understand why. And I wonder if there is an answer to that, that you struggle with and therefore, you want to improve?

We actually have a couple of slides that I'd like to put up that I think may be helpful in answering your question. So let's start with Slide 8. And then if we could get Slide B ready because we're going to look at that. And I view our 5 key peers as the 2 you mentioned, Choice, Crombie, also CT REIT, RioCan and smart centers. And what this chart does is it charged strictly unit price performance over the last 5 years. And you can see at the beginning of that chart, there's a massive drop. That's COVID, and unfortunately, COVID disproportionately impacted the retail sector. You can see that the 3, we'll call it, retail-sponsored REITs, performed exceptionally better than the 3 non-retail sponsored REITs. And we fell unfortunately in that bottom bucket. We were disproportionately impacted from a number of reasons. I think most of them are self-explanatory, but through that period when the REIT was getting a major portion of their income from one specific tenant, particularly grocery or in the case of the entire 92% of our income was coming from that one tenant who had much less restrictions imposed on them required no support unlike the vast majority of our tenants. And we are still recovering from that. That's pretty clear. We've adjusted. There's been another major event that's impacted the last few years. It certainly didn't impact the 10 years prior as you referenced. That's the large increase in interest rates versus a massive continuing decline in interest rates. And we've adjusted. We've adjusted our strategy. We've done a lot of work on it at the Board and management level. We communicated in a very comprehensive way at our Investor Day. And we've been executing it. We've been executing it for 1.5 years, and it's working over about 1.5 years, and that's where the next slide would come in Slide B. This shows the returns over the last 18 months or so, which is when we implemented our optimization plan, which effectively in substance is our core strategy. And we've significantly outperformed every single one of those 5 peers by a wide margin. In fact, we've outperformed the entire REIT index, which includes industrial REITs, which have been generally more in favor of multi-residential REITs. So the Board and management's view is that our strategy is working. I agree with you that it's been disappointing. We wish the unit price would be higher, but we think that over time, if we successfully execute the strategy, that will occur just like it has over the last 18 months. And I acknowledge we were coming off a low base. But clearly, we believe our strategy is working.

I wanted to give the answer because I knew that was going to be the answer because I look at the charts, too. And as you know, I know something about -- a little bit about this business. So with all due respect, -- this is absolutely not true. 100% not true. Not the slide is not true. The relation you guys are trying to make between -- and I'll explain it. And the reason why it's not true. Because first of all, if you look at the last tremendous crisis in this industry in the last 2 decades, 2008, '09, First Capital was the top performer, notwithstanding the retail sponsor, which is nonsense, absolute nonsense. Rubbish. Let me suggest why First Capital underperformed its 2 most important REIT's. In the last 5 years, there were 2 fundamental decisions that are viewers in every retail REIT history -- in the history of retail REIT in Canada, which is a Gazit transaction and then going short on [ debt later ] in the worst possible timing in 3 decades. This is the reason why First Capital is underperforming and it goes back to my first comment when there is a Board who is not prepared to actually discuss things and challenge and the Board is so confident in the strategy that it would not debate it with me, for instance. I've sent 10 letters to the Board and I got one answer. We disagree with you, and we support management. I don't know what you disagree with. I don't know why. This is not a Board, definitely not a CEO that is prepared to challenge the strategy, absolutely out of the question. And I don't see anything right now that is going to change this over the next few years in the way the company behaves. This company now is an option on a 10-year bond. That's it. It doesn't matter what it does. But then if you want to put the chart, I have it, by the way, it follows First Capital with a 10-year bond. It's the most sensitive entity among all its peers because that's what it is. A real Estate entity with 3.5 years came to maturity $2.5 billion term to maturity is not a real estate entity. It's an option on interest rates. And that brings me to my last final question. I'm sure the management is -- it's just a number question. I just -- I want to confirm it, not that I don't know the number. If we mark-to-market the term to maturity right now for 5.5 years as this company was for 2 decades, until the [ circuits ] that went on in the last 5 years, what would be the FFO today? If you just took mathematically and you turn the 3.5-year term, that's to maturity to 5.5, what would be the FFO? Anybody knows the answer to this question? [indiscernible] What's the number?

I don't know the number, however...

I thought you guys discussed the strategy so thoroughly in the last month, what is the number? What's the number? What's the FFO number if today with 5.5 year term to maturity? Does anybody know here, Audit Committee, [indiscernible], nobody? Nobody has a clue in this company, what would be the number.

We have discussed it, [ Dory ], and you...

What's the number?

You've referenced our [indiscernible]. Can I address your question? You've addressed the term to maturity with the Board several times. It's not lost on us. I would like to address it because we spent a lot of time on debt strategy, and we take a holistic approach to debt strategy. And the debt ladder is just one single component. We look at debt to EBITDA, debt to assets, we look at our mix of secured versus unsecured, variable versus fixed rate debt. We look at the diversification of our funding sources, the amount of liquidity we're carrying, our overall debt level. That's an important one. We have made a strategic decision to reduce our overall debt level and it's been widely supported by our investors. And that inherently that -- no, our investors don't support -- I'm sorry, [ Dory, ] we have done a ton of engagement with our investors. With and without management, it's widely supported that lower debt is better for First Capital, okay? That's a fact. Inherently, when you're doing that, you have a shorter ladder. Number one, we're renewing less debt than is maturing every year. That in itself shortens the ladder. Number two, to pay off debt without penalties, we need maturing debt. We carry mostly fixed rate debt, as you know. Ultimately, we'd like to have a 10-year ladder, meaning a 5-year average term, and we need some time to do it. But what's most important, [ Dory, ] is that our debt strategy is working. The [indiscernible] pudding. We just did an unsecured debt offering a few weeks ago. It was 8x oversubscribed. Our bankers have told us it's the most successful REIT debt offering that they can recall. We had over 60 investors come into our bonds. And if you look at our credit over the last few months since the beginning of the year, our unsecured debt spreads are in over 100 basis points. 40 basis points of that's been sector-wide, all real estate companies. Over 60 is FCR specific. It's clear that it's working, Dory.. We're now inside of [ RioCan ], inside of smart centers. We've got CT REIT and Crombie REIT in our sites within 10 basis points of where their price. So from our perspective, the debt strategy is working. And yes, I agree with you. I would like to have a longer term to maturity. But that's one element of the overall debt strategy. So I hope that gives you a little more insight as to how we're looking at it and what we're thinking.

[Technical Difficulty]

We disagree. It's a critical part of our strategy going forward.

[Technical Difficulty] free cash flow over next 2 years, interest rates don't go down, which is the only [Technical Difficulty]

Our business plan assumes no decline in interest rates. We tried to make that clear on our Investor Day.

[Technical Difficulty]

We outlined our key metrics at our Investor Day. That's your opinion, Dory. It's unfortunate you feel that way, but those are our numbers.

Right. I just want to respond to one part of your question or comment. You have, of course, [indiscernible] Board a number of times. We have always answered. There are times when your correspondence comes faster than we can answer, and we've answered 2 with one, but we've always replied. We have not provided detailed point-by-point arguments with you. That's true. We've also allowed you to speak directly to the Board twice in the last 2 years [Technical Difficulty] presentation to the Board, one virtually and one in person. So the Board has not ignored you, the Board has paid you a great deal of respect, which it should, given your past history with us.

[Technical Difficulty] improvement in debt metric somewhat close to [Technical Difficulty] with the price of the equity. You can make [indiscernible] holistic approach should be higher the [Technical Difficulty] doing right now. [Technical Difficulty]

[Technical Difficulty]

The premise of my question is I don't believe -- we don't believe that you have too much debt, we believe, as you've addressed that you have a term structure of debt issue. And I think the view that you have too much debt is, in my opinion, experiences driven by generic references to Bay Street and not with respect to the quality of your portfolio, the lower cap rate that it has deserved in the private market. It's not a real estate-driven strategy. It's a base street driven strategy. But my question is, [indiscernible] making is, in that context, do you have a sense of how much of the capital optimization plan? I mean normal course culling of the portfolio is prudent and a good real estate company does that and you guys have done it for years. Do you have a sense of how much of the capital optimization plan would be driven by this disagreement of you of reducing the amount of debt versus normal course culling of the portfolio?

Yes, it's a good question. And we've talked about our debt many times as well. And I want to be clear, the debt reduction strategy is not about solvency. It's not about bondholders. It's about cost of capital, an equity multiple. That's what it really is. I know you're in a different category in terms of view, but the vast majority of our institutional investors, equity investors very much are zoned in on debt reduction and fully supported. And it's from that cost of capital perspective. The reason we're selling -- the amount of assets we're selling, the types of assets we're selling is not solely driven by the debt reduction strategy. We own a lot of assets that have been good for NAV, but harmful to FFO. There are also assets that are, we'll say, fully valued in the private markets that typically over time are not fully valued in the public markets. And so monetizing those and converting them to cash, whether we use it to pay down debt or invest in other assets that do get fully valued. That's an important part for us of closing the gap between where we trade and our NAV. So it's not solely driven by debt reduction strategy.

Roughly how many basis points do you think you would save in terms of your cost of your debt if you improve your debt maturity?

Well, I mean, it depends. So we've taken our debt to EBITDA, for example, from, call it, we were close to 11 to high 9s, and we've told the market we're going to low 9s by the end of the year. Based on where we sit today, that's come in 100 basis points. Again, I would say [ 40 ] of that is kind of sector wide. So 60 basis points, I think, is what's relevant for this discussion because it's FCR specific. We think we can get it into the low 8s in the next 3 years. And the reality is Choice is the sector leader. Today, they were -- at the end of last year, they were north of 100 basis points inside of us. They are about 35 today. I don't see any reason why we can't catch them and go through them. Notwithstanding they benefit from piggybacking off the Loblaw credit. We have other unique attributes that I think can compensate for that. So I think it's material, Jeff.

I would think that the most often at a reasonable case, you're probably at this juncture of [indiscernible] bps to achieve the ambitious goals you have. So my question to you is the amount of reduction in leverage in that capital [Technical Difficulty] and grow your cash flow would be a lot more good by you than saving that 20 basis points by driving down your leverage [Technical Difficulty]?

Yes. Look, there's merit in your point. I respect your view. I think it's more than 20 basis points. And I think there's another part of it that what does it do to our equity multiple. I think that's another factor as well.

[Technical Difficulty]

What specifically?

An update on [Technical Difficulty]

The public realm, the pedestrian [indiscernible]. Yes. Okay. So short answer is METROLINX tied up with them. But after the meeting, [indiscernible], if you want, I think [ Jodi ] can give you more specific details. He is closer to it.

There's 2 examples globally of High Line similar to what [ King's ] could become that New York and another city, I'm not going to mention right now. I've been to both places, both places experienced significant increase in the value of residential around them once the project is done -- public projects. So I just want to ask again, why did we sell 500 units of residential at below replacement cost when they could experience doubling in value. That's question number one. And question number two, how did we get to 11 debt-to-EBITDA ratio? I mean you talk about this if it just came out of [ SEDAR ]. How do we get to 11 that we now have to bring it back to 9?

Yes. So the first question, I think, was why did we sell King High Line. We have a different view on what the impact of the High Line will do to the residential. We don't view it on the same scale as New York's High Line. That being said, at the time we had $4 rents, can argue it's below market, not grossly below market. Interest rates had risen dramatically. The property was full. We sold it at a 2.9% current yield. It was strictly a capital allocation decision.

[Technical Difficulty]

No, I don't regret the decision. I would do it again today. I feel that what we did created more value for the company, for what it's worth, it was widely -- I know you disagree, Dory. It was widely supported. Our institutional investors were asking us to do more of that if we could. They own us, Dory. I can't ignore them.

[Technical Difficulty]

This is a question-and-answer period, not a debate period. Are there any other questions?

How did we get to 11 [indiscernible]?

Yes. Look, there are a number of factors, COVID was obviously one. I know where you're going with this is the Gazit transaction. All I'd say is on the Gazit transaction, Dory. It was 5 years ago. There were different circumstances. It clearly hasn't played out the way we had hoped. We did take it to unitholders. It made a lot of sense at the time. We had 85% of our outstanding units both that transaction, it was overwhelming. It was 99.7% voted in favor. It made a lot of sense at the time.

[Technical Difficulty]

Are there any questions online? In that case, thank you all for attending the Annual General Meeting for 2024 for First Capital REIT. We hope to see you again here next year.

Thank you.