Primaris Real Estate Investment Trust (PMZUN) Earnings Call Transcript & Summary

Well, good morning. Thank you, everyone, for coming. I'm thrilled with this turn out, almost 50 people net of some Air Canada casualties and a very manageable crowd, just walked up and you guys sort of settled down. So I appreciate that. A few intros to start with, Pat Sullivan, our President and Chief Operating Officer, is seated upfront. Rags Davloor, our CFO, is just coming up here. Leslie Buist is over there in the back, she's the Senior Vice President, Finance. Graham Procter, right here, Senior Vice President, Asset Management. Leigh Murray is right there. She's the Head of National Leasing. Sherri Kelsie is over there in the corner, she's the General Manager of Halifax Shopping Center, where we are today. And Claire Mahaney is somewhere right over there, she's VP, IR and ESG and she and Sherri put a ton of work and a number of other people put a ton of work into today. So very much appreciated. So you guys have heard me talk a lot about Primaris. The first couple of years of Primaris, we referred to it as the awareness campaign. So we spent a ton of time talking about what designing a REIT from a blank slate is about, our differentiated financial model, the importance of scale in our business, the consolidation opportunity, lots and lots of things. And today it's really about the mall business. So these are some of the slides that go with us. This slide will be familiar to a lot of you. We do talk about size and scale, proper capitalization, as I mentioned, all these different pieces. At the bottom left, the focus on retailer affordability is a big piece of our business and running malls is a complex operation. It's one that takes a lot of resources. It takes a lot of experience, and that's what we're here to talk about our strong platform and our amazing team and how they deliver the results that we've been delivering over the first few years as a public company. And I'm very pleased to say that it's working. On this slide, you'll see that Primaris has delivered a 49% total return since the spinout that is significantly ahead of the other retail REITs at about 9%. And as I said, we spent the first couple of years really on this awareness campaign and building the track record, getting in front of investors and telling them why they should own Primaris and so I'm very pleased that I have very little to say today. It's mostly going to be the rest of the team talking about our business and how it is that we do what we do. And then as it relates to this slide, you might think we've delivered 49% total return well ahead of our peers. We're actually really optimistic that we can continue to deliver outperformance consistently. And you might say, why are we so confident? I would say there's really sort of 3 areas. The first one is operating and financial performance. We have a big opportunity in our occupancy, a couple of hundred basis points, 300 or 400 basis points of occupancy recovery. We still have a lot of these pandemic era leases to straighten out and that will help us lift our recovery ratios. And as we get closer to that stabilized occupancy, we're going to see strengthening leasing spreads and all of that is going to contribute to strong FFO and NAV per unit growth. The second reason that we're pretty optimistic about our stock price is valuation. Over the past couple of years, we've seen a very significant narrowing in the credit spreads relative to our peers and on an absolute basis. On the equity side, we've seen our valuation improve and yet we continue to represent what I think is the best value. But on a straight up valuation basis, we still have high credit spreads on the debt side and discounted valuation on the equity side. So we still see a lot of relative valuation improvement. And the third is really the liquidity and pricing of mall properties in Canada and the U.S. As I said to many of you, there was a time when malls were viewed as the top of the pecking order of property types. And that's because they're large regionally dominant properties, high barriers to entry, really good supply and demand dynamics and excellent long-term performance prospects. This was disrupted by Target and Sears and e-commerce and a pandemic. It has been or there was a 10-year very tough time for malls. But as liquidity returns, as Primaris buys more of the malls in the Canadian market, we're going to see a more balance in that market, we're going to see the relative pricing of malls compared to other property types improve. And one thing that I sometimes touch on, and I'm not sure if everyone appreciates it, but I truly believe that the REIT is the ideal ownership and capital structure for malls. It is permanent capital, and these are very long-term assets. And through today, you're going to hear a lot about how running malls is a very long-term exercise in terms of how to plan, manage, capitalize and really produce these results. So I really do believe that this is the ideal ownership structure. But before we get to all of that talk about our platform and the strength of our team. We have some special guests here that are going to tell you a little bit of this amazing city. I can tell you it's a fantastic story, but I don't have to because we have Wendy Luther, who is the President and CEO of Halifax Partnerships here. Ian Munro, the Chief Economist from Halifax Partnerships is also going to speak. But first, we are honored and very appreciative to have Mayor Mike Savage from Halifax here, and he is going to tell us a little bit about Halifax. So with that, I will turn it over to Mike, if we could welcome him to the stage.

Good morning, everybody. [Foreign Language] [indiscernible] I want to welcome you to Halifax. This is the traditional land of the Mi'kmaq people, those are the first nations of this land. They've been here for 13,000 years, and we honor their presence. And we have peace and friendship treaties that go back to the 1720s that really weren't honored very much, but we honor them now and we intend to keep them. Is that the only slide we have that year book picture of the 3 of us? It's a good-looking boring grade 12. It is great to -- look, it's tremendous. We always welcome visitors and I want to acknowledge the folks on Halifax Shopping Center. This is a beautiful shopping center. They've done a great job with it. It's certainly a destination point for people who live in this community. So thank you for the great work you've done with the Halifax Shopping Center. I'm the Mayor, but I'm not going to be the Mayor the next time you're in Halifax, if I'm away. I'm not reoffering this year. I've been there for 12 years. Before that, I was a member [indiscernible] for 3 terms, and I was in business before that. So just to give you a sense of how old I am. About a year ago, I was walking through some place and somebody came over to me and said, "What a great person I was." I'm the only Mayor they knew in their lifetime. And I said, holy s***, it's time to get out. When I got elected Mayor in 2012, our population was around 400,000. Today, it's around 500,000. And Dr. Munro and Dr. Luther will give you the exact statistics, but there's no question we've gone through an unbelievable period of growth. We're also -- we became a destination for immigration, and that was intentional and purposeful because in 2014, a report came in from Ray Ivany, who was asked by the provincial government to do an analysis of the Canadian economy. The title of that report was now or never, an urgent call to action. Now that wakes you up when you think about your future and what it means. It said that we weren't doing a very good job of attracting immigrants. We were losing the demographic battle. We were getting older. We were losing people. And I'm here to tell you today that Halifax is younger, smarter and clearly, better looking than we were in 2012. A lot of work by a lot of people has made that happen. But we were intentional we wanted to encourage immigration. We work for the provincial government. And I would argue that Atlantic Canada was behind the times on immigration. So the big cities, the Toronto, the Montreal, the Calgary, Vancouver, but also a province like Manitoba was intentionally bringing immigrants into Manitoba. We didn't do that. We thought we were focusing and charming and we were, but we didn't do enough to bring immigrants to Halifax. So we started working on that. And by 2016, we were seeing the results pay for themselves. In 2012, we had a net out migration of people from Halifax. And our whole population grew between 0 and 1,000. And last year, we grew by around 20,000 people. We expected the immigration, what we didn't really plan for that well population-wise, was COVID. We didn't expect that so many people would -- when I talked to somebody this morning who basically works here, but is employed with you guys in Toronto doing a probably a great job and largely living in Halifax. So it's an important thing for us to welcome people from around the world and now also to have turned around that whole idea of going down the road to Toronto. Now in fact, people are coming here in bigger numbers. So Wendy and Ian will take you through the numbers, I just want to tell you, as Mayor, a few things about Halifax. We have the most bars and pubs per capita of any city in Canada. I've never seen it in paper, but I've never seen it disputed either, so get out and have a bit of fun. We were chosen by Matador Magazine a few years ago as one of the top 20 cities in the world to party in before you die. So I hope you all get a chance to test that, amongst all the important work that you'll be doing while you're here. But Halifax is now a cooler place than it's ever been before I think. You find a Mayor that doesn't boast about her or his city. You can usually believe about 65% of what mayor tells you, I'm probably closer to 75%, but you don't know which 25% I'm lying about. But I will say that our economic platform, which we did as a city in conjunction with the Halifax Partnership who you'll hear from later. Our economic plan is called People, Planet and Prosperity. We believe in people being part of the solution. We want people to be successful. I want people who do well to earn the benefits of that success, but I also want more people to be part of it. We believe very strongly in climate change and its impacts. We're a coastal city, we see the effects of storm surge. We see what happens, sea level rise. Last year, we had the worst fires in our history at the beginning of June. July, we had the worst floods in our history. We have winds that used to whip up from Florida but die out at the Carolinas because the water was colder. Well, the water is not colder anymore, and those storms are hitting us all the time. So we have to do more work, and we have to be ready for climate change, and we have a very good climate action plan. And I'm really excited that our economic plan is called People, Planet, Prosperity. Take care of people, take care of the planet and the prosperity will follow. As I leave the office, which I will do in probably 6 weeks, you're going to hear numbers about Halifax and we have challenges. We have homelessness. We have people who suffer from social exclusion. We have a lot of challenges in the city. But as I often say, and Wendy is taking the same as well is I'd rather deal with the challenges of growth than the challenges of stagnancy. And we're doing that. And the greatest validation for me personally, as I leave, is that my kids who are 27 and 24 who always talked about go to Toronto or Vancouver, have graduated and now live in Halifax, and they don't see themselves leaving and that makes me feel like something's going on here that's worth paying attention to. So I'm going to let you hear from these folks. I'm glad you're here. Don't do anything crazy. But if you do go out and have a bit of fun, if you get in any trouble, you get arrested, just tell them the Mayor sent you. It won't do you any good, but you'll get a smile out of somebody and it will brighten their day. Thank you all for being here in Halifax.

Good morning, everyone. Welcome to Halifax. I have to get myself oriented with the technology. We're about to find out. I'm Wendy Luther, I'm President and CEO of Halifax Partnership, Halifax's public private economic development organization and absolutely honored to be asked by Primaris REIT to join you this morning. And thank you for your curiosity and your investment in Halifax. Now Halifax Partnership, we work with many partners and our funders to drive economic growth throughout our municipality. We do this by, as the mayor said, guiding Halifax's economic growth through People, Planet, Prosperity, which is our current economic strategy to 2027, that has an ambitious goal to grow our city's population to 650,000 and GDP to $32 billion by 2037. Hopefully is not lost on this crowd that Halifax is one of the fastest-growing cities in Canada, has been now for the past 5 years or so, and we also boast the fastest-growing downtown. So in all of our work, we are selling Halifax's value proposition of talent, location, cost and innovation. We are working to attract business and talent and investment to our city as well as helping businesses located here reach their full potential and tracking our economic progress. So we're very transparent about how we are doing, and Ian will share with you shortly some of that information. Now as a part of helping businesses succeed, I was delighted to be here at Halifax Shopping Center in March to welcome Simons' first Atlantic location and celebrate with M. Bernard, their CEO; and the 2 Simon Brothers, who are carrying on that business' legacy. So Halifax is Atlantic Canada's economic and cultural hub. It's a regional center for business, shopping, tourism, postsecondary education, healthcare and arts and culture. And from here, it is easy to travel to global markets through the Halifax Stanfield International Airport. Many of you would have flown through our award-winning airport and moved goods in and out of North America through the Port of Halifax and CN Rail. We also are in time -- similar time zones all the way up and down the Eastern seaboard into the Caribbean and Brazil. So on top of the connectivity, residents and visitors can enjoy Halifax's excellent East Coast lifestyle and nearly over 200 urban, suburban and rural communities. So by geography, we're huge, the largest municipality in the country by geography, only slightly smaller than the province of Prince Edward Island. Halifax is home to people from over 150 countries. Many come here to start their careers by attending 1 of our 8 postsecondary institutions in our city, but they stay, drawn by the quality of life, and I'm sure the excellent shopping options here at Halifax Shopping Center. Now last year, Halifax welcomed over 300,000 cruise ship passengers and 3.5 million air travelers who shop, dine and enjoy all the city has to offer. We are also one of the great event hosting cities in the world. In 2023, we hosted over 100 national and international business, sporting and cultural events, big events like Canada's World Junior Hockey Championships, the Junos, North American Indigenous Games and my favorite Sail GP and many large-scale business and academic conventions. And across all visitors to Halifax, 8.4% come for the primary purpose of shopping, 8x larger than the number that come for meetings and conventions and look forward to working with you and our partner agency Discover Halifax that works in towards the marketing to share that great word of what's happening here at Halifax Shopping Center. So this is close to 0.5 million person visits who come every year just for shopping. Generally, about 20% of the $1.3 billion visitors are spending on retail. So now I will hand this over to Ian Munro, our Chief Economist, to share some more numbers with you. Thank you.

Good morning, everyone. I have some coffee because I'm going to be using charts. As you heard the Mayor say, we've really had a dramatic population up turnover over the past decade. The majority of this population increase has come through international immigration although we did have quite a bump in people coming from other province as well during the COVID period. Last year, we grew by almost 19,000 people or 4.1%, that was a record. The population now is just under 500,000. If you do an hour's drive around the city, this is going to get you in the ballpark of almost 0.75 million people. On the right-hand chart there, you can see the projected growth going out a few years and I just put in a few comparators there, the provincial rate, the Canadian rates and many of you I think are from Toronto. So just to give an example of another major Canadian city I've got a line in there for them as well. And you can see that over that kind of 4-year stretch, Halifax and Toronto have a pretty similar projected growth rate of 1.6% as a CAGR across those 4 years. That remains to be seen what the impact is going to be the federal tightening on temporary foreign workers and international students. Last year, we had about 16,000 net international immigration, about 10,000 immigrants and about 6,000 nonpermanent residents, which would include the students and temporary foreign workers. We'll see how that shakes out when the next set of data comes out. Most of the people coming here are young, which is what we want in the 15 to 44 age bracket in the 2022, '23 academic year, our universities. We have 7 schools here had 32,000 people in them. About 7,000 to 8,000 of whom are international students and as well, we have several college campuses of the Nova Scotia Community College here with another 4,000 students enrolled there. Our median age in 2023 was 39 years. That's the lowest it's been since 2009. So like all the country, we do have a growing number of seniors, but we also have had such an influx of young people, our median age is actually going down. And access to smart young people is what entices companies and investment to come here. You can see the example there about Cognizant who's just been growing by leaps and bounds here in Halifax. I'll turn to the labor market for a second. In 2022, 2023, we had a really a red hot labor market here, very low unemployment near record levels, peaks and job vacancies. Things have cooled a bit in 2024. And again, that's sort of a nationwide trend after peaking over 12,000 in mid-2022, our job vacancy number dropped down to about 7,000 in first quarter of this year, and now it's up around 8,000 in the second quarter. Similarly, from a mid-2022 peak of 5.4%, the job vacancy rate dropped down to 3.1% in the first quarter. It bumped back a little bit to 3.5% in the second quarter. The average offered hourly wage in Halifax has climbed from $22.05 at the beginning of 2022 to $25.55 in the second quarter of this year, down a little bit from the peak in the first quarter. And our unemployment rate in August was 6.1%, which is still, over the long term, historically very, very low for this part of the country, especially. You can see here some Conference Board of Canada forecasts for the unemployment rate. Just you can see what the future is looking like. And you see we're kind of floating around in the mid-5s and comparatively doing well to the other places you see there with 0.5 point, full point gap between us and Toronto over those years. We don't get retail sector data at a city level, but at a provincial level for the retail sector in Nova Scotia, there were just under 1,600 job vacancies in the second quarter of this year for a job vacancy rate of 2.6% and the average offered hourly wage there was $19.5. And if you have been around the city a bit, you'll see lots of cranes in the sky more than 40 in action across the city. I'm not a construction guy or an engineer, but people tell me that's pretty much unheard of for a city of this size to have that many cranes up and building things. And I think I can safely say that most of that building is multi-res. So strong population growth is great for business, businesses that need workers. But as we heard already, it places a strain on housing. And again, that's not Halifax's unique phenomenon. We're seeing that across much of the country. Here, you can kind of see the work of those cranes in the form of graphs. This is a scale for population. But you can see that our projected housing starts are well ahead of the provincial and national figures and ahead of Toronto as well. So there's a gap to make up, but this is moving in that direction. And finally, let's look at income and sales figures for a moment. Again, these come from the Conference Board of Canada. They're projecting average household income growth will be pretty much in line with the inflation rate over the next 4 years. So not a big change in purchasing power by that metric. Retail sales are projected to grow by more than 3% each year. And with that, I'll end and invite you all to ask any questions. You may have more questions for the Mayor or Wendy as well, but thank you for your time and attention.

Yes, sir. Sorry, it's a little hard to see you because of the light. Who are the largest employers in Halifax? And are they growing?

Large Like any capital city, you have a large public sector since we are a regional center, we have a very large academic presence here, hospitals. On the private sector side, of course we have the shipyard with a massive project going on there over the next several decades. Other large companies that people would sort of think of as Toronto companies, RBC, IBM, they have really large premises growing here. New companies like Cognizant coming in already with 1,000 people. Those are some of the larger ones here. Any big new ones that I'm -- right now you want to mention that? Sorry, of course, Emera is a local power company who's headquartered here and has a large profiles in Florida and other parts of the U.S.

Scale of the tech sector like Cognizant, by the time the Mayor -- the Mayor and I were at an event at Cognizant. They've been here for about a year, and they were celebrating their 1,000th employee. And by the time we got to their office, which is just a stone's throw from here, we essentially see it from here. They were already at 1,000, 1,179 moving to 2,000. IBM is over 1,000 people in Bedford that they're consistently performing at the top IBM innovation center in the world. And RBC's Client Innovation Center also in Bedford, there are 1,000 people now, but have just announced over the summer that they're moving to 2,000 tech workers at that location. Manulife as well has a large tech team here and they also are your neighbors here at Halifax Shopping Center in the -- they're pushing close to 1,000 as well. And Eastlink, which is our one of our local telcos, Eastlink has operations across Canada but they are headquartered here. So that gives you a bit of a flavor. Our economy is quite diverse, Ian can get into that more between tech professional services, the manufacturing a large industrial park across the way in Dartmouth, Mayor's Hometown, that would have many businesses that are over 500 a side by each and those are all short commute from here about 10 minutes drive.

The population growth, we're talking about permanent population growth numbers. We also have school here.

It's a very important part of our makeup. So the population numbers that Ian shared also include temporary residents, which would the largest portion would be study permit holders that are post-secondaries. So we've made a very concerted effort here in Atlantic Canada, Nova Scotia specifically on attracting and retaining our international students. So the goal is to have that temporary population convert to a permanent population. But as Ian shared, and this is a national issue, federal government changes to international student flows affects us here in Atlantic Canada and certainly affects those of you in Toronto and in Western Canada. So our message on that, that was largely positioned as a housing shortage issue. But for us, in the East, we're advocating, we still need these people for our workforce as much as we ever have in the past.

Just with regards to infrastructure in this area, in particular, I think we heard the on tour that they're supposed to be housing densification in this node. Can you give us a sense as to I mean obviously, the city is maybe not most practical if you're 1 million people, but how are you dealing with infrastructure needs in the growing city?

Do you want to take that?

So this location is going to be the site of multi-residential on steroids, Mic Mac Mall and Dartmouth is the same thing. We have an old military base called Shannon Park, same thing. We have other another mall in Dartmouth, which is being densified like 2,200 or 2,500 people. So here's the thing. This is the way I took the microphone. It's funny. When people move into a city, like Halifax and they turn the tap on, they want water to come out of that tap. And it's a challenge for all municipalities because when people move to a place like Halifax, they start paying sales tax and income tax, they don't necessarily start paying more property tax. And if they do, it may not be enough to pay for the infrastructure, water, green space, transit and all those things. But we have a good cooperation with the provincial government on transportation. This is something called the joint regional transportation agency that we're working on. We have a long-term plan for water, both in terms of improving water quality where it exists, but expanding it because Halifax is big. And so those are issues. Infrastructure is a big issue, but it's an issue that we can manage. I mean there is something like 400,000 basically either already as of right development from our regional planning process or virtually as of right, people have to come in and get the permits. So we're going to continue to grow, but we are going to need the infrastructure to do it. And I think all orders of government are going to have to play a role.

You just talk about the provincial election cycle? When are the next elections? What do the polls suggest?

I believe on the books is a statute that says that the next provincial elections to be held on July is something next year. There has been much speculation in the press that an election may be called before then. I don't have any inside information. So it will be sometime between now and next July.

And a snap election sometimes could be driven by the incumbent having difficulties and incumbent having extra strength, which is it, in your view?

I can tell you what I've read in the press recently is that the premier's approval rating is, I think, reasonably high compared to other premiers, but having gone down slightly. I'll now leave it to a politician to address that question.

I don't think it's a secret to say that across the country, there's a lot of governments that want to go to the polls before the federal government goes to the polls that they want to be the recipient of antagonism toward the federal government, and that's the case here. We just had a setting of the legislature, which lasted I don't know, 12 hours -- 8 days or something very short. The premier's approval ratings are low, mid in terms of Canada, the last numbers that came out, it was 42%. They've gone down. But I don't think the opposition is organized. So I think that there's a chance that there might be an election relatively quickly. But my guess would be it would be in the spring. We do have a fixed election data, as Ian said, in July, but fixed election dates have a way of dissolving with the winter snow.

Can you just elaborate on like the board -- like what it is now, what it's going to be, when it's going to be kind of fully completed and how big and what it's capable of doing for the Eastern Seaboard?

Interesting question. So Halifax is a port. We have 2 terminals, both owned by the same company now, PSA out of Singapore, one of the largest in the world. They have some aggressive plans. There is capacity at Halifax port this discussion of other ports in Nova Scotia similar to what you saw in the West Coast with not only Vancouver, but with Prince Rupert and others. But the port here in Halifax has done well the last couple of years. And interestingly, we're going to be going to a good buy for the captain tomorrow or the next day or something like that for Captain Greg, who came in. But they've got plans to increase automation and everything else to handle. As you know, I mean, a port is only as successful as how quickly you can get goods from here to big markets. Important Halifax doesn't survive on Atlantic Canadian goods, it relies partly on that, but mainly on how do you get stuff to Chicago. Working closely with CN Rail. I think the Port of Halifax future is pretty good.

And with that, I see that we're 10 seconds over time. Thank you all for your time. I hope you enjoy the rest of your stay here.

Good morning, everyone. I think I've spent 2.5 years avoiding this moment pretty well. I guess it was always inevitable we'd get there one day. When we put the slide together, I realized I was getting old. I'm not going back to the 1950s. I mean that's basically when department stores started getting built they didn't get built without anchors. That was the only way you could build a department store. It's the only way you could -- sorry, it was the only way you could build a mall, was the only way you can get financing. You had to have an anchor. And as development progressed over the next few decades, it became anchors where essential anchors actually even took ownership interest or at rights to buy ownership interest, and you needed key retailers like, say, a Dylex or a Woolworth which Dylex at one time, probably had 20 banners and Woolworth probably had about 10 or 15. And you needed those banners to build the mall. And so you get into the 80s and 90s. And when I started 1996 it was an industry for the people who have been around for 20 and 30 years. So a lot of really experienced people who are absolutely convinced that you had to have a department store, and they couldn't imagine a mall without one. And it was an interesting mentality, especially when you fast forward today, where the mentality is you don't need one at all. You don't need a major department store to run a shopping center anymore. But in the '90s, what got a lot of these guys into trouble was they had a high debt and they had land banked. And so you ended up with failure. You had [indiscernible] Trizec and Bramalea. Bramalea built a lot of shopping centers. They all got in trouble, and they went bankrupt. Yes, Cadillac Fairview went bankrupt as well in the mid-90s and what saved Cambridge and Cadillac at the time was the pension fund started getting into the business of owning shopping centers. At first, they were taking pieces of shopping centers, 50% interest was good cash infusion for the various shopping center owners, but it gave the pension funds an appetite for the asset class. And I think what they really liked about it at the time was the development had stopped much like today, there was no new supply really coming on board, the huge ramp-up in building shopping centers as an end. You had population growth, you had huge parcels of land and the anchor disruption, which had been happening at Sears, Simpsons, sorry, Simpsons had failed. You moved through the '90s, you got Eaton's failed in '99. You had Robinson's department store in Ontario which failed. You had Woodward's out West that failed. So we had a bunch of these guys, but the stores were easily absorbed. They either bought by other department stores or they were just remerchandised with more CRU so the mall could expand and drove rents. So the attraction was the rising valuations and the rising rents and the department stores that did exist were really leaking sales into the shopping center at the time. So Sears in the Bay which used to do, say, $50 million, $60 million was a really good store for them. They were down to like $30 million, $40 million. And all that sales transferred into shopping center itself. So there was a real boon in the sales. The rents were going up and the pension funds were attracted to it. So they ended up buying, OMERS bought Oxford, teachers bought Cadillac and then the Caisse bought Cambridge which they also had Ivanhoe at the time and it was until after 2000, they merged them. But they bought these and Cadillac and Cambridge both had about 60 malls each. I actually have a book from 1999 for the Cambridge portfolio because I actually worked there for 6 months. And it's a big book. There's a lot of malls. They own malls across Canada, but they had 60 of them. And so the pension funds, of course, didn't want 60 malls. They wanted to narrow down. So they started selling and who are the buyers, other pension funds. And that's when Primaris was formed in 2003. It was formed with the belief that there was going to be this huge desire to sell assets by the pension funds, and we were going to be the ones buying it. And over the next decade, Primaris grew to 33 shopping centers until such time as a lot of the other pension funds, it still had an appetite to buy malls, they wanted Malls Primaris had. So there was an event that Primaris was taken over and then split up. And it was 2 years later, that for the first time in 65 years, there was a major disruption in the shopping center business. You had Target fail, which was 100-plus stores. Unlike the other anchors in the '90s, these weren't easily absorbed. This was a lot of stores all at once. 4 years later, you have Sears fail, another 80 stores. So another huge amount of stores hitting the market. They were getting absorbed, but it took time. It took a lot of money and it really created a sour taste for the asset class, especially when Target left because it was like this is an American retailer that came up to Canada and failed. It hadn't been the first American that came up to Canada and failed, but it was a big one. And it kind of tarnished Canada for some people and some of the Americans that made them a little nervous about coming to Canada. And then the granddaddy of the mall was the pandemic. I mean, we are essentially closed. And all this time, e-commerce was looking in the background as a story that was going to kill shopping centers. And through 2015 to 2020 at the end of the pandemic the mall is dying, what are we going to do? We're should go entertain, we should go experiential. We should do lifestyle. We should do food halls. All of it was just desperation to figure out how do we fix this thing? Well, it wasn't actually that was broken. It just had major department store failures over a 6-year period, followed by a pandemic. The mall itself works, the food halls in my mind, haven't worked at all in any of the shopping centers. The experiential wasn't really -- it's nothing really tangible. Adding entertainment works in some places, but not others. What really drives the shopping center first and foremost is the merchandise mix. And so as we come forward to 2024, we found a balance in the omnichannel with e-commerce, so omnichannel bricks and mortars married with their online business, nobody makes money on online sales. The delivery is killing the retailers. They don't make money. They need the bricks and mortars as a distribution hub. And we found that in Halifax Shopping Center, we have a Michael Kors store that does okay. But they said when they came up for renewal, there is no way they were going to part with the store because they said it, they need it for their distribution hub in the Maritimes. That's the only way they can make sense of their e-commerce business out in this region. And now you have the dynamic that almost existed in the '90s too. You have no growth in supply. You have higher population. The anchor problems are largely resolved and so we find ourselves in a much better place and much -- in a place that we were in the late '90s when malls started booming again. And we have a lot of leasing activity on the go and we'll get through that later. But our occupancy is going up. All the fundamentals are positive and really the major disruptions are behind us. So malls existed starting in the 50s. It had a period of real despair. They've bounced back and I started my career in Vancouver as an office broker in 1992 and rates were $2 a foot. The market had crashed back then for office and you see a similar dynamic today. And real estate, as we all know, it moves in cycles and shopping center, I think, have been through their cycle at this point. So with any organization starts with a great team. And the one thing I've learned over the last 28 years and focused on in closed shopping centers is the only way to run a company for this specialized asset class is to have a great team and very specialized people. It really takes a leasing person about 10 years to fully understand how to merchandise and work them all. And on the operations side, it's quite complicated as well. And we'll get into that. Our business is to drive traffic to the mall. We don't sell the product, the retailer sells the product. So it's important that we put in the right retailer, we deliver the traffic and how do we deliver the traffic? Well, twofold. One is malls invite people to the -- we invite millions of people to our shopping center. They want to have safety, security, cleanliness. They want an environment where they feel safe and they want tenant, they want the new and the best tenants. So on the one hand, Graham runs our operations group. We have marketing people at the shopping centers. We have specialty leasing people to shopping centers. We have operations people, we have a lot of people on site. We have people in the regional office. We have lease administration people that manage the cost, accountants and such forth. And Graham's job is to make sure that we deliver the customer experience with how they want it. Leigh is our Head of Leasing. I've worked with Leigh since 2005, we started Oxford. And Leigh's primary role is bringing in new and exciting tenants to keep the mall current. People want to come to malls for the stores. They want the newest and best stores. If all you have is a stale stagnant tenant mix, it's a problem you have to continually remerchandise these shopping centers to keep them fresh for the consumer. So the lease structure of the shopping center, I mean every asset class has its lease and shopping center lease is rather unique, and it really provides us with flexibility and adaptability for running the business. And the lease itself builds in a percentage rent clause, which is unique for other asset classes. Basically, if the tenant does well, we get part of the upside. And that's the one dynamic in the whole lease process that is unique to the shopping center. We get insight into mall sales and we are driven to try to get those sales higher, and I'll get into that later as well, how we do that. So as I said, the lease has some unique features, and it really is designed to create flexibility and adaptability for us when running the shopping center. And first and foremost, because we drive a lot of people through the mall, we have to keep it safe, secure, clean and such forth which costs money, and we have to manage our capital very effectively. And so we really are able to -- we do -- we have 15-year capital plans, and we work on how we allocate that capital over the period of time. The last thing we want to do is create an unprofitable shopping center for retailers. We want to keep a smooth -- smooth out the additional rents. So there's not like big peaks and valleys year after year. And we try when we can to pay off any capital pools we can as quick as possible. The lease administration, I think it's common in most shopping centers and other asset classes. We charge a fee for administering the lease. And the 2 unique aspects to this lease unlike others are the excluded tenant clause and the relocation close. So the excluded tenant clause was really designed a long time ago to bring the anchors into the shopping centers. It basically says you can charge the anchor whatever you want for common area expenses and the shortfall gets passed on to the rest of the tenants. And that applies to tenants generally over 15,000 square feet. And what that does is it allows us to remain competitive with other retail developments such as power centers. We can offer same competitive terms for rent on a gross basis as power centers do. And that helps us bring the tenants into the shopping center. The relocation clause is very essential. In fact, I've really only exercised it 3 times in the last 28 years because it usually come to an agreement. But we build it in every lease where it says we can move you if we need to. There's all kinds of parameters around that. But what it is, is when we go to remerchandise a shopping center, we want to bring in a new tenant that needs a large area. You don't always have it available. So at times, you'll have to go to a tenant to see if he can move them. And if somebody doesn't have a relocation clause, they can just tell you no. So we have the relocation clause so we can force the issue. And like I said, we've only exercised -- I've only exercised it 3 times -- in almost 30 years but it's there and tenants know it. So they generally work with you, and it allows you to keep the merchandise mix current. I mean, the last thing you want to do is have a tenant that you really want your shopping center going somewhere else. You want them in your center to drive the traffic because that's the key to our business. So coming out of the pandemic, this has been very first and foremost for us. It's been fill up the mall first, and we'll get into the upgrading of the merchandise mix later. So we really have been focused on driving occupancy without a terrible regard for merchandise mix. I mean we have been trying to get in the right tenants into our malls. But we haven't gotten to the point in a lot of shopping centers where we were pre 2014, where we were actually going to tenants proactively and saying, would you please leave because we have tenants that will take your space at higher rents and they're more attractive because we see their sales, we can tell tenants may or may not survive long term, so we would proactively pursue replacing them to bring in new concepts. We really focus on the merchandise mix. And as part of this whole process in the last few years, taking our variable rents, our gross and variable rent down structures down has been a key to helping getting the shopping centers back to the where we were pre-pandemic. We've made good progress. We started coming out of the pandemic around 16% -- 15%, 16% of our portfolio was on those leases. We're down to just around 9% at the end of Q2, and I know we've made progress on that. We'll come out with a better number coming into Q3. So as I mentioned, merchandise mix is very important to us. Customers drive the sales of the shopping center. They want new and exciting stores, and we don't want them to go into competition. So there's a whole bunch of reasons for why we remerchandise and it's complicated to explain how we get to the point where we decide how we want the allocation of tenants to fit. We've changed over the last 15 years from what I would say a lot of riskier profile to a much more well low risk and much more stable profile. Because we see the sales, we can see where the trend is going because we have a national platform, we can understand which tenants are doing well across the country and which trends are catching on and really working. And we also just rely on experience. Having done this, say, our team -- we have team members that have done this for a long time, and they understand what works and what doesn't. So the question is how many tenants are right for a specific category and we'll get into that later to that kind of where the whole rock scenario fits in as you can see when a category is starting to get strained the entire category, say, rent to sales ratios might be elevated. There's been times when we have added, say, extra jewelry stores, and you can see they're just splitting sales. So then we'll bring the category back into balance. But you'd see over the last 15 years, what's really changed in the portfolio is the apparel has gone down considerably. So the drivers of this change in the last 15 years, one is Anchor failures, Target and Sears disappearing. Created opportunities to remerchandise and we did so with large format tenants such as SportChek Marks, Old Navy, H&M, TJX and such forth. So we brought in a lot of fashion boxes. The result of that was we down-weighted our small-shop fashion because you only have so much market share for fraction to begin with. Higher mall costs, which they definitely had gotten higher from 2009 to 2024 that drove out a lot of the smaller local tenants from the shopping centers. It's nice to have a complement of those tenants because every chain starts with the first store. But I would suggest to you that the amount of locals that are in malls and trying to get in mall is greatly diminished just because of that barrier to entry. Grocery stores, which had been a tenant that was more or less kicked out of shopping centers in the '90s and even in the early 2000s, they were seen as tenants that took up large parts of parking. They didn't drive customers into the shopping center. They weren't really desirable by a lot of landlords. We're now welcoming them back. They do actually drive traffic. They are complementary, and they're a great covenant to be on top of it. What started in the '90s and is continuing today is the department stores continuing to leak what's left of a department store, when left -- it continues to leak sales into the shopping center and the biggest beneficiary of that has been the health and beauty departments. So Shoppers beauty boutique that took off in the last 10 years, and Sephora has really capitalized on the department store departure and the cosmetic side. Sephora has become an absolute category leader. They're in almost every one of our shopping centers. They do generally around $2,000 a foot. So a tremendous story. Electronics expanded significantly in the last 20 years. I remember doing a cell phone store in a mall in 1998, first cell phone store. They didn't -- I mean, it's hard to think of a mall without a cell phone store, but there was a time when there were none. And now there are dozens in every mall. They pay really good rent, and Telus, Bell and Rogers covenants are great. And then the -- there's been a migration of box stores to the shopping centers as well. You've had a lot of guys recognize -- a lot of tenants recognize that the mall is where the majority -- in a lot of the towns is where the majority of sales are done. It's where the majority of people shop and so they've relocated from power centers and other [indiscernible] malls to the shopping center and the opportunity has been with Target and sales -- Sears failure for the most part. And so we added a lot of box stores over the last 15 years, and the result is where our merchandise mix today and our top 10 tenants compared to where it was 15 years ago, 15 years ago, it was primarily fashion guys. It was a lot of fashion chain small shop apparel guys. Today, it's Canadian Tire, TJX, Walmart, Loblaws and Bell. And it's an absolute rock solid risk profile for tenants. So a good example of this was Orchard Park. So I mean, this is 2009 to 2024. Eaton's left this building in 1999. It was remerchandised with some CRU and some boxes. Walmart left this building in 2005. It was remerchandised with SportChek and a whole bunch of CRU. And then in 2019, we got 2 Sears stores back, 130,000 square feet. One was a home store, one was an in-line store. And we put in Mark's, Leon's Strucktube, Planet Fitness and Canada blood services. So all box guys. And so this mall has essentially gone from -- it had one time we have 4 anchors in the shopping center. It has one today. But what it does have now is it has a really, really solid diversified merchandise mix. Because this is the best and biggest mall in the interior BC, it's trade area is probably 350,000 people, draws from [indiscernible]basically, every center that's in the interior BC that would have to go to through mountains to get either Calgary and Vancouver. So it has a tremendous draw. And as the mall manager here one time told me, she goes, I think you've made this into the man mall. She said that when we put in Best Buy. But this is what I believe to be reflective of a shopping center today. It's a cross between a power center and a traditional shopping center, and it has a much more diversified tenant mix with a much lower risk profile. So over -- anchors didn't use to pay much CAM. So historically, they were giving really good deals. They didn't contribute much to the CAM, the burden falls on to the CRU. And so when we've been doing a lot of these box stores. They typically have been paying more CAM, but I can tell you some developers have been still charging them low rent -- low CAM rates, and we see it when we take over shopping centers. And the reason is, is because if you get a higher base rent, your pro forma looks better. But because the CRU tenants pay so much rent, and it's 50-50 in terms of it's -- they occupy 41% of the space, but they pay about 70% of your rent. So in the long run, you're best to try to keep their costs under control and keep them down because then you can drive their base run higher. In the short term, you might think, okay, I did great on the box deal. I got a high rent out of them. But if you're not getting enough CAM contribution, you're putting the burden on the small shop tenants and long term, you're going to pay for that much more substantially than by just charging them a market competitive box rate that they would have paid in a power center instead of trying to give them a specialty on the mall just because the lease enables and allows you to. So we really focus on driving those additional rents up for the majors to become one of the mandates for the leasing team as the leases roll that we would try to get a higher contribution from them. Percentage rent. So as I mentioned before, it's unique to the shopping center business. We do everything we can to drive tenant sales higher. Graham's team, One thing we're not going to talk about today that I do need to mention is our marketing people at the sites. Over the years, marketing has become kind of a -- it was a little bit lost its way. I know we've got it back focused on what they need to. Their focus is to pick tenants that are close to their percentage around breakpoint and promote them, get them over their breakpoints to pay us percentage rent. Anyone over their breakpoint promote them, get their sales up higher, so they pay us more. And I guess the last thing before I jump off marketing because I won't talk about it again is we -- any tenant has a termination right. We use our marketing department to drive their sales hires so that they pass their threshold. We've had 3 or 4 examples in the last year where we've actually succeeded in doing that, getting them over their sales threshold. And if we didn't know what their sales were, we wouldn't know to do this, and we wouldn't know what hurdle we needed to jump through. So for percentage rent, the majority of it comes from a handful of tenants. And usually, they're category leaders, except for the past couple of years when it's become a much bigger part of our income base simply because inflation has driven cost -- sorry, driven sales up has been a primary driver of sales increases. And we've been a beneficiary of that. So our leases have always been structured so that they were percentage rent was a hedge against inflation. But for decades, we never had any, now that we have some, we're seeing the benefits of having that built into our leases. And so percentage rent right now is about 3% of our NOI. Traditionally, it's been about 1.5 -- 1.5% to 1.7%. It will go back to 1.5% to 1.7% simply because as these leases expire where we have percentage rent being paid. We will crystallize the overage into their new minimum rent, and it will settle back to the 1.5% to 1.7%, but we'll have recognized it as a higher base rent going forward. So that's something we're working on now. And on this list, like sizzling walk has been on this list for years, they're a food court tenant, Asian food. I think they're -- I think they fell out of our top 10 now, simply because we rolled all their leases at higher rents and crystallized the percentage rent into their new deals. So as we've talked about on many of our investor calls and analyst calls, we've seen tremendous interest in leasing space. We've got a lot of Canadian and international retailers looking at expanding in our portfolio, either with new stores or expanding their footprint. I know I think, Leigh said to me the other day, SoftMoc has a list of about 7 stores. They want to expand in our portfolio. La Vie en Rose continues to expand in our portfolio. The Shoe co. is expanding. Skechers is expanding. We're kind some Browns steels, lulu, Victoria's Secrets wants to do 50 stores in Canada. They're around 11 now. We've got a new one in Halifax shopping center was here, but it's getting reset. Victoria's Secret stumbled in Canada simply because they had too bigger footprint in all their stores. They were like 12,000 to 15,000 square feet. They're going to do 5 to 8 going forward, much better profile for them. Anyway, lots of demand in Canada for space, and we're filling space as quickly as we can. But a lot of these guys have capital constraints. They only have so much capital in any given year to open stores. So with an expanded portfolio and a bigger presence in Canada, we're starting to realize the benefit of getting in front of retailers more and more and getting to the front of the line in terms of their allocation of capital. Devonshire Mall, we've talked about it for a number of years now. We bought this small as part of the HOOPP acquisition at the end of 2021. Really, this project, in my mind, breaks down into 3 phases. When we bought it, we had a Sears store that was about 200,000 square feet. It was 2 stories in the basement. It would have cost a lot of money to try to fix it and remerchandise it and fill it. There's about 40,000 square feet in the mall in just joining the Sears box that was chronically vacant. So Phase 1 was really tear down the Sears box, free up the 18 acres of land that it sits on for remerchandising. So that's in progress right now. Phase 2 was leased out the 40,000 square feet of chronic vacant space inside. So we've got deals done now with SportChek and Mark's. Both our tenants in the mall. Both were not in their correct format. Mark's is undersized and SportChek had a very odd layout where they were. They would have left at the end of their lease. So we've repositioned those guys in the malls. We've done long-term leases with them, filled up all that vacant space at the end of the shopping center. We'll put a new entrance on the end as well. And then Phase 3 is really start to build out the 18 acres and that's either leasing to retailers for freestanding pads or selling land or doing a land lease with res or hotels. And we're in active discussions with some hotel guys, and we've got a few retailers, who're looking at building out parcels with as well. And as part of that as well, we have to reset the space Sears is in -- sorry, that SportChek is in. It's a 2-level building with a basement. It was actually built it as a department store in the 1970s. It's a very old building. It's a bit dysfunctional, and we'll work on redoing that. We can build a much better building and do something much more appealing with it. So all in all, this is a 5- to 7-year project. And the end result will be driving the NOI up about 50% from where we acquired it and 50% might be a little conservative to be honest. Stone Road Mall this was just an example of a reset of a Sears box. So coming out of Target when we tried to reuse the existing boxes, we learned that it was quite often not money well spent. There the boxes were older. They -- it would have been just as easy to tear them down and rebuild them from scratch. And that's what we did with the Sears and Stone Road. We tore it down to the -- we left the concrete patent place, but we throw the rest of the building down. We built it, it would have cost the same amount. We price it. It would have cost the same amount of money to try to retrofit it and we leased it to 3 new tenants to the shopping center, Mark's, Toys and HomeSense. So it was a good project with a good return. And it was an example of what we can do with an anchor when they leave. Talking about anchors when they leave. I've been listening about this one leaving for 25 years. And I don't actually know when or if it's ever going to happen. If it does, it will be a good day in my mind. It's nice to get it over with. After 25 years of explaining what we would do with a bay if we ever got it back. The lessons learned from Target and Sears would be that in the most part, we would rip them down and just build something a lot more functional to the shopping center. The benefit of HBC going is, they have a lot of historical restrictions on the mall. Parking ratios, no build zones, development restrictions and such forth, which would be materially advantageous for us to get back. It would allow us to do a lot more things on mall sites that we cannot do today without their permission, and their permission is not free. Specialty leasing integral or shopping centers, the mall needs to look and feel full all the time, and the primary role of specialty leasing is to fill up that space. It represents about 5% of our income. We have dedicated people at all of our -- at most of our shopping centers for specialty leasing, which I often argue internally about does it -- is there enough there to keep somebody occupied full time at a shopping center. And the reality is the cost is about 10% of the revenue they generate. So in my mind, it's well worth it to have one person. We've tried before to have 2 people, one person run two malls and the revenue falls down significantly. So it's been a great benefit. It's a key part of our business. And in the past, we really drove Specialty leasing revenue, not just from in-line, but I mean we -- it used to be a lot of cash, which was not the best thing. You used to have pay phones, you had coin vending machines and such forth. And I'm not sure the money was ever properly accounted for. In fact, I know there wasn't. Nowadays, there's a lot more focus on branding and promotion in addition to in-line. We're going to be looking to grow the revenue base through branding and promotion. And a good example is we -- the santas in our malls. We're an integral part of the shopping center. They always have been. Now we actually make money off it. I think last year, we made $0.5 million off having santa in our shopping centers in Christmas time, whereas historically, we didn't make anything we do, which is a service we provided. And so it is a key part of our business, and they help them all look full. So we really have been focused on growing our occupancy. I have no concerns about us getting to 96% as we've been talking about. And really, to get there, we need to grow our anchors by another 1% and our CRU by 2%, so 97% beyond. I think we're committed 96% anchors, 92% CRU, and we need to get to 97% and 94%, which is about 170,000 square feet. And I'm confident we'll get there. The bulk of that is CRU, which is higher rent paying. The challenge in the CRU and what takes time is the average space is 2,000 square feet. So when you want to lease 100,000 square feet of CRU, that's a lot of space to lease. So it takes more time. The anchors are big and chunky. It's fairly simple to see a path there in a short time frame. But here, you will take a while, but we have a great leasing momentum, and we will get there. And the benefit is with 100,000-plus square feet of CRU to be leased, the rent is materially higher than an anchor rent and it will also feed right into the recovery ratios. Anchors generally are excluded from paying CAM in our model. So getting an anchor to pay gross rent really isn't the driver, getting a CRU tended to pay gross rent, all of it goes to the NOI line, CAM, tax and the rent. As I mentioned, I see us getting there beyond. And anybody have any questions?

You talked a lot about percentage rent, but look, back in the day, we all focus on like GROC ratios as a key metric. Is that something that's changed a lot because of online shopping? Or do you still look at that? And if -- what's the metric? The other metric that you would look at aside from a percentage rent?

Yes. I mean the thing that we're most focused on is the sales, the individual sales of the tenant. So GROC has -- we'll get into GROC later today, but GROC has a lot of nuances to it. A tenant that has very high sales can afford a much higher GROC. And simply because if you think about all the fixed costs that tenant would have, rent being one of them, as their sales go higher, those other fixed costs fall as a percentage of their overall ratio, where -- so it essentially gives you room to move the GROC up. So that's why you'll see in a mall run by, say that the super regionals, the malls that do 1,000-plus foot where the sales are really high, generally, the average GROC is 20% in the shopping center. Whereas in the malls that do, say, 500 to 700 or 800, you're looking more in the 15% range makes sense. So it's -- but the sale -- the underlying sales is absolutely the best number for us to look at to understand the tenant's business.

Though is following on that line of thought, Pat. You spoke about leasing strategies and how we essentially have flexibility to see what the sales looks like. Let's say, you do see a huge or a midsized tenant struggling in a particular space. Does the lease also give you the flexibility to kind of pivot midterm in terms of, okay, how do I want to actually position the space or do something else with it?

You mean to terminate the tenant?

Yes, I guess so.

We can't just kick tenants out, no. We can move them, but if you want to move a tenant that's struggling that you want to leave, there's problematic with that, you're going to invest capital in somebody that's probably not going to stay very much longer. So generally, we go to those tenants and start talking about do they want to close.

Right. And maybe just looking at reno, when you get into a leasing discussion, let's say, with in any big box or any of the large format retailers, how would you entice them to actually follow the enclosed mall format or, let's say, any other big box options out there? Like what entices them to do the enclosed mall versus something else?

Generally, the experience we've had in the last 10 years has just been their belief that the traffic is better in the shopping center, right? These -- the targeted Sears boxes were pretty well positioned on the site. And once they came over the mall, they generally performed much, much better than they anticipated. And I'll give you a good example at Sunridge. We had a winners that moved across the street. And they called me up and said, we just had a WTF meeting. And they were going through their list of stores that they just never saw the sales coming. They were doing $15 million, now it's like $13 million, $14 million across the street right beside a grocery store and they moved in the mall and they're doing $22 million. And they just said, the traffic in the mall was just materially higher. And I've heard that from -- we've moved some Mark's into the shopping centers, same story. Like it's just -- that's where the bulk majority of the retail shopping is done.

What is your level of confidence in this chart that showing the improvement to 96% occupancy, especially as we go through economic cycles?

We're still seeing a lot of demand from retailers. I just do not see us stepping backwards in any way whatsoever from the charge forward to that number. There's a lot of activity. Sales are -- a lot of retailers are posted sales higher than they've ever been. They're very bullish, very optimistic. The only thing that's been holding them back from expanding further is capital and construction prices and construction prices have actually leveled off and come down. So we've got really good momentum, and I don't see it abating.

Real estate question. As you pointed out earlier in your presentation, retail is a -- they're living breathing entities that are constantly evolving that change and adapt every 5 years. What has been the biggest change that you've actually seen in your -- again, in the last 10 years that either you have actually witnessed or it is actually back in the day, you actually have more TIs for the retail guys. Like what's actually changed, actually that you've seen that you kind of thought like, wow, I didn't see that coming?

You're right. It does -- it's like every 5 years, it's a cycle, something different occurs. So in the '90s, we didn't give TA. There was nothing. Retailers didn't get any. And in '90s, it was a much more fragmented ownership of shopping centers. So you did outside even after owners, the case and entry bought the big malls, the big companies, there were still a lot of small companies like the company I work for Vancouver had 8 malls, playing properties. There was Iberville in Quebec. There was all kinds of these little companies that had 6, 7, 8 malls, and they disappeared and it became -- the pension funds owned them. And then what happened is the pension fund started throwing lots of money at tenants and lots of money at the shopping centers. And it changed the dynamic, and there was a lot of TAV given out for a long time. 2005 to 2015 was a chase to buy tenants. And that is, if we go to where we are today, I know a lot of the big companies put the brakes on buying tenants because they realize you're not actually creating value by buying the tenants. And so the TAs are starting to drop again, especially for the bigger tenants. And -- but I'd love to see us get back to the '90s, we didn't get any, our leasing team, I tell them stories like this, and they just say they don't want to hear it. They don't believe it existed.

Can you please quantify the percentage of your tenants that utilize their retail footprint with you for returns? And then also for pickup and delivery. And as it relates to percent rents is that, I guess, return counted against sales? Or is it below the line? And I guess the same question for pickup and delivery.

So that's an evolving discussion. Right now, the retailers really run 2 separate businesses. They're online business in their shopping center business and they're supposed to keep them separate. So in the lease, they don't report sales -- online sales and they don't report the returns. How true that is, I don't know, especially on the return side, and we do have audit rights, and we can look into it and we do audits throughout the year. But in terms of how much they utilize their store for delivery, I don't know, we don't know. Okay, that's just case-by-case asking retailers and even at that -- the people we talk to at the real estate level, they generally don't know. It's been a fight for a number of years now is trying to -- we keep trying to get the deliveries of the online business included in the sales, so it's a true value. But what will happen eventually is that it's the Michael Kors example here. Like they are paying a really high rent that on the surface, you wouldn't think their sales would support it. The mall is full. They have nowhere else to go, and so they'll pay the rent to stay. And as our malls get back to full occupancy for the most part, especially in the really good malls, we will be able to push tenants to pay higher rents, especially if we know they're using it for distribution purposes. They won't want to give it up. So in terms of how they report and percentage rent, that's -- I think that's going to be a fight we're going to have for another 5 to 10 years with them.

Just on the -- I think on one of the slides you had your the percentage rents are now down to 9% of total. The variable, yes. So what is that going to settle to in terms of long term? And what is -- I don't know if you've quantified it, but what does that NOI lift look like once you get to that sort of long-term level?

So the goal is to get a historical numbers like 5%. And we've been knocking it -- knocking away generally about 1% a quarter for the last, 2 years. We're always going to have some, and a lot of that is tied to just always trying to remerchandise. So you're hanging on to tenants in the space to keep it occupied and paying rent until such time as you can put a new tenant in. It really feeds into the whole recovery ratio discussion and what's the upside in the recovery ratios. And right now, we're at around 80%. And our historical number for CAM is 99% and our historical number for tax is 93%. And my guess is, if we get back to our historical numbers, that's around $35 million. And that's occupancy plus variable.

We're going to take a quick 10-minute break. We'll see you at 10:23. [Break]

And we're back. Sorry Okay. So one of the things we've talked about a lot lately has been our recovery ratios and how that's going to drive NOI. And as I mentioned just before the break, we see significant upside in our NOI tied to bringing our recovery ratios back to our historic norm. So on the CAM side, we have an administration fee that we charge on CAM. So the potential CAM number that we can generate from CRU tenants, small shop tenants is 115%. And when we go back pre-2014, we had a number of malls that were in the 105% to 110% range. So when I say our portfolio average was 99%. There were a number of malls that were driving that were much higher and I would expect malls like this shopping center, for instance, to be in the 110% range when we get back to a normalized period of time. Part of what brings that recovery ratio down is the gross rent and percentage rent low tenants. Some of it is occupancy related. Well, primarily those 2 things and those 2 things alone. On the tax side, we don't have an administration charge. There is the odd lease that we've -- in malls that we bought where we do have a min fee on taxes. Not that common. So there have been malls where we charge over where we received over 100%. But generally, our historic number is in the 93% to 94% range. And as I mentioned, going into the break, when we think about getting back to our historic norm, which is our occupancy level at 96%, the variable rent tenants down to, say, 5% or so, we will be close to our historic norms in terms of recovery ratio, which will be a significant driver of NOI growth. So as we're often reminded, running malls is expensive. We do spend quite a bit of money on shopping centers, and that's because we're an asset class that invites millions of people into our property every year. And their expectation is cleanliness security and such forth. So we take great pride in our shopping centers, and we maintain them very well. We've done a good job over the years, over the past 20 years, especially in the Primaris historic portfolio of maintaining our shopping centers without incurring significant expense in terms of maintaining them. A great example with Orchard Park, where we recently redid the entire floor of the mall. It cost $6 million. We planned it over a 3-, 4-year period. We bought the tile 1 year, and then we installed it over the next 2, 2.5 years. In that way, we were able to manage the impact of the CAM pool. We expensed it or, like I said, a 3-year period, so that we didn't burden the tenants with any high CAM rates. If we just dumped it all into the pool at one moment in time, probably would have driven the CAM up for the CRU by about $2 a foot in the way we did it. We were able to burn off some existing amortization as we're adding to the pool. So our CAM really went up about 1.5%, 2%, very manageable and expected by the tenants. Devonshire Mall, when we bought them all, they had just finished an $80 million renovation to the shopping center. It looks fantastic. Historically, we bought a lot of our malls from pension funds who have invested heavily in the shopping centers. And we've spent the next number of years trying to get the CAM pools down in these shopping centers. And as I mentioned earlier, one of the drivers in acquiring a lot of these centers is getting the majors to pay more CAM as their leases come due, so we can get the numbers down. Another example is Lethbridge. We redid the food court in, was in 2022. We did the food court back in 2017. We spend a lot of money in our food court. So just to put it in perspective, food courts in a lot of our shopping centers generate as much as 10% of the NOI. And they drive a lot of traffic to the shopping center. They're a big source of percentage rent for us. they pay high rent, but because they're so high heavily traffic, there's a lot of wear and tear. So we take a lot of care in maintaining the food courts simply because it has been such a good source of revenue for us over the years. And it is a heavily traffic area in the shopping center. The majority of our expenses are recoverable, 95% approximately. HVAC roof and parking our primary expenditures in the shopping center, and there's an ongoing program for that 15-year capital plans are put in place. We very much pay attention to the peaks and valleys, the potential peaks and valleys in the shopping center. We want to keep as a smooth profile for the expenditure plan, simply so that we don't have major expenses going through the tenant in any one given year. So Primaris as a platform started in 2003. There's a lot of people that have been there since that time, and we take great pride in the people that we have. And we have a very, very simple program in terms of how we operate. We keep our costs down, a lot of focus on that. We focus on trying to grow rents with built-in escalations. And I think you're seeing that more and more, especially became much more adopted in the U.S. So a lot of the tenants have become acceptable to it in Canada, which is great. We have not really expanded any shopping centers in quite some time. In fact, we've shrunk the footprint. I think a lot of malls of the issue right now is they're too large. I wouldn't say that about our portfolio per se, but Devonshire was is a good example of we took down the Sears box simply because we didn't need it, and it gives us density on the site to do for other purposes. It is very, very important, and we've talked about it many times to have a national platform and malls across Canada. It allows you to have dialogue with retailers, a meaningful dialogue when they want to roll out a program, like I mentioned earlier, SoftMoc where they want to expand stores. It's great for them to come to us and say, we need 7 deals. They have a capital program, they want to deploy it. they know they can get things done with us quickly. They know that it will be executed smoothly and we'll be able to turn over the space to them as we promised. And some of the other things I've talked about the recovery ratios and such forth. But cost control has been a huge, huge driver for us for more than a decade. And I think it's been one of the reasons we've been so successful at that. On operating and closed malls, I think a lot of the other platforms and shopping center developers have not put an emphasis on cost. In fact, I talked to my counterparts many times at some of the larger shopping center companies and basically try to deliver a message about please get your costs under control because you're going to bankrupt tenants at this space. Like there are some malls that their CAM costs have gotten completely out of control, simply, because the renovations that they do are so extensive, and they dump the money in the CAM pool, and their performance are all based on rents rising, but rents take time to rise. But when you increase their CAM costs, it's a little hard to get rents to go up when you've already increased our CAM cost by 20%. So the acquisitions for us have been a tremendous success over the past few years. The HOOPP acquisitions, we've done very well with. And there's a number of reasons why we've been successful at the malls we bought so far. The malls we acquired tended to have a much higher gross or variable rent structure in place. But as a percentage of their total tenants, we've taken the last 2.5 years to bring that in line with where our numbers are and that's helped drive NOI. We've increased our occupancy at these centers. A good example is High Street, where we've increased where we've leased 676,000 square feet. The problem with that asset when we purchased it is there was a lot of vacancy. Sales were okay, but they weren't great. We spent the first 6 months trying to get the CAM costs under control, and we dropped them from $24 to $16 a foot, which brought them in line with nearby outlet centers and strip malls and such forth where tenants have the alternative going. So we were able to then get the rates that we're looking for. And from a gross rent perspective, we fit with a lot of tenants. So we did a lot of leasing we added like la Vie en Rose, The Shoe co., lululemon and those -- and by adding those tenants, we were able to drive sales at the shopping center. So now I'm looking at the tenant, say, like American Eagle, whose sales have gone up 20% since all these other tenants have opened. And so what we're looking at in their renewals, we'll be able to drive rents higher simply because their sales have jumped up. And that's all tied to the leasing that we've done at the property. At Conestoga we came out of the gate publicly saying that there was about 58,000 square feet of space that was either short-term leasing like temporary tenants or vacant. We've -- our leasing team has done a great job. We've got that down to 36,000 with the visibility to bring it under 20 in the next 12 to 18 months, which will significantly drive the NOI. We're much ahead of schedule on that property and it's simply been the leasing focus that has gotten us there. So overall, we've had really good success with the properties we purchased. This property, Halifax is a tremendous shopping center. The previous owners did a fantastic job, not only merchandising it, but renovating it. And I think just the fact that it's such a high-performing center. We'll see good rental growth over the next 5 to 10 years. And the addition of Simon's and such forth. There's a lot of unique tenants in the shopping center that are making this a regional draw that will bring customers from throughout the Maritimes. Any questions?

In recovery ratio slide. I think it's 87% or so for CAM by the -- by the end of '26. I was just wondering how long do you figure it takes -- how long do you figure it will take to get back to those historical high 90s numbers? And is that $35 million NOI opportunity you talked about sort of linear in terms of how it ramps up with the recovery ratio increasing?

Good question. There's a lag for sure. It really is tied to occupancy and the conversion of the tenants from the gross variable leases back to normal. But as we've seen over the last couple of years, there's been a lag in it kicking in. It's really dependent on when the tenant opens. So for instance, right now, we have what, 1.5% of committed tenants that will open anytime between the next 3 months to 18 months from now. So even though we were going to get back to '96, it's when do we actually have those stores open and paying rent. And they have to be open for a full year before we receive the full benefit of the recoveries as well. So I'm hoping it's 24 to 36 months. It maybe stretch it a little longer, but there's definitely a lag for when it actually fully kicks in.

So on the acquisition-driven opportunity slide, can you talk about the occupancy gain in at Halifax, 10% versus the others a little bit less. And then with the sales growth, it looks great. You also talk for a like-for-like rent growth in these market -- in these assets?

Halifax, actually growth was really built in. It was the re-leasing of the Sears box that was completed when we bought it. So it's -- I'd love to take credit for it, but it was just really already done. There's not a lot of vacant space in the shopping center. There's a little bit. There is about 20,000 square feet of tenants that are on gross or variable rents that shouldn't be much longer. They just had contractual terms. And so we're working on plans to remerchandise those or get the tenants converted and then from there, it's really just rental growth that's going to drive this property higher.

A related question between sales and occupancy. What's not on this chart is rent growth. And so what's been the like-for-like rent growth for these properties?

The rental growth has been -- I'd like to say in the HOOPP portfolio, it's been -- it's pretty much standard across the portfolio, high single digits. Really in the HOOPP portfolio, they had low occupancy. So we've really been focused on driving that up without worrying too much about merchandise mix or the rental growth is going to lag simply because there was high occupancy. High Street was the same thing like we have to fill it first before the sales jump up. Halifax, we expect strong rental growth simply because of the sales and Conestoga we haven't had a lot of rollover yet, to be honest with you. So our focus has really just been on leasing space.

In terms of the annual rent escalators, can you give us a sense as to how many -- what percentage of the portfolio would have them in place and kind of what you're pushing for in terms of putting them in place when you're talking to tenants?

We're pretty much pushing on every deal we have in for the last 3 years. As for a percentage, I don't know the answer to that. 2 to 3. I mean, we push for 3, we often get 2.

You, I think, did a really good job explaining why expense management is really important. It makes a ton of sense. Why is it that some other third-party managers or other organizations wouldn't have the same approach to expense management?

I think it's twofold. One is the way they're compensated based on -- they're compensated based on gross revenue, so they get a percentage of gross revenue. So managing the cost side of the business is in the first and foremost. More short-term thinking than long-term thinks, it's easy to increase the CAM cost for tenants when they have long-term leases. You won't really feel the pain of it until you have to renew their lease when they expire. Second is, like I said, it's on the performance. So when they do redevelopments, they might undercharge the anchors on the recovery side, which will -- in the long term, hurt your ability to recover more for charge -- not charge. It will hurt your ability to keep the cost down on the overall tenant base, but it will help your pro forma in the short term. So, in essence, it's really just a lot of short-term thinking rather than thinking longer term was for the best -- how you best grow the asset revenue. I think you being an American, this is going to be a big problem in the U.S. I mean, the malls down there have 6 anchors in a lot of them, and they haven't gone through the pain at all. In Canada, we have HBC left. And my guess is HBC, if it ever -- when and if it ever happens, will not be a complete rip off of the band-aid. It will be some stores close over time. They'll give some back, which is how it was in the '90s. In the U.S., I think it's a much different story, which unfortunately turn as is Canada. There's a lot of pain coming in the U.S., and I don't know how they fill them all in the U.S.

You also talked about COVID rents. What percentage of the portfolio would that represent?

I think the most of it is the gross and variable rent structure. So we're down to 9%. Q3 reporting will be a much better number as well.

And then last question, you had stated that the example around America, go of kind of sales up 20%. What are you seeing as the critical drivers? Is it specific of retailers or changes in other structures and adjacencies? And how do you think that plays into this holiday season?

Sorry, you said for sales?

You mentioned American Eagle sales were 20% as you had added additional tenants. How do you see that playing out the holiday season and beyond?

Right. So that was High Street. Sales are flattening out. They had a great run for 3 years, like I really have never in my 30 years, seen them rise like they have coming out of COVID, I mean it was expected, but I've never seen them keep going like they have unabated like there's some tenants who literally doubled their sales. Coming up is a great example. Their sales have doubled in some malls since -- from the pre-COVID numbers. So huge run-up. I think they're going to flatten out. Even if they pull back, guys are doing so well. I mean our GROCS are extremely low for whatever GROC is worth. But I think that's what's generally created the optimism for retailers wanting to expand. They're very pleased with where they're at in terms of their sales performance. Okay. Just moving to KPIs. So sales. All store sales are really a number that I don't use a whole lot to talk about because it includes stores that are open, but haven't been open a full year, and it includes stores that have closed. They're no longer operate in the center, but their sales are still in the sales report. What it does give you is an indicator of your overall market share because it's a totality of the sales that are driven through the mall for a period of time. Tenants move into same-store sales when they've had 24 months being open in the shopping center and reporting sales. So it's a stable number, but it -- there's a lot of ins and outs, and I often talk about when you talk -- when you're looking at sales, you're really talking about a moment in time. And it's hard to talk sales from quarter-to-quarter and it gets a little frustrating a time when people start picking apart one quarter and the next quarter, simply because there's so many tenants moving in and out of the same-store number. And a good example is Peter Pond. So the sales productivity went down last quarter last -- or quarter before. And the reason it went down was because our den was in -- they moved to a larger store in chronically vacant space. They paid us net rent. We're happy to do the deal, but our den performs at $200 a foot. So the productivity of the mall was $800, so they dragged the sales performance down. We did the right things. We don't manage the sales. I mean, I wish I could say otherwise, but we don't manage the sales. Doing our den deal was great for us because it drove NOI, it filled up spaces [indiscernible] vacant. On the flip side, from October, Sephora, which opened almost 24 months ago, they view on the same-store productivity. They're doing $2,000 a foot. So the sales were swinging other way. So there's -- it depends who's moving in and out of the category, which will drive the number. And that's why quarter-to-quarter, it's tough to have a discussion. It's more annual versus annual is a much better way to approach this. And I think the Peter Pond, it's very -- it's symbolic of what goes on in all of our shopping centers. The bigger the mall 1 or 2 tenants isn't going to have that big of a swing, but in smaller malls, it definitely has an influence and an impact. So GROC, which is my least favorite subject, and I think a bunch of you know that. It's really -- it's a way that we can measure how a tenant performs, but it really comes down to the tenant specific. I mean we look at -- we can talk about it by category. But really, when I start to look into it for a tenant, it's really tenant specific. It really depends on a lot of factors. I spoke earlier about the tenant sales volume, which influences how much -- what the GROC can be. It also depends on the tenant margin and what they can afford to pay based on their own profitability. So when we look through our own portfolio and we dissect it, we say, okay, which tenants cause us a little concern because the GROCS are elevated, not necessarily because we think they're going bankrupt just because they're elevated. We could identify, say, 10%. And that's not driven by a magic number of anybody over 15% or 20%, like cellphone guys operate at a GROC of 40%. Because of the way they report sales. And because of the way they sell a service or a subscription to a phone, but they don't necessarily include the phone in the sales. So it just depends on how they report. But overall, these are some guidelines we've established internally these -- what tenants can pay food courts can generally play close to 20%. Electronics can pay higher apparel, you say 18%. But then as I said, you get into the subset of who the tenant is specifically and what they sell. Some tenants have much higher margins, especially on the apparel side. Maybe the they manufacture and import all their clothing from China, and they have really high margins because of it. Some manufacturer and import it from other places where they don't have quite a big of a spread. So really comes down to the tenant. And what it really comes down to is our leasing team understanding the tenant's business because they talk to them and meet with them on a regular basis. And we talk to them about their business and what they can and can't afford. So I'll give you an example. There was a tenant that we were renewing in a mall to hair salon. Their sales were great. Their GROC was 8%. And he said I'm losing money. And he simply said it because their sales are -- their sales volumes are high enough. What's happened with inflation, it's especially on the labor side, is it's thrown out of whack or understanding a GROC because we need to reestablish our understanding of a lot of the businesses. Labor used to cost around 15% of tenant sales is now around 20%. So it's moved up quite a bit, and it's become a burden for a lot of tenants in terms of how much they pay for labor, construction costs haven't helped either. That's moved up quite a bit even though it's more stable. So the ability to generate a higher volume of sales is key to a retailer in terms of determining whether they can open a store or not. And that's the one dynamic that's really come out of the pandemic. So in terms of a watch list, we've talked about this a number of times. The pandemic cleaned out a lot of tenants that were weak. Since the pandemic ended, we haven't really experienced much bankruptcy. There are tenants that we're looking at saying their business as a whole isn't really relevant anymore. It doesn't resonate with the consumer. The sales haven't kept up with the category. Those are the tenants we're looking at weeding out and getting out of our portfolio. And as we talked about this slide, we've talked about examples that we give from the past. It was hard to quantify a lot of it. But some examples of tenants we've dealt with in the past, that athletes world back in 2006, '07, '08. They were dying. You could see it. They had a lot of competition in the category. We started replacing them before they filed for CCAA by the time they filed, I think we might have had 1 or 2 when we originally had about 10. [indiscernible] was another one, [indiscernible] was another one. Like we knew these guys were going to fail and we got ahead of them started replacing them before they filed CCAA. 2011 was actually the biggest bankruptcy year that I have ever experienced. That was 3 years after the global financial crisis, with 97,000 square feet of space that was -- that are filed for CCAA that year. A lot of tenants, a lot of turnover that year. And we got ahead of a bunch of it, too. But that was just three years after the global financial crisis. Canada never really went through it, but what that did is strained a lot of balance sheets to the point where they couldn't remerchandise, they couldn't get relevant. They weren't selling enough product and they couldn't recapitalize their store and renovate. So -- and then just before we take any questions, I just wanted to. So François Roberge, he owns La Vie en Rose, which is a big tenant of ours. We have more than 30 locations with François. He originally started his career at Les Ailes de la Mode in Quebec, which was a department store in Quebec. He's been around a long time. He -- in his video, he'll explain how he started his business, but we have a great relationship with François, he is nice enough to do a video for us to explain his business to you. There's a lot of retailers in Canada that we deal with that nobody knows who they are. They're private companies. They're very -- they operate banners that people don't really know that they're connected. So François runs La Vie en Rose and Bikini Village. So he's got 2 banners. He's international. He's got a lot of stores. He's got no debt. And we have a number of retailers that are similar to François and that you don't really know who they are, but they are rock-solid covenants for us, and he's a fashion retailer paying -- he's actually paying us a lot of percentage rent so it performs very well, so... [Presentation]

I'm François Roberge, the owner of La Vie en Rose and Bikini Village, I've been working since 1981 in the retail. This is a fantastic company. It's a family-owned business. La Vie en Rose, it was a company based in Toronto, small, 23 stores, $12 million, losing a ton of money and have a chance to buy the asset in 1996. The office was at Toronto and we move to Montreal. We started to work very aggressively to turn around the business and the first year, we make a profit. And since that, we never lost $1 of the business. We have over 400 stores, 300 in Canada, 100 in international and 2 new stores in the U.S. We were going to do close to $600 million this year, something I'm very proud. We have no debt. My feel is very simple. You grow and you die. That's why I always push the machine to open the store. It's very important. I'm a brick and mortar guy, and I will continue push on that direction. Let's focus on the U.S., and we have already 2 stores, I'm very proud. We're planning to do a 20 store in the next 3 years. So that's the goal -- this is the future for La Vie en Rose. The key of the success of La Vie en Rose is the team. We have a fantastic team. We know what we do. We work together. We win together and we lose together. And that's something very important for me. With Primaris, we have today 28 stores, 22 La Vie en Rose with a productivity of $1.8 million and we have 6, only 6 [indiscernible] Bikini Village with [indiscernible] around $800. What I like with Primaris, I always said the time is money. And with Primaris, we can make a deal rapidly, a good deal. It's very important for me that it needs to be win-win. Well, you have a good relation with a landlord you can grow rapidly and efficiently.

Took the HOOPP portfolio. We did the deal in High Street on the golf course. I love -- he's a great guy, man of his word. Yes, just negotiated on a napkin and it was good to go. It's the relationships in the shopping center business, especially in Canada, are huge for getting deals done. You tend to do deals with your friends. We've spent a lot of time smoothing the retailers and spending time with them and going to their offices. And we and our team are regularly traveling to people's offices to get to know them better, and it's been great for us to expand our footprint with François and a lot of others in Canada, but it's a direct result of spending a lot of time with them in person. Questions?

It's me. So I asked the question in the last question-and-answer session. And it was about what do you do if you have a tenant where their sales are softening. There's still term. He asked if you could kick them out, you said you can't kick them out. And one of the objectives here today is to get knowledge that you have in your head out so that everyone else can understand how this business works. So you kind of finished with -- we'll then approach them and say, do you want to leave. But the next part of that, I think you think everyone else knows, but what happens at that point? And sort of ties to GROC ratios and performance. But what do you do if you get to the point where you see a tenant that's not doing well, and you wouldn't be able to do that if you didn't have the sales reporting function?

I mean the game has always been to get the tenant to leave and not have to give them money. And the real game is trying to get them to leave and have them pay you money. And usually when a tenant is sliding down and they're losing money, they're very amenable to leaving. And when the mall has been full back in the 2000 to 2015 period, a lot of tenants would pay us to leave. And the key is not to be greedy about it, but they can -- they might have 5 years left in lease. You really want to replace them, cover your costs. If you can make a little money, that's great. But if you can get a new tenant in there that's going to pay you more rent, that's the key. And like I know in Halifax, there's a tenant that's approached us about leaving and they're going to pay us to leave. And when your mall is full, you have demand for the space, which is great. And you really feel like you're in a good position to replace the tenant, you'll get paid for the tenant on the way out, you can get more rent from the tenant on the way in. When the mall is not as full, it's a little tougher to drive that bargain. You don't really want to give up the occupancy. You have other vacant space to fill, so you're not so eager to replace the tenant simply when you could have put that other new tenant into vacant space and got rent from the vacant space plus keep getting rent from the tenant that's failing. But the nuance really is -- and [ Leigh ] and I have been doing this for a long time, it's steering the tenant towards, we'll let you know if you're going to be paying. And generally, it's always been there.

The pie chart where you showed the tenant mix now it's kind of evolved over time. How do you see it evolving over the next 5 years?

I think the small shop fashion side is stable. I don't really see it shrinking any further. I think it's a -- I think fashion is still a critical part of the shopping center. And without it, it's -- it doesn't quite have the same resonation with the consumer. I think people always need clothes. I mean we've talked about doing an annual report where we where we got naked on the cover and just said clothes aren't optional. That was Alex's idea. We all vetoed it. But no, fashion is key for the mall, and it has come down quite a bit from the past. And I think, like I said earlier, the dynamic has been in terms of who the tenants are. We just don't have as many locals and regionals as we used to and we need those tenants, but we don't need a lot of them like we used to. Like if you're running Square One in Toronto, you're leasing to everybody. You have to do it. It's a massive mall, you have no choice. If the mall is rightsized, it's nice to have a good complement of locals. But you don't have -- you don't need them to fill your whole shopping center. I think that's the dynamic that changes. Those -- the tenant -- the malls that are rightsized are not full of tenants you're taking a gamble on and hoping they do well. And like I said, we still have a complement. But what has bulked up in the shopping centers has been the Health & Beauty side and the Personal Care Services. And I think where the tenant mix is generally is pretty much where I see it staying for the next little while. I just don't see it evolving much further. Yes, Sam?

[indiscernible] historically reported sort of mid- to high single digits on the leasing spreads. When we look at the GROC ratio, it kind of indicates market rents or the rents that could pay or maybe 25% higher than what you're getting today. And you talk about getting to 96% and then your leasing strategy evolves to pushing rent a little harder. Is that the order of magnitude that you are thinking as possible or you're effectively guiding to today when you get to that 96% level? And also, what about your competitors? Not a lot of great information on stats in the mall industry specifically. Is that a dynamic that you see many of your competitors across the country also looking at?

I think in terms of rental spreads, I think we can continue with high -- mid- to high single-digit growth. I think one of the -- by building in the annual escalations of 2% and 3%, I think that's going to negate some of the ability to jump it up, significantly on expiry because they've already been jumping up, 2% a year over 10 years is actually a big rental jump. And it all comes back to how you manage your cost and you get those under control and the gross rent at the expiry is reasonable and then it will be fine. GROC, in general, is lower than it has been typically. And even if we exclude a few tenants like Apple, Sephora, Aritzia, Lulu, it's still below historical average. And I think that is a sign that we can grow rents further. I know that a lot of the other shopping center companies like we're all basically reporting the same thing. Everyone is talking about the mid- to high single-digit growth for the most part. But I think that continues, especially where sales have been.

A quick question on leasing strategy and you gave 2 examples where leasing strategies one led to lower sales productivity per square foot and one, too much higher. And the old rule of thumb was sales productivity square foot was a function of the way you're an A mall or B mall and that has cap rate implications. So as you think about your leasing strategy going forward, how do you balance maybe the right decision to take a lower productivity tenant? And what that may have ramifications on what the perception is on the quality of the mall? And is that just an old-fashioned way of looking at malls?

A little. I think what everyone started to realize is that the value of the mall is based on the income that you're generating and you can sit and pretend a space is worth x amount of dollars and it's vacant and how long it's vacant for. And you fill a space and get low productivity and charge a reasonable rent that [ guy ] can afford. It might hurt your productivity, but at least you're generating income. The sales should, over time, balance themselves out. You're always going to get -- there's always base kind of -- a mall is a big place. You're always going to get space at the ends that are less desirable or certain areas less desirable and you're going to fill them with whatever tenant you can that's going to perform at whatever number it is that generates income. And on the flip side, you're going to have really good productive space that you're going to fill with tenants that drive -- that have sales that you trust are going to grow, grow, grow over time. And so the overall number should balance itself out. But we, in no way, manage the sales at all. I mean we could easily jump our productivity by converting some of our SL tenants that we actually have won on 2-year leases back to just specialty leasing deals and take them out of our sales reported number, and it would automatically jump our sales number, but I'd rather have the security of knowing they're there for 2 years until we get our occupancy higher.

Thank you, Pat. We'll take another 10-minute break. See you at 11:12. [Break]

A couple of things I missed when I was introducing everyone. I just wanted to highlight that we've got 2 of our trustees in the room today. Tim Pire, who's the Chair of the Board; and Deborah Weinswig over there. And I would encourage all of you to engage with them, ask them any questions. We do -- we just actually recently ran the Board engagement series of meetings with a bunch of investors. We think it's important that there's connectivity. They are responsible for governing the REIT and ensuring that unitholder voices are represented in the governance and management of the REIT. So that's important. I also wanted to just thank Pat for anchoring the day. I think you're doing a fantastic day or a fantastic job today. You made the joke that you've been avoiding this for 2.5 years, and I don't think everyone really appreciates how true that is. I think it may have physically hurt Pat to be in the spotlight for as long as he was. And he -- all the time, I think he thinks that everyone else knows what he knows. And so I'm glad that everyone had the opportunity today to hear him and ask questions about our business. So it wouldn't be an Investor Day if we didn't talk about capital allocation, and I could drone on about this for the rest of the day, but I won't simply say that, as I think everyone in the audience knows the REIT structure is really an exercise in managing your cost of capital and the return on capital. We spend a lot of time talking about capital allocation, thinking about it. We're always looking for every advantage. I think Pat did a great job demonstrating the very real moat that we have around our business because of the platform that we have, the management capabilities. And from a capital allocation perspective, we try to create another moat around that business or a competitive advantage. And so these are all things that I think everyone in the room is familiar with your sources of capital, your uses of capital. And in an ideal world, you take your absolute best cost of capital and pair it with your absolute best return on capital and that's the whole exercise. You basically ignore all of the other sources of capital and other uses of capital because that is the optimal combination. So I think we've probably talked a lot about that. I know drone on about normal course issuer bids and other such things that are under that heading. But it is very important to us. We do spend a lot of time on it, but that really isn't the focus of today. This is an interesting slide, and it's one that has been in our investor deck for some time. We're very focused on organizationally, I guess from a strategy perspective, we don't talk about it that much, but I'm sure you've heard us talk about becoming the first call. And that's really what this slide ultimately represents. We have the largest mall portfolio in the country by mall count. And what we've been working on is growing the size of that portfolio, but more importantly, targeting the right additions to the portfolio, and there will be subtractions from the portfolio. This is sales productivity on a per square foot basis compared to aggregate sales volume. So we want to have the dominant retail node in the market as the shopping centers that we own. We call them market-leading shopping centers, and that's exactly what they are. And so the red bubbles are the ones that we owned under our previous ownership structure prior to the spin-out. Concurrent with the spinout, we bought 6 properties from HOOPP. You can see them, they're in gold. Quinte Mall is kind of hidden there, but that would be the sixth gold ball. And then last year in 2023, we bought Conestoga Mall, and we bought Halifax. And as you can see, we're drifting up into the right. There are another -- I think it's 20 of those silver balls. Those are the target acquisitions. There are malls that are larger, more productive in Canada, but they're not on our target list because they don't fit all of the criteria that we look for in a mall. But those are the malls that we would like to acquire. Very fortunately, there's not a lot of competition for those malls. And so we are in a unique position to provide liquidity to the owners of those properties. And I can say that we're in active discussions on 5 or 6 of those malls today, various stages. Some of it's very preliminary, some of it's more advanced. But it is very much our strategy to drift up and to the right. And as you can see, we've already made some considerable progress on that, and we think that we're moving fairly quickly towards becoming the first call for retailers. So as you know, we also transact in a unique manner. Because of this supply and demand imbalance in terms of the ownership of malls, we're able to transact using vendor take back equity. And what that does for the vendors is it provides the liquidity in a relatively illiquid market. We think we're transacting at fair values, and they get partial liquidity immediately and then they get to participate in the recovery of the shopping centers. And then also, I think, based on some of the stuff that you would have heard over the past couple of hours, I think we have a lot of confidence that we are well positioned to continue to manage these assets and deliver performance out of them. So it's a pretty interesting combination of things, but that's really the type of structure that we transact with, and we're working on additional transactions that would follow that pattern. So I think that is it for me, which is glorious that I'm not picking up a lot of time today. So...

We've been looking at the Canadian pension vendor space right now. As institutions broadly rebalance their portfolios in the private side as well, do you see the same drivers of the necessary to dispose and downsize that were there 2 years ago still continue in the next 24, 36 months and beyond?

Yes. I know it's -- I think we do see that continued appetite for portfolio rebalancing. And when you think about it, it's -- there are some shorter-term dynamics that are going on 2 years ago, 3 years ago, most of the pension funds were still trying to get up to their target allocations. A number of them late 2023, early 2024, decided that they actually exceeded their target allocation. And so we're looking to not only downweight their mall exposure, but also downweight their real estate exposure in aggregate. A lot of them are looking to downweight their Canadian exposure. I think that below target dynamic or above target dynamic might be reversing as interest rates come back down. So I think there might be different motivations, but certainly, the portfolio construction considerations, I think really drive the bus for the pension funds. And when you think about it, I mean, the pension funds have very large portfolios, and it takes time to shift a large portfolio, particularly in a market like Canada, where you don't have the same trading liquidity as you might have in the U.S., for instance. And if you look back 10, 15 years ago, 15 years ago, pension funds, for the most part, didn't do a lot of investing in apartments, and there were a lot of regulatory issues. There was a lack of new supply. You didn't see a lot of new, higher quality product, and that meant that there's a lot of lower quality product with a lot of tenant issues. There also wasn't cell towers or data centers. Those weren't really investable property types. And so by default, they ended up concentrating in malls and office and office is a challenge right now. So I think there's still going to be quite a bit of appetite over the next probably 3 or 4 or 5 years, maybe even longer than that, where we continue to be able to transact in a manner that we have been that I'm less confident about because I think that we will see a recovery in the reputation of the mall and more appetite from others to buy them. That was a long answer.

I think in your press release that you put out this morning, you said the goal is to acquire $1 billion worth of assets over the next 3 years and sell $500 million. Can you give us a sense as to the cadence of that and what that would look like? I mean it's not that many properties at the end of the day. But maybe just in terms of what type of assets you're acquiring, what regions you're looking at, et cetera?

What type of assets? Very consistent with what we're here touring today, market-leading shopping centers, generally higher sales productivity. Really market-dominant is what we're after. Sorry, what was the first part of the question?

The cadence.

The cadence, that's right. Yes. So we had a meeting in early September at other event and one of the investors walked in and said, you've been doing a lot of beating and raising. Why is that? And I put to them and said because people like it. And I feel like that's -- when we set the targets, I feel like we're probably going to be able to hit those targets.

And those high-performing portfolios you were talking about, they don't fit your criteria. Can you just give us examples of some of the KPIs that you find unacceptable?

Yes. I would say in Toronto, for instance, so Yorkdale is a giant asset. It would be probably worth about as much as Primaris, which would make it problematic to put it in at 50% of our asset base. But it's also an asset we talked a lot about being long-term owners and having a long-term strategy. Yorkdale is the kind of asset that I think you really need to have like a 100-year investment horizon to really understand. And as much as we have a long-term view, we're also a public company, we need to deliver near-term results. So the yield on a mall like Yorkdale would probably be too low for us to realistically afford. And that's because there is immense value there, but it might not show up for 15 or 20 or 25 years. So that's a good example of something that we probably wouldn't want to own. And there are other very high productivity malls that happen to have a lot of competition. And if you have 2 really good malls side by side, and one happens to be backed by a $200 billion pension fund and one is a public company with $4 billion of assets, that's not the kind of downside that we want to get into. So there are some assets that would fall into that bucket as well where we're just not going to spend the pension fund to dominate the market. Deborah?

[ And you have ] people at night, but what keeps you awake now in '24 heading into '25 versus '21 heading into '22?

Kids is probably the most frequent answer. Yes, I don't know. I mean I think when we first spun out, we thought that there would be a 2-year window in which we could transact in the manner that we have been. I now still think that there's probably a 2-year window. Certainly, there is a flow of capital coming back into real estate, and it has been in the last 60, 90 days, and it has been tremendous to see the amount of capital interest. So I think that window might close, and I'd like to see us make as much progress as we can on the bubble chart before that window closes, and we end up seeing a lot more competition. Yes, that would be it. I mean, as Pat, I think, very clearly articulated the business is in really good shape. We have a slide in our investor presentation that shows the inventory per capita of mall space declining and accelerating. So our property type is in fantastic shape, and reputation hasn't caught up with the reality, but it's a double-edged sword with that recognition will come more demand and more competition for the properties. Tim?

So a lot of people -- investors worry about the cyclicality of the mall of regional malls and retail sales, and we're looking at economies that are slowing maybe not a recession, maybe a soft landing. How do you look at this environment and retailers and the ball business today relative to other cycles?

Yes. So Pat talked about the change in the merchandise mix. When I am in the room and Pat is not there, and I have to answer questions about that kind of thing, I generally point to the fact that the retailer mix that we have is very comparable to the other retail REITs. And that is a function more of the Canadian consumer than it is anything else. When we're going through these merchandise mix exercises, it's really tenant demand that drives which retailers are the hot retailers that we want to bring into the shopping center that will bring more of the consumer. And our business is very, very defensive from that perspective and I'll often say that in Primaris 1.0, the last time Primaris was public up in 2013, the GFC was -- global financial crisis was a big event. And in that period of time, the maximum NOI decline that we saw on a same property basis was 0.6%. There is a reputation around the mall that it's highly discretionary, it's very economically sensitive, and the evidence just doesn't support that. And then you take on top of that, where our GROC ratios are relative to where they have historically been, they're below average. The inventory of the mall sector is declining. All of the fundamentals suggest that we should be pretty recession-resistant to -- relative to the rest of our peers.

The GFC was kind of a idiosyncratic event. Do you have any insight into how maybe the malls would have done in Alberta when the oil market took a hit?

Pat would probably be the right one to answer that.

[indiscernible] 2015, and it actually -- it took a hit, not substantial, but you could see like the sales went down and the NOI -- in the year it happens, it doesn't hit, but sales definitely softened and tenant demand dried up.

Did you see -- because I think Target left around them. But outside of that, did you see a lot of retailers leave in the malls? Or was it really just a softer sales?

It's softer sales.

Was there an impact -- big impact on leasing velocity?

Yes. Yes.

Andrew?

Just a question going back to capital allocation, dispositions. Could you maybe give some color on that? Is there a thought -- you obviously have a portfolio of other properties. Is there a thought also on the enclosed mall side if there's something to do there?

Yes. So we have -- I think we've guided publicly that we have probably $400 million or $500 million of assets in total that we've notionally earmarked those things that we would sell over time. We have already executed on Garden City Square in June, we sold for $32 million. We have a number of other transactions that we've been working on. All of the non-enclosed shopping center stuff would be on that list. And then there are a few of the enclosed shopping centers, and they're generally the lower productivity ones. If they -- we're in a market where there's competition, that's another sort of flag for things that might be for sale. And then we have some like Northland Village. So we de-malled that one. It's no longer an enclosed mall, which makes it something that we would sell, but we have another mall in Calgary that isn't the market-dominant shopping center and something that is probably more of a redevelopment site, and we're not a residential developer. So there will be some malls that go as well. Mark?

Yes. So we saw some land value outside here, and you just mentioned maybe you are not a residential developer. To what extent of that maybe $500 million that you'd like to sell would be predevelopment land or other development? And would Dufferin development opportunity be included in that and maybe you could expand on your thoughts on that asset?

Yes. We think about Dufferin differently. Dufferin Grove development site, that's not included in those numbers. It's -- Dufferin Grove is, for those who don't know, 4 acres out of a 21-acre site at Dufferin Mall. It's zoned and titled and severed ready for 1,200-ish residential units. We had it appraised as we spun out at $180 million. It went up in value. It has subsequently come down in value. We last had it appraised at $151 million. The reality is it's a large development site. It's a super prime development site. It's an expensive development site. And liquidity in the land market in Toronto has been low for the last 2 years as there hasn't been a lot of new development kickoffs. So we haven't been putting it front burner in terms of something that we want to monetize. We do think it will be something that will go out the door. And then Dufferin Mall as a whole is a fantastic location. The shopping center is good. It performs, I think, $700 plus a square foot. But in the fullness of time, I think all 21 acres will be redeveloped and that's not us, that's someone else. I think it really deserves someone who can master plan the whole 21 acres. And we've got 16 years until we have full site control. So there's time. But I think in the fullness of time, that probably won't be a Primaris property at some point. And now it's time for Dave Black. I'm really excited that Dave is here. He does a lot of our valuation work, and I hope everyone feels very comfortable asking him any and all questions because I find it very interesting talking to him, and I think you will, too.

I have the very unfortunate slot of being after Alex and before lunch. At least there's no alcohol in lunch. Is it -- hold me back from the bar at least. For those of you I haven't met yet, my name is Dave Black and I'm the Head of Value Risk Advisory for JLL Canada. We are a platform that values about $90 billion worth of commercial real estate from coast to coast on an annual basis. We're doing that work primarily for pension funds and REITs such as Primaris but also lifecos and some private groups as well. And those valuations would be used for financing, obviously, but also financial reporting, internal decision-making, asset management and whatnot. So prior to my role as kind of head and trying to grow the group and around the results and strategy, there was that useful headshot of me, happy go lucky. I was a mall appraiser and I've been a mall appraiser for 15 or so years that probably valued 90-plus percent of all the malls in this country. So have a pretty intimate knowledge of where we are as it relates to malls right now. And I think part of the reason why I'm here. So very happy to be here. And I think the thought is, one, to give a bit of an overview on what we're seeing from an investment market. And I'll give you a bit of a flyby in terms of what the first 6 months of 2024 look like from an investment volume perspective and then dig in a little bit into our process. And have met a few of you already, and you have the questions on how do you come up with your values and what that process is. My answer changes whether we're on a boat with a beer in hand or whether we're staying a year, but I am available over the next day and happy to answer any questions, obviously. So first, there's a lot to take away. This comes from our research group and is kind of showing what are we observing. Appraisers, we don't make the market. We observe what we're seeing and apply to the values that we produce. Through the first 6 months of 2024, we have about $20 billion of investment activity in commercial real estate across the country. And we don't have our Q a few weeks before we get the Q3 numbers. You compare that, so $20 billion, if you annualize it $40 billion. The last few years, they've been sitting around $60 billion. And we've had quite an active investment market coming out of COVID. We had a very soft Q1, $8 billion or $9 billion worth of transaction activity, and that picked up to kind of 11% or 12% in Q2. Why did we pick up? We did see some softer lower bond yields. We've seen interest rates and the direction they're going. That could be a reason why we're seeing more sell. There was also the capital gains tax and that accelerated some deals, and there was some fortuitous timing. It spread up some processes and peopling try to speak into that deadline as well. But we saw, say, elevated activity in Q2. And the hope or the belief is that as we move into Q3 and Q4, as because say, we'll wait till next -- later this year, we'll get evidence later this year. So we do hope that in Q3 and Q4, we are going to see that evidence. There's a lot on this slide about residential valuations, and I could talk for a long time about that. There's a lot of nuance to achieving market rent and building and construction and pro forma. So that's obviously a market team and an in-demand sector. But really, I think the biggest takeaways are -- there is that bifurcation there. Everybody is looking at each asset class differently and very much on a property-by-property basis as well. What does that [ walt ] look like? What is that income security? So when you hear, hey, how are your values moving? Yes, we can have some sweeping generalization, but it's very much on a property-by-property basis right now. This slide has a lot of red numbers on it. What we do is we compare the various sectors in terms of that investment volume and compare to the 5-year trailing average. And as I alluded to, we had some record years in -- over the last 3 years in terms of investment activity. So when we look over the first half of 2024, yes, we are down across available activity virtually across all sectors. The only anomaly outlier is hotels and you see a massive green number there, buoyed primarily because [indiscernible] sold $400 million worth of hotels, which closed in Q1. So for the most part, we're seeing everything kind of come back down. And the belief is that the more in-demand sectors will come back. You see office there, for example, leading the charge in terms of the lowest volume, and we don't know what that number is going to change anytime soon. This slide shows a bit of the nuances of what's selling, where is it selling. We -- Montreal is actually the most investment -- or most popular investment market right now, close to $4 billion through the first 6 months of the year, followed closely by the GTA. But we do see that bounce back in Vancouver, markets like Ottawa, and that I think we call it the Western Golden [ Horseshoe ] now as well. A lot of investment activity in that market of investors looking at or wanting to be close to the GTA or having that close proximity but not necessarily having the same pricing levels that we see in the GTA. And then on the right, it is on a sector-by-sector basis. So you see some dips into Q1 and some nice rebounds across most asset classes. And I think that will continue to present itself, and we'll see that upswing in the more stable asset classes. And then what I talk about a lot is the makeup of the market. We are -- I live on market evidence. And so you say, okay, Dave, $20 billion of property has sold this year, you must have lots of comps and you might be [indiscernible] here if you're valuing Halifax shopping center, how are you rationalizing these values. What's interesting is that I think I'm trying to look at the color, it's the -- somewhat blue on the left represents the private buyer. A private buyer represents 80% of all investment activity right now on the buy side. And so when you look at groups that are a bit more opportunistic, maybe a bit more nimble, can act quickly, don't have as much sustainability promises, they might have a Board to report to, they can act quick and fast, and they seem to be capitalizing in this investment market right now, so that private buyer is really driving a lot of the activity that we're seeing. And because of that, what we're seeing is also that deal size between $5 million and $25 million is representing the largest deal share right now in the market. So again, appraising Halifax Shopping Center, not a lot of comparable evidence to a plaza worth $6 million down the street. So we get to see these investment activity totals and talk about some of the property that is selling, but we're still -- I don't want to say picking and choosing, but we're still trying to find this kind of true anchor benchmark comparables to apply in our valuations on a day-to-day basis. And I think that's one of the main reasons why I'm here, what's the process that we go through as a valuation professional in establishing a market value. So this is a very simplistic way to understand what we do. A lot of what Pat talked about this morning, that's the information that we would get from a client like Primaris with the pension funds, we get all of the information about each mall. What are the leases? What does the rent roll look like? What are those contractual rent steps? Tenant productivity, and we've talked about GROC that -- I know Pat, you said you don't like GROCs. We like GROCs. We like to understand that affordability, what that health ratio is. It gives us a bit of an idea on how each retailer is performing, taken with a grain of salt, obviously, but it's another way for us to build our cash flow projection. We get budgets. We get an idea of where revenue is, what expenses are. We are looking at capital plans and what's being spent on roofs and parking and HVAC, what's being charged back to the tenants, what that nonrecoverable cost is and we take all of this financial data and build a cash flow projection over the next 10 years. Real estate, it takes a long time to sell. These are especially malls that are contractual leases, they're 5- and 10-year leases. So when people talk about cap rates and we'll have a drink in hand and say, what was the cap rate on this and what was the cap rate on that. It's a very spot in time, it can be a very misleading indicator on what the true value is of a center. We are very much based on the IRR TCR, what's the internal rate of return or the discount rate? And what is that exit yield? What's that terminal capitalization rate? That's what we rely on from a valuation perspective. Malls, in particular, are complex. There's a lot of moving pieces. This isn't single-tenant industrial with one lease, there are a lot of moving pieces that you need to understand that you need to roll to market and that traditional valuation methodology is to project how the mall evolves over the next decade. And we apply a lot of assumptions in terms of where rental growth is, what sales growth is, what vacancy should be to come up with that kind of decade-long forecast. And then we use whatever we can derive and I'll go into it a little bit further later. What's out there in terms of market evidence and how do we establish what that IRR and that TCR is to get confidence that the values that we are giving are reflective of today's value. So when we talk about cash flow projection and this slide really just talks about the positivity we do feel in malls right now and I'm not here to say, hey, malls are great. That's not why. But after spending so many years talking about the retail apocalypse, and every Board presentation was about what's happening in retail, retail is dying, are you going to get occupancy back up, are sales going to climb. It is nice to have these stories. And we do so many valuations on a quarterly basis or a year-on-year basis, where the value from operational lift is there. And we do a lot of work for pension funds. You can imagine we also do a lot of valuations in the office space. We find all of a sudden that the first questions were about malls in 2021, and now they don't want to talk about malls anymore, it's what's going on in office. And these slides that talk about sales productivity going up. Retailers and landlords all expected a positive 2024, which we are seeing in all of our valuations, rental climb, sales climb and virtually across all mall categories. The suburban mall came out of the pandemic years quite strong, whereas the more urban centers have struggled, but we have started to see that bounce back in the Eaton centers in Toronto, the Pacific centers in Vancouver that have driven by tourism driven by downtown office workers. They're starting to show signs of life. And I know, Pat, you -- the other question I was almost wanted to jump in, [ Pack ] center is a great example of if you look at ICSC and sales productivity, the sales productivity is declining, crumbling in [ Pack ] center, but it's because they took an Apple store that was reported in the CRE sales and turned it into a major tenancy. And that's great from a value perspective and great income. And if you've been to Vancouver, you've seen that glass cube, it's unbelievable. But if you just look at that sales productivity and say, well, what's going on a [ Pack ] center. It can be very misleading as an indicator in isolation. This slide, I like from our research group because retail, we all shop and we are obviously looking at demographics and dynamics and where do we see population growth. This is the right crowd for this slide as well because you can see Halifax Shopping Center on the top right there, which means there is a lot of productivity growth and a lot of population growth in the market. And that gives us comfort when we're looking at traffic and how many people are coming to the mall and our sales increasing. This is that scatter plot to show that particularly in the Primaris portfolio, there are some malls that are benefiting from strong population growth around the malls and then inherently strong sales within those centers. This is how I argue with clients in terms of where values are. And I say argue because we do argue. There's a lot more details on what transaction and I mentioned that we're trying to find the right transactions in the market. We have benefited. There's 12 malls there in the last 36 months that have sold. And what we would do is we would understand everything there is to know about these malls, why they transacted and what that consideration was, what are the nuances are, and we would, on each of these each of these centers, have an IRR TCR based on that transaction. So if Halifax Shopping Center sells at $370 million, as Alex alluded to, there's other kind of considerations that we need to incorporate. There's also the annex across the street, and there's an office tower. You need to kind of strip that out to understand what that true mall value is, build out our cash flow, and we get a really good idea of what the rate of return for Halifax mall is based on our projection. There's malls in here, Erin Mills Town Center, Pickering Town Center, for example, that have massive intensification of it. Most of you are from Toronto. You see that they are kind of planned. So we have to look at what that purchase price was, was there allocation to the density to then get to a mall price in isolation. VTBs, there's some of these deals where the vendor was motivated to get a deal done, so they might offer some below-market debt. We need to consider that as well. But you take these kind of 12 or so malls and there's another 5 or so that likely should close over the next few months that just give us further evidence on what malls are commanding from a market value perspective. And it's -- they're all varying qualities. And Alex again talked about Yorkdale. Yorkdale to us is the #1 mall in the country. It is from a productivity perspective. It's in Toronto. It has intensification. It's extremely valuable and then you can work your way to the bottom. Everyone asked what's the worst mall in our list. I will not say. But all of these malls then fit in between. Laval, Vaughan Mills, great indication of top 10 or 15 malls and what sort of IRRs and exit yields can be applied to those types of centers. You look at Conestoga and Halifax, which are great, high-producing malls, not in MTV markets, Montreal, Toronto and Vancouver, that gives us a good benchmark when we're evaluating alike malls there. And you just work down the list that we kind of build that ranking on where we see metrics and we're always trying to confirm it with what that available evidence is. And again, I can't stress it enough that the cap rate is a made-up number, and income is different on what Pat thinks the income is out of this mall and what our model says and the cap rate is going to be different. The IRR TCR is just a great way to anchor our valuations. And as I say, give confidence that we are treating all the malls across the country in a very similar fashion. And when we don't have sales or when we're -- in times where we don't have as much available activity, there are other things that we can do. We do run investor surveys. We'll go out to 100 or so senior executives at pension funds and REITs and active investors in the country and ask the hypothetical. If you're buying a mall in a major urban center, what does that IRR look like? We do ask them about cap rates because people talk cap rates, but this at least gives us an idea of trending and what the sentiment is. And it's not exact, okay, if it moves 37 basis points, we're going to move all of our valuations, no. But it does get to show across -- and we do it in malls, we do it across all retail assets. We actually do it across all core 4 assets to try and understand really what that investor perception is of the valuation parameters at any given time. We tried to do it quarterly. People stop -- if any of you run surveys, they just stop answering eventually. So we do it once a year to give us at least an annual snapshot on where we're seeing values. So the last we have is 2023, we're compiling all the 2024 numbers right now. And if any of you are interested in the results, I'm happy to just share that when they are ready. The other kind of core thing you got to do -- I work for a Fortune 200 company. We do all sorts of different real estate services and brokerage is one of them. We have what we call the global bid intensity index. So if JLL is selling a $200 million industrial portfolio in the U.S., that broker has to input into our system what -- how many bids did they get, how many buyers are at the table, what was the low bid, what was the high bid, what's your ask. And then it gets kind of compiled and anonymized and aggregated and gives us some really good insights into -- as an appraiser, I'm always blamed for looking in the rearview mirror. The intensity indexes a bit more current in terms of where -- are there buyers on a global level for certain asset types? Where is that pricing disconnect? And you can see that in that kind of line graph on the top left that when you anchor it as the base being 2019, there seems to be on a global level, more buyers in the market right now for everything that JLL has marketed worldwide. But what I really like is that bottom right, and that's showing the variance between bid and ask and bids on any kind of given sale process. And you'll note that 3 of the 4 residential, industrial, retail, it's starting to narrow. People are getting a good idea on where value lies. That big blue one is why people are asking about office, but there's still a massive disconnect between sellers and buyers and where underlying value is of office really around the world. It is a challenging sector. People are returning to the office, but there is still that uncertainty and it is stealing the headlines and dominating a lot of my conversations in terms of value projection moving forward. And then the other kind of last way we can do this is we can kind of geek out on the number side of things, where we can say, okay, what's our risk-free rate. And let's look at Bank of Canada 10-year that right now sits at anywhere between 2.9% and 3.1%. And you can compare that to historical return expectations for regional malls, and that's come from the Altus Insight survey, and you can get an idea of what real estate risk is. So if we're sitting at 3% and malls are, on average, regional centers are at 7% IRR. Okay, there's a 400 basis point spread between that risk-free and then that real estate asset. And it's nice to go back 10, 15 years and understand where that relationship is. And when we get in an environments where -- it was not that long ago that the 10-year is getting close to 4%. It was putting pressure on our valuations and should we be moving up those yields and making sure that, that relationship still exists. But now that we've come down to a bit more of a historical level, we can feel confident that what we're applying is very much in line with what we've seen over the last 10 or 15 years. So you melt that altogether and you use that available evidence in some of these other exercises, you get some sort of idea on what assets like the one we're sitting in today are worth. I save 10 minutes for questions, which I'm happy to answer.

When you look at 10-year forecast for rental yields as well as cash flows, do you factor in also the tenant mix evolution over the period of time? Or is it more a onetime evaluation as such?

So when we build -- I mean, we're not kicking out tenants or anything like we're not, I can say, building an asset management projection. We are looking at what that tenant mix is but being very realistic in terms of what those uses are today and what kind of income they can achieve. We're very cautious as a group, and this is me as a philosophy on vacant space. What we found is a lot of pressures don't necessarily attribute a lot of value to vacatant space. And so you can get an appraisal that's really out of whack if you turn them all into something that is not as of today. So we are looking at the current state of the mall. If there's expansions or if there's plans or if there's contractual agreements, we do incorporate those. We do sit down with every mall manager or every leasing platform to understand what the assumptions might be and get a flavor there. But it's very much looking at what is there now and what is the potential upside or risks over the next decade. So less speculative movement and saying we would like to replace this with this. And more just trying to say, okay, if this tenant stays, what kind of rent or income can be achieved on a unit by unit basis.

How is CapEx factored into the IRR? Is it based on the CapEx plan of the mall? Is it your own kind of view as the CapEx that needs to be spent? Is there any kind of like historical for a mall CapEx to NOI in our DCFs or X?

So yes, so both the recoverable and nonrecoverable CapEx is below the NOI line. But our IRR is present worthing the 10 years of cash flow. So when you look at that DCF value being a combination of 10 years of cash flow value and then the assumed disposition of the property in year 11 and that exit yield, whatever capital that you are applying in that projection has an effect on value. Our kind of belief on things, nonrecoverable capital, if someone puts a building condition report in front of us, it says you need to spend this money, of course, we're going to incorporate that in our valuations. When it comes to recoverable income, we do pull holes and we try and understand are these projects really going to be spent. It really messes with cash flow yields if you don't, in fact, spend that money and know the budgets and mall managers would love recoverable money to spend and pump through some of these malls, but you have to be very careful, and it's very owner specific. So as a valuation professional, we're trying to be very neutral in terms of what the market value is. So we're taking the concrete for sure CapEx program really as the baseline and discussing that more discretionary spending and whether in fact it does occur.

Given that names like Eaton, Simpson and even Target are no longer around, how are -- how do you think about underwriting the anchor tenants who have 10-year plus leases? Because we all know that if you had Eaton as an anchor tenant, they were never going to go away until they did. So how do you incorporate that into the 10-year plus for the cash flow knowing that you're running to your DCFs?

So we have the rule that one tenant shouldn't affect our valuation too much. And when Target was coming to Canada, our client base was saying, I'm getting a to Target in my mall, my cap rate should be better. There was that excitement, and we saw what kind of happened there. We've dealt with the 10 million square feet that came back from Sears for the most part. We dealt with the 10 million in Target. When we're looking at anchors, you're right, we've got 1 last, maybe 2. So when we're looking at the Bay, for example, they have lease term forever. We still run that out. We might look at it a little bit differently. We used to never apply vacancy or any assumptions that the anchor is going to be there forever. We do look at it a bit differently now. But what we also find and Pat alluded to as well, there's not a lot of income coming out of those anchor tenants anyways. So when you look at the proportion of rent coming out of these boxes to everything else, it's a lot smaller. So it doesn't have as much of a material effect on our valuations versus when it was malls anchored by Sears, Target and the Bay where there was that massive disruption. So yes, we keep an eye on anchors. We didn't talk -- we haven't mentioned Nordstrom. Nordstrom was another great example. Their stores did wonderful, very high sales productivity, but there was a lot of rent, a lot of cost to get the grids into Canada. That's had some effect and to replace those boxes, spend that money, continue them as retail uses. That does have an effect on where our value sits in those assets. But it is very much mall by mall and anchor by anchor in terms of how we look at it. And I agree with Pat that I don't see every bay store closing next week. You do get an idea on what ones might be starting to shutter. And we're seeing it already, certain malls kind of getting locked off the chain. And I think that, that should continue. And we are aware and speaking to owners in terms of are you on that list? Have they reached out? And what do you think about the store moving forward.

Just on the retail -- the bid intensity that chart you showed there with retail, industrial and apartments, I think, all showing improvements. Do you have a breakdown on the retail bid intensity between enclosed, unenclosed, grocery-anchored, et cetera?

They don't break it out. But I mean, what can I say is that, of course, every group has food-anchored strips on their radar right now. Not every group has malls on their radar. So it is a great question to say that we do look at, yes, we talk about retail. But what is open-air retail, what is anchored open-air retail, in particular. Very resilient. We all learned that it, over the COVID years, performed extremely well. And so it's on the buy side. There's not a lot for sale in this country that's food-anchored, and we have private and institutional capital chasing it right now. So that intensity would be high if the right property comes. But you're exactly right. Every -- we group it into core 4, but within each of those asset categories, there are the nuances in terms of how within that asset class properties do perform.

Great. Just a follow-up. Are you seeing any evidence of cap rates or discount rates coming down now that we're on the other side of the interest rate cycle?

Interest rates and cap rates don't move lockstep with one another. You need to have a certain amount of movement, in my mind. And it lags. So the properties that are closing now are negotiated still in a higher interest rate environment. So yes, the hope is that more buyers and more institutional money reenters the market and that lower interest rates help understand the levered returns and create accretive value propositions. But it takes time. So every 25 basis point, it's great to see. But we really need to see how it translates to the transaction market before we can say that we're feeling good, are not compressing cap rates in many valuations right now.

So in different property types, you see macro trends on the horizon. Let's say, e-commerce changed, industrial had an impact on retail, work from home impact office values. As you look at retail in the mall today, do you see a macro issue positive, negative, something you're watching as you're thinking through valuations?

There were some dark years in retail. And Leo talked about that on the leasing side, Pat, the strategy, on keeping doors. I mean, we were not allowed to shop and go into places to spend money. So I feel great that as humans, we like to go to the mall. Not everybody wants to shop in sweatpants from home. It's nice to maybe buy your toilet paper or you've got a couple of regular purchases. But the mall has reestablished itself, in my view, in our day-to-day of going there and spending money. And you might have bought something online and you're going to go pick it up, but while you're there, you're going to probably buy something else. So that physical closure and tenants, there was some talk about percentage rent in lieu, there was 6, 7 years where I don't think I saw one tenant in the country revert out of a rent in lieu situation. It's just everybody who was turning from 40 net to 12% of sales. Now almost every valuation we do owe here is the guys that we've come back on to net terms. That gives us the warm fuzzies from a valuation perspective. So I think a lot of the obstacles in the asset class have been overcome. E-commerce, we keep getting that question. Oh, it's going to eat into mall sales. But its percentage of total sales is staying the same. So what keeps me up at night is some of the other asset sectors more than retail right now, to be honest.

Just -- oh, I think I'm keeping people from lunch. All right. I'll try to keep this one short. Just the strength of retail fundamentals, we talked a lot today, and you've mentioned it as well. But have you seen, coming back to that bid index, have you seen foreign interest in the Canadian mall space? Or do you sense it possibly getting a bit more competitive from a buyer standpoint?

We have seen -- and I wouldn't say necessarily in the mall space. We do see international buyers in the market. I don't have as much of an understanding. I mean, we do know there's certain taxes and some obstacles to -- that affects the kind of viability of foreign investment coming into Canada and making sense on a global level. But some of the more notable transactions, Royal Bank Plaza in Toronto, which Oxford and CPPIB sold a few years ago, sold it to Mr. Zara a private international capital. 401 West Georgia, 402 Dunsmuir, that's sold in Vancouver, again, Oxford CPPIB, sold to [ Deka ] out of Germany. So the international buyer is absolutely around, but they have to figure out what is the right scale to make that investment worthwhile and also how Canada aligns with other markets around the world in terms of what sort of rate of return they would get for that money. So it's complicated when you get the international funds involved, but we do expect them to be part of a lot of the notable disposition processes going forward.

Okay. Great. Thank you, Dave. We'll now take a 20-minute lunch break.

Thank you. [Break]

Hello? Yes, here we go. I'm going to do the math part and talk a little bit about the financial structure, where we see opportunities on our stock price and total returns. So the first thing, obviously, is a differentiated financial model. Well, this has been a labor of love the last 2.5 years. We've done a lot as far as working our balance sheet and what we've tried to achieve. Everything is anchored on the debt-to-EBITDA not exceeding 6x and a 50% payout ratio. So we think that puts us in an incredible spot as to how we run our business and how we want to manage our financial risk profile. Really, the objective here is to disconnect the right side of the balance sheet from the left side of the balance sheet. That allows us to manage the capital structure one way and allow the real estate to operate separately so that when we're making decisions about the real estate, I don't have to have Pat come to me and say, "how does this impact our financing on this asset? Can I do this? Can I not do that?" And that is critical to maximizing the performance of the real estate. To get to this model, we've relied very heavily on an unsecured debt program. So today, 82% of our debt is unsecured, 18% is secured. Most of the secured debt really comes from our joint venture asset where our partners would like to see debt on the assets that we accommodate, accommodate that with putting secured debt on the property. But for the most part, we're very committed to an unsecured program. What that does is, first of all, the cash flow is incredibly pure. So there's no amortization of principal. So all we're paying is just the interest. So that makes our cash flow -- optimizes our cash flow, makes it, like I said, extremely pure. We can also manage the debt ladder very efficiently, where we can sort of put the maturities in place where we want it and try and smooth out our expiries. When we went public, I think we were at 1.4x average loan to maturity. Today, we're over 4x. We're at 4.6x average term to maturity. We've seen the unsecured markets really come back to us nicely. We went through a period where we had to pay our dues, so to speak, and the discounts or the spread was wider than what was necessarily optimal in the market. But that's what happens when you are new issuer. Recall, we came out 2.5 years ago and we had no comparative financial information. It was a tough slog coming out and trying to get people to buy in to an unsecured program where we had very minimal financial disclosure. And so it's very much a show-me story. We think we've proved that. I think people are comfortable with our capital management on the debt side, extremely conservative. Today, 100% of our debt is fixed. We have no floating rate debt. With the last bond issue, we really accomplished two things. We've eliminated maturities for '24, '25, '26, so we have no debt maturing. And we were able to tap the 7-year debt markets, which is we're very happy about it. Six months ago, if we tried to do something over 5 years, there was no takers. So the investors have definitely shown confidence in our capabilities, our capital management, our balance sheet management. And now we were able to do a 7-year bond, which is really nice. And you can see how we've smoothed out the debt ladder and it's starting to take shape. We've left 2031 open so we can still tap the 6-year market, and we're now getting reverse inquiries for people who would look to do as long as [ tenure ]. So we think that's a very positive signal. And as the yield curve flattens, there is more of an appetite for longer-dated maturities. So we think we're going to tap into that. Debt-to-EBITDA is sort of the be all and end all. It's how we measure our debt structure. It is -- sort of we use a 4 to 6x range as far as guidance. It's really in the 5s is where we would be. And we'd operate within low 5s to high 5s. Today, we're at 5.7. We've been asked on several occasions, would we go over 6. And quarter-by-quarter, it's an artificial date. The answer is if we had a clear line of sight on dispositions, we're on a pro forma basis, we can see that we're still below 6, we would evaluate that. The intention is not to go over 6. But if it was a very temporary thing, and like I said, we had a clear line of sight where you collapsed the quarters, we'd look at it. But it's not something that we're keen on doing. We actually have a significant part of our compensation linked to debt to EBITDA. So our short-term bonus plan, I think 10%, is based on not breaching that 6x. And on our long-term incentive plan, it's actually 25% of our compensation on a long-term incentive plan is linked to debt to EBITDA. If we breach 6.25, we would go to 0. So there's a sliding scale between 6 and 6.25. And over 6.25, we would go to 0. So that's baked in, and we were very comfortable when we came out. When we looked at REITs and what the optimal capital strategy is, we had the benefit of seeing the history of REITs, and we do feel that the lower leverage is the right way to go. And we think ultimately, it will translate to multiple expansion as we continue on with this program and obviously, access to capital is critical. We also have a $600 million operating facility that stands to the side. Part of it is we want to always make sure that we have sufficient liquidity as debt rolls to ensure that we can pay off that debt. Obviously, we have got no debt now rolling for the next 2 years. But more importantly, on the acquisition side, as we sit down with potential vendors, and the acquisitions we look to do are fairly chunky, we want to make sure that there's no financing conditions. So the -- and that does make a difference when we sit down with vendors and they're looking at our ability to execute, having no financing conditions and knowing that we've got the cash in the bank makes a difference. So at the end of the day, we want to strive to a fortress balance sheet. People ask me what happens if the markets c*** out or something disruptive happens, I always say I want to be the last man standing. So when -- if the banks or the market start to pull back, we want to make sure we're always the go-to name and we're the last man. So if we're -- if we can access capital, then God help us, everybody else is in the toilet. The drivers of FFO growth. So we've talked about this briefly. So same property NOI is obviously the key driver. And we have multiple parts to that. It's the occupancy gains that we can tap into. There's the recoveries, and Pat talked about $30 million to $35 million of low-hanging fruit that will roll in over time as we get our occupancy -- sorry, our recovery ratios from 80% to 100%. So that's going to be a key driver. Contractual rent steps, so obviously, that's a driver and the merchandise and mix all sort of plays into that and what type of increases we can get on the rents. Acquisitions is a key part of our portfolio mix. And that would be net of dispositions, and I'll come back to that. But acquisitions, we see as a driver of FFO growth. Developments and expansions that's really pad additions sort of at the margin. We're not talking about large-scale redevelopments. Repositioning the assets is a constant thing. And a lot of that is driven by the retained cash flow. So having a retained cash flow is a great embedded growth structure that's baked in. Roughly speaking, we're looking at $60 million a year. There's a few things we can do with that. They can go into the redevelopments. They can go into paying down debt and then CIB purchases. So we're always trying to figure out what to do on that front. The other thing that I didn't talk to before, but part of what's driving this is we have no interest rate headwinds anymore. So with our debt ladder now structured the way it is, we've put that behind us. So we do not have to worry about a rising interest rate environment. If anything, if interest rates -- with interest rates coming down, as we issue debt to finance acquisitions, that's really where we'd be looking to issue new debt and tap the capital markets. But we had about $0.14 of accretion dealing with the interest rate headwinds from the IPO spinout to where we sit today. And having that behind us is really nice, to not have to worry about where interest rates are going. Was just looking at sort of how we look at our returns. So this assumes no multiple expansion. So it assumes that our multiple stays exactly where it is today, and the market does not reward us for our platform and what we're doing and our execution capabilities. So when you look at sort of returns and where -- what can drive returns, all things being equal, you get the distribution yield of 4% to 6%, 3% to 4% same property NOI growth and again, driven by occupancy, rental uplifts, the gross to net conversions. Acquisitions on a net basis, we do anticipate 2% to 4%. And then the retained cash flow, we look at adding 1% to 2%. It depends how the money is deployed. The NCIB right now is massively accretive, but we would also look at allocating that capital to other activities. So we're looking at 13% total return for a unitholder, assuming absolutely no change in our multiple. So we think that's a very compelling proposition. Financial targets. So everybody wants -- likes to see this. So occupancy, so we've given like a 3-year target here. We haven't altered the 2024 guidance. We will freshen that when we do our Q3 reporting. But for now, we do not want to touch those numbers. So occupancy growth. We'd like to drive that to 96%. We see same-property growth of 3% to 4%. And I would tell you that when you look at 2024, it's understated. And the reason why it's understated is we've seen significant growth in some of the acquisitions, which does not show in that number. And if you took Halifax and Conestoga and compare it to prior years, we're getting growth that's higher than that. It shows up in our revised NOI guidance and then the FFO per share growth. but it doesn't show up today in our same property growth. So we're not really reflecting what we've been able to do with some of these acquisitions when we lean in and apply our expertise. This translates to 4 to 6x -- 4% to 6% FFO growth. Because we have the low leverage, we're not as torqued to translating NOI growth to FFO growth. But we think that's a good thing because of the retained cash flow and the conservative financial structure. Annual distribution growth will converge to FFO growth. Today, it's lagging just a little bit because we're slightly over 50%. And as we set the distribution targets, we're really looking at Q3, Q4, which is what we did when we did the distribution bump last year in Q4. And so if we keep it slightly below the FFO growth, we'll get it back below 50%. And then you should look at it, stay in lockstep with FFO growth. So this is a tough one, acquisitions and dispositions, sort of what we're pegging. So we think conservatively based on what we're looking at in the pipeline, it's well in excess of $1 billion of acquisitions. Looks very fluid. There's a lot of factors, obviously, moving around in this, but the acquisitions are fairly lumpy. So you're dealing typically with acquisitions over $300 million. So you'll be looking at 3 to 4 acquisitions to hit that target. Dispositions, we're looking at over $500 million. And I would say this is more of an 18- to 24-month time frame is what we think. What we're seeing in the market today is a fair bit of liquidity coming back in for assets under $100 million. We're getting a ton of reverse inquiries now, people looking to deploy capital. Financing is starting to become more readily available for those assets. And so we do believe that we can be quite successful in executing on that side. This does not include Dufferin land, I think that question was posed to Alex before. So we have not included the Dufferin land. There's some other small land sales included in there. But when you talk about selling land, you're dealing with almost 0 cost of capital that you can redeploy and it's highly accretive and conducive to building out the portfolio. So those are the key financial metrics that we can guide you to. And finally, to conclude, I guess, our thesis and sort of how we look at investing in Primaris is we think there's asymmetrical risk profile. The downside risk is very low compared to the upside. The upside far outweighs the downside with a very conservative capital structure, no interest rate headwinds, so that's totally behind us. So we don't have to worry about that. We have retained cash flow. We have a sector that's recovering very nicely, same-property growth, occupancy gains, conversion of leases. And these malls just continue to get stronger. The cities have grown around these lands. The barriers to entry are extremely high. We're basically creating moats around these properties. There's no construction activity. You're seeing retail square feet per capita decreasing. So we think that there's huge upside. And the big thing, which I think sometimes people don't appreciate, this is an asset class where scale and the platform matters. And our scale and our platform really lends itself to achieving superior growth as we add higher-quality assets, our relationship with our tenants, what we can do with the portfolio really just keeps getting stronger and stronger and stronger. And we also have not hit critical mass yet as far as leveraging our G&A platform. So you will see G&A stay relatively stable, maybe increase slightly. We've done a lot of retooling in the last 3 years, especially on the financial planning and analysis as we've had to rebuild our finance group coming out of H&R. But it really does -- you really can leverage the platform and the capabilities of platform. So for the most part, when we're growing same-property growth, most of it is going right to the bottom line and adding to the FFO growth. So the G&A burden should not be increasing at the same pace. So that provides positive levers from that front. So that's it. Oh, yes, we do have an interesting slide here where we talked about what happens if cap rates go to 9%? That would equate to a $15 stock price, which is basically our implied cap rate today where we trade. Our NAV today is based on a 7.2% cap rate, and that equates to a $22 NAV. And if NAVs -- if cap rates go to 6%, I'm not saying that will happen overnight. But as we high grade the portfolio and capital starts coming back into the sector, that would translate to a $30 NAV. So we think that there's room there to see multiple expansion. And the upside, as I said, far outweighs the downside where we have very low risk. With that, I'll turn it over to questions.

How much equity is assumed to be issued to vendors?

So our structure, we started off sort of like 60% of cash, 40% equity, and then I think we're in 55-45. Where we're trying to get it to is roughly 50-50. I think as we start to generate more cash from asset sales, that split might get altered because the vendors will see how much cash we have and will leverage that cash. But right now, we're targeting around 50-50. Yes?

In your 3% to 4% same property NOI growth target, a couple of questions there. How do you see that -- within those 3 years, is that sort of the consistent range? Or 2025, maybe moderate, would it be better? Can it be a little bit lumpy? And then second piece is, do you have a higher degree of confidence in the same property NOI or the billion of dollars in acquisitions?

We have confidence in both. When you're dealing with transactions, it's obviously -- you don't control it. You need a counterparty. So assuming that these pension funds who our targets are still looking to sell and we are today the only game in town, we feel highly confident that we can execute on that, especially as you get into the second half of each year they're trying to execute some sales at that point. So we have seen a level of activity and the nature of the discussions changed quite a bit between the first half of this year and what we're seeing now. Getting them over the finish line is a long process. And so that's always the execution risk. But I think we're fairly comfortable with that. We're very comfortable with the $500 million sales. If you want sort of in order of magnitude, the $500 million, if you try to model it, I would use an 8% cap as sort of the exit cap rate. The portfolio right now is valued at 7.2%. But these properties, 8% is probably the right number. And you might say, well, if you're selling an 8% cap and you're buying, call it, at 7%, how do you make that math work? The math works because you issued equity at NAV and then you can also deploy some leverage. So a $200 million asset sale translates into a $400 million acquisition. And so there's some interesting math when you sort of work through, can you make those deals work? And can you still drive accretion? The answer is absolutely yes. And typically, we're looking for assets that have a high growth profile. So even though in the short term, you might say 8% sale, those assets typically have a different type of growth profile compared to the assets that we're looking to acquire. So we're pretty confident in that 3% to 4% guidance on both same-property NOI growth and the 4% to 6% on the FFO growth. A lot depends on -- these acquisitions are lumpy. The sales are lumpy. And there's always a lag, the work Pat's doing, but we have visibility into what's going on, on that front. So we're feeling pretty good about it.

Is it fair to say that in the same property NOI growth buildup, that you're not assuming much in the way of rent growth? It's mostly just occupancy gains plus the conversion of lease...

No, we assume mid- to high teens. It's done lease by lease. So it's not really done on a portfolio basis. But typically, we look to sort of mid- to high single-digit growth. That drives about 1%, right, 1% to 2%, depending on the timing. So it's, like I said, a 1/4 to 1/2 of it. If you were fully stabilized occupancy, call it, 96% you would be looking more at 2% same-property growth through the rental uplift. And then the balance is really coming through other activity.

With scale, you will get to a point -- right now scale, you're going to have not growing G&A burden, but flat G&A burden. What level of scale or acquisitions can you get to a G&A burden decline? And then second question, I note your BBB high rating. What -- is that your goal? Or do you have a different goal in terms of credit rating?

Well, you'd have to ask DBRS is sitting right there. So we did get the bump from BBB to BBB high, which obviously we were very pleased about. I don't think there's any real estate companies other than the pension funds, which is a different animal, that are A-rated in this country. So I'm not sure whether the rating agencies are comfortable moving real estate companies into an A low. Obviously, we'd love to be there. But we're comfortable with the BBB high. What we do find the rating is important and the investment grade is important to bondholders who are buying. At the end of the day, they do their own risk assessment and they come up with their own spreads. That's what we find. So you can have two BBB entities that are issuing a totally different spreads. And it's really a function of the bondholders. They make their own assessment. So whether going on A low is going to move the dial, I'm not sure, quite frankly. I think we'd be there before we move to A low. They'll make their own assessment. And as long as we keep our debt-to-EBITDA in check, I think they'll be comfortable managing the risk appropriately is a key part of it. What was the other question?

Just on the G&A Burden side...

So G&A burden, I have this debate. It should start falling as we buy these large assets. That's the theory. And we're working through the math because as we add assets and we can take some of our G&A overhead and allocated to the operating cost of the assets in theory, on a net -- so the G&A growth will grow. The net, that's nonrecoverable, will it go down or will it just stay flat? That's hard to judge. We're not modeling this on the basis that the G&A is going to go down. There is inflation on those costs, and so that's something that's hard to avoid. And we still are not quite there yet on optimizing sort of the finance group and some of the things we want to add to the finance group. But we're sort of at the tail end. We're pretty close. But I wouldn't be modeling G&A going down. If it does, it wouldn't surprise me. but it really depends on the structure of what we can allocate to the properties.

But if you looked at a sensitivity in terms of -- so I get a $0.5 billion net investment in the guidance, and that's going to be G&A burden flat. But if you did $4 billion of net investments, is the math that -- at what point do you start triggering into scale efficiencies on the G&A side?

I think it's -- let me come at this differently. If we were optimized and we were adding properties, you would have to add to our G&A. So I think where we have scale efficiencies is we can still continue to grow without having to add G&A. So we still have some scale capabilities embedded in our structure. But to say going down, that's a tough call. Because we're dealing with running a public company. And running a public company, you don't charge that back to tenants. That's outside of that. And that's sort of stabilized.

[indiscernible] I guess, as percentage of revenue...

Oh, as a percentage of revenue, yes, it will keep going down. Absolutely.

[indiscernible] already seeing that on revenue percent of total assets, and we do track that.

Yes. Sorry, I didn't appreciate that was the question. But yes, percentage of G&A of gross revenues is just going to continue to come down. Because I think right now, people who benchmarked it, and there's a lot of noise in the G&A numbers like what you allocate to the properties and what you don't allocate. And would you capitalize if you're development heavy versus what you don't capitalize. And we capitalize very little. They do have a sort of at the higher end of the range, and that will naturally come down. All right. I don't know what's next. [ Another ] time, going on tour? Oh, back to you.

Thank you, Rags. And thanks, everyone, for attending today. It's been a big chunk of time. We appreciate your time. And I feel pretty good about this show that the team has put on, and I hope everyone else does as well. This is one of my favorite slides from our investor deck, and it basically just looks at Primaris through every conceivable lens. And on pretty much every one of them, I think we're at the end of the spectrum where we have the most potential to improve, whether it's FFO multiple or discount to NAV or all sorts of other things. And I encourage you to take a look at it. It's a good one. So this is really the end of the formal presentation for today. We do have a period here for Q&A. And then after that, we'll commence with the property tour. The property tour will go for about an hour, maybe a little bit less. And then there's an hour before the bus goes back to the hotel, and you can do some shopping and enjoy the mall. So I guess with that, we'll move to any final Q&A that anyone has.

Do you think, ESG. Is there any ESG goals for '25? .

Yes, we do have ESG goals. Claire is probably best equipped to answer. Rags could do it as well, either way.

Yes. So we -- so the GRESB has been a big part of it. So we did do GRESB last year. We've got the prelim results in right now. I can't tell you the number or I'll have to be shot. But it has gone up. What we're doing right now is we are calibrating all our KPIs. So we've been spending a lot of time working through what we think is the right objectives going forward to measure our success. Because we've only got 2.5 years of history. So getting that right is very important. And then the next step is to then embed it into our comp structure. So what we're doing for this year is to finalize those KPIs, what the right target should be going forward. and then pushing that down into the organization so that compensation drives behavior. And that what we're trying to do. So the senior executive team, we already have it, but it's a little bit soft. It's fairly sort of based on a lot of qualitative factors versus quantitative and measurables. And as the old saying goes, if it's important, you got to be able to measure it. And so right now, we're going through that process of nailing down the baseline, setting targets and then rolling that out to the entire organization. We are not looking to necessarily be on the front as a market leader. We've actually benefited very much from being able to see what other people have done and sort of leveraging off of what's going on in the market. So we want to be middle of the pack. We're not going to set the standards, so to speak. We don't think that's necessary. And for us, it's a little bit more difficult because we're not development-focused. Entities that are highly development focused, they can create nice ESG targets and always look great. But we are not doing -- we're not focused on that. And what we have is we have a lot of initiatives that happened at the local property level. They're very passionate. They love doing this stuff. And what we're now trying to do is roll it up to corporate standards and then push it down but still allow the properties to do their thing. Because they're in the local markets, and they're trying to do things for the local markets. So just trying to formalize that process a bit more. So that's where we're going. We've had discussions with the banks on sustainability-linked loans and those sorts of ideas. So we are going to think about how do we embed that again into the -- and to some of our debt instruments. And quite frankly, like the savings is miniscule. You're not doing it for that purposes. What you're trying to do is drive corporate behavior. And so when you put that in, you set targets and then you force people to adhere to the target. So it's more behavioral than anything else, but it's something that we're keenly focused on.

Any other questions? Sam?

[indiscernible] asked it earlier, but what -- from a geographical standpoint, you've got 20 properties that are kind of in your sights. You said 5 or 6 are in various stages. I think you've got at least 2 properties in Calgary that are probably going to be sold in the next little while. Obviously, you've got some smaller market stuff you're going to sell too. But as we look forward 3 years or whatever, what is the major market, secondary market mix for Primaris going to look like?

Yes. Thanks, Sam. So from a geographic perspective, we're not really focused on targeting specific provincial weightings or things like that. We're really focused on the malls themselves, whether they're market-dominant. And then to the extent that they are in markets that meet our criteria, we have a written formal sort of threshold of 100,000 population. But if you look at the transactions we've completed so far, there are more 0.5 million, I would say, the real sweet spot in terms of Canada is that 0.5 million to 1 million population. And that's where people who are moving out of high-cost jurisdictions like Toronto and Vancouver are moving to. So like Halifax, you're seeing really strong population growth. There's a well-established, high-performing malls like this one. That's the kind of profile that we're after. We have right now a lot of waiting in Alberta and a lot of waiting in Ontario. We would certainly welcome some more exposure to the Vancouver market. We're underweight Quebec relative to the population. So I think that there's some opportunity in that province. But generally speaking, the malls are the malls, and we're focused on -- there's 20 malls that we're very focused on and they are spread across the country from coast to coast.

On placement cost. I don't know how much a mall costs to build. But can you give us a sense as to what the math looks like on what it cost to build versus the rents that you would need to justify building today?

Yes. So the discount to replacement cost is massive. Our enterprise value is about $240 a square foot. I don't know what it is at NAV, but it would be maybe closer to $300 a square foot. Replacement cost, hard and soft costs would be $800 a square foot. And then the land cost, because you're talking site coverage, generally 25% to 30%, something like that on average. So you'd be looking at another $200 a square foot. So at $240, we're trading at a 76% discount to replacement cost. And if you were to then -- there is a mall that was recently completed in Montreal, unusual, and that is a highly unique situation. But I would say for someone to compete with our properties, the rents would need to be about 3x what they are right now for it to make sense. And then to the extent that you did have that market environment, you would then have to assemble 40, 50, 60 acres of land. And that's impossible in a market like this where we're embedded within the downtown of the city. If you were to do it, it would have to be out of the perimeter, and then you have to wait 40 or 50 years from the city to grow around it to create the same kind of dynamic that we have. And that's one of the really great moats about our business. It's almost impossible to add new supply. I think we're good. That's great. I think there's still lots of questions for all the other presenters, which is even better. Okay. So just to conclude, I wanted to thank everyone for attending. I also thank Stephanie Schnare, who is right there. She does marketing at Halifax Shopping Center and has been very instrumental in today's events. And Kevin Marchand, the Manager of Operations here, also has put a lot of work into this, including fitting of this space. And the whole team, the whole Halifax Shopping Center team and the whole Primaris team. I hope you guys appreciate the effort that goes into a day like today and also get a lot out of the content that we provided. And with that, we will shut it down. So that's the end of the webcast. And we'll move on to the property tour portion of the presentation.