BTB Real Estate Investment Trust
TSX:BTB.UN
Earnings Call Analysis
Q4-2023 Analysis
BTB Real Estate Investment Trust
The company showcased a strong annual performance, having renewed a total of 485,000 square feet. The proactive renewal strategy maintains high client retention and has led to an all-time high occupancy rate of 92.2% for the REIT, and even higher in the downtown core segment at 87.7%. They anticipate this trend to continue in the subsequent quarters. High-profile lease transactions, such as with Hydrone and Dollarama, contribute to positive leasing dynamics. The company's firm leasing efforts and strategic approach have resulted in year-over-year rental revenue growth of 7%, reaching $127.8 million, with a Net Operating Income (NOI) increase of 7%. They continued to divest from underperforming office properties carefully while aiming to increase industrial holdings, evident from the jump from 18% in 2020 to 36% today.
The company has made significant strides in environmental, social, and governance (ESG) initiatives, with 42% of the portfolio now BOMA BEST certified, excluding industrial and single-tenant buildings. They've launched social and governance projects, including employee recognition programs and advanced tenant relations. Looking forward to 2024 and 2025, they plan to complete energy data collection, increase certifications to 68% of their portfolio, and implement a decarbonation strategy, amongst other ESG commitments. These efforts align with their responsibility towards sustainability and enhancing value for stakeholders.
For the year 2024, the company positions itself to take advantage of the robust retail market, especially in Quebec City, by actively managing lease renewals to improve tenant quality and increase net rents. The upcoming lease maturities in 2024 and 2025 hold promising potential to further improve spreads, as demand remains high and proactive steps are taken to secure valuable tenants in anticipation of the current ones not renewing their leases. These strategies exemplify the company's robust position and their ability to adapt to market dynamics to maximize their portfolio value.
The company discussed recent mortgage transactions with favorable spreads, indicating a strong position despite a challenging interest rate environment. They have the majority of their refinancing planned out with committed letters, mainly across retail and industrial assets with no apparent risk. For the first half of the year, the expected refinancing rate stands at 5.88%, leading to an increase in spread of roughly 140 basis points, demonstrating controlled leverage and forward-planning. Looking at the second half of the year, an increase in spread of 190 basis points is expected, showcasing prudent financial management in preparation for potential shifts in the market, with optimism for the Central Bank to reduce interest rates eventually .
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Good morning. My name is Sylvie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BTB Real Estate Investment Trust 2023 Fourth Quarter and Annual Results Conference Call for which management will discuss the quarter ended December 31, 2023. All lines have been placed on mute to prevent any background noise. Do you wish to follow the presentation in greater detail, management has made a presentation available on BTB's website at www.btbreit.com-investor-presentation-quarterly meeting presentation. After the speaker's remarks, there will be a question-and-answer period reserved exclusively for analysts. [Operator Instructions] Before turning the meeting over to management, please be advised that some of the statements that may be made during this call may be forward-looking in nature. Such statements involve numerous factors and assumptions and are subject to inherent risks and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Several important factors could cause BTB Real Estate Investment Trust's actual results to differ materially from the expectations expressed or implied by such forward-looking statements. These risks, uncertainties and other factors that could influence actual results are described in BTB Real Estate Investment Trust Management Discussion and Analysis and its annual information form, which were filed on SEDAR and on BTB's website at www.btbreit.com-investor-reports. I would like to remind everyone that this conference is being recorded. Thank you. I will now turn the conference over to Mr. Michel Leonard, President and Chief Executive Officer, accompanied today by Bruno Meurnier, Vice President of Operations; and Charles Doais Bedard, Senior Finance Director. Mr. Lena, you may begin.
Thank you, Sylvie. I'm here -- also here with us is Stephanie Minard, Head of Leasing for BTB for all the properties of BTB in Canada. First, I would like to apologize there's been a filing glitch this morning, and we rectified the filing list with SEDAR. And unfortunately, the documentation was late filed. And I don't believe that it is as a result of our own doing. So again, we apologize for this. First and foremost, as you heard Mathieu Bolte is not present at this conference call this morning as he left our employment on Friday. To gain employment elsewhere. And we have mandated Spencer to it in order to find a new CFO for BTB. We are in the process. There are good candidates that we have heard about, and we are definitely on the right track. Charles is, as reported earlier, Charles is here with us today. He was the direct report for Mathieu and prepared the documentation that we are going to talk about this morning. So if we look at our portfolio, we have 6.1 million square feet with 77 properties for $1.2 billion. And the fact that it's important to note is that 75% of our properties were externally appraised last year -- well, in 2023. During the year, we did acquire 3 industrial properties, one in Mirabel and 2 in Edmonton, as previously reported. If we look at the composition of our portfolio, we see that almost 37% of our portfolio is in the Industrial segment, 43% in the off Downtown core office segment and 20% in the necessity-based retail. So we're seeing a great improvement towards industrial from 18% back in 2020 to 26%. So we doubled the size of industrial portfolio since 2020, reduced the size of the office portfolio from 55% in 2020 to 43%, and the necessity-based retail basically went down from 27% to 20%. As far as our geographical diversification, Quebec City represents 22.5% of our portfolio, Montreal -- 54%, sorry, Ottawa 13%, Saskatoon 4% and Edmonton 7%. We still are working steadfast on our development opportunities. We are almost there with the development opportunity in Levis, as previously reported, with a national retail firm, where we are going to build on excess land, 43,000 square feet for this major Canadian retailer. And so we anticipate that the period of construction is going to be roughly 12 to 18 months and that the tenant is going to be in occupancy in mid '25. The other development opportunity that we do have is in Ottawa, where we have excess land net to our property at 2611 Queensview Drive, where we have vacant land. And as a result of the city building an LRT station across the street from our property, we understand that the whole area is going to be rezoned into a hub. And as a result, the supplication is going to be possible on that site. So we understand that in the month of June, we should hear more from the city regarding their efforts to rezone. And as a result, we are going to be able to see development of residential developments on that plan. We are still working and waiting for the city on the Island of Montreal in order to get permission for the densification as previously reported. And we understand that, again, in the month of June or July, we should know exactly what will be approved on our site. So if we look at our key metrics, we're seeing that there is definitely an increase in our rentable area by 4.5%. As far as the fair value of our investment properties is up by 2.4%, and Charles is going to talk about a little bit later on the evaluation, as I mentioned, the 75% of the properties were that were externally appraised. And as far as our leasing activity, we saw an increase of 16.2%. And what's really notary is the fact that we are and as far as our occupancy rate, we are at an all-time high of 94.2%.Other events in April 23, we did secure an additional $10 million on our revolving line of credit. In June 23, we filed for our base shelf prospectus, and we haven't done anything in consequence there too. In August 23, we received from one of our tenants, the exercise of a purchase option for the property, and the purchase is going to take place in December 2025, and the purchase prices were $10.3 million. We had acquired the property at $8.9 million. In February 24, we filed for a normal course issuer bid, which was basically a renewal of what was present. With this, I'd like to ask Stephanie to take you through our leasing activity for the last quarter and the year 2023.
Good morning, everyone. So if you're with us right now on our slide deck, we are on Page 10, just to give you some guidance. So over the last quarter, we signed 7,340 square feet of new leases with new tenants. In terms of some notable transactions, we signed 28,000 square feet in [indiscernible] with a well-known accounting firm for a 16-year term. We have as well signed 17,000 square feet in Ottawa with one of our existing tenants, so an expansion with our tenant in Jabil, who occupy now roughly 43,000 square feet for a 7-year term. Also another tenant in Quebec City, Bussieres expanded their premises for a total of 21,000 square feet. The expansion was of 5,000 square feet for a 7-year term. And as well as a also, we managed to lease 7,433 square feet to a grocery store, Val-mart who will now become our anchor tenant in our property in San Juan. On a yearly basis, we concluded 296,240 square feet of new leases with tenants throughout BTB's portfolio. I'll have the pleasure to walk you through certain of these transactions in, I believe, 2 slides from now. Just as a note, in terms of our overall activity for the year, Quebec City was our most active market with roughly 85,000 square feet of the 296,000 that I just detailed square feet of new transactions, so 85,000 having been done in Quebec City. In terms of lease renewals, so during the past quarter, 150, I'm going to round it up. 159,000 square feet were renewed during the quarter, and we achieved a 14.3% average increase in our lease renewal rate. And this is across all segments. Comparatively on a yearly basis, this represents a 9.2% increase. In our office component, I mean, office -- in our office component, we have a 3.6% increase for the quarter or 5.3% increase for the year. Retail 43.3% increase for the quarter or 21.4% for the year. I'll go into detail about that increase shortly. And industrially, there were no transactions in terms of renewals this year. So no movement for our industrial segment. In terms of noteworthy transactions for renewals for the past quarter. So we renewed the CLSC for 60,000 square feet in Montreal for a 10-year term. I just mentioned a 43.3% increase in a -- in our renewal rate for our retail segment for the quarter. This was mainly caused by our renewal with the CLSC that we basically just reassessed the lease rate. And we're able to achieve a fantastic renewal with them for a long-term and the client is very happy. In terms of other noteworthy renewals, BGRS in Ottawa for 28,000 square feet, Vidado 26,000 in Montreal. On an annual basis, we've achieved a total renewal of 485,000 square feet, of which 101,000 were concluded with tenants whose term come to maturity in 2024 plus. So this shows our ongoing commitment to be very active with our renewal strategy and to make sure that we retain our clients or are able to forecast any departures, but we're very active in terms of our communication with our clients as well. Our total leasing activity for the year amounted to 82,000 square feet, bringing our total occupancy rate to 92.2%. And as Michel mentioned, it was an all-time high for the REIT. Our all downtown core segment, just to have a little note on this has been very active. We increased our occupancy rate to 87.7%. We have some great traction within the market right now, and we continue to see this sustainability within the next quarters. Just turning to Page 11. If we're looking at our total portfolio committed occupancy rate, as you can see, over the past 4 years, our occupancy rate has increased as well as the average lease renewal rates in terms of the last 4 years as well. In terms of the positive leasing dynamics, so the transactions that I'll just walk you through quickly, we concluded at least with the giant Hydrone for about 25,000 square feet with an effective rate of $9.50 for a 10-year lease. [Indiscernible] a 10-year renewal of 10,000 square feet at a 13% increase with Dollarama. In terms of Quebec City, Societas close to 2 5-year renewal for 16,000 square feet in Montreal, in the Technopark actually, in Toronto, a 7-year extension for 54,000 square feet and an 8.9% increase on the renewal rate. Again, in the Technopark, 6-year renewal was one bag for 18,000 square feet at. renewal increase. DataBank and Sam also shed a 2-year extension for 10,000 square feet with a 3% increase, but this was an anticipated renewal. So we concluded the renewal in '23, but their maturity was in '24. In Quebec City, Arizona Bill 6-year extension for 14,000 square feet with a 24% increase. Mallett is the well-known accounting firm with whom we've signed a new transaction in Quidor 28,000 square feet. For -- I apologize, I said 16 years, it's 5 years and 5 months for 28,000 square feet. Thanks also to see you again [indiscernible] we signed a renewal of 18 almost 19,000 are feet. In the slide, we mentioned an unchanged renewal rate. So the rate of $13.11 net is for year 1. However, we will be getting increases for over the 5-year term. Jabil, as I mentioned, 5-year new committed lease for 16,000 square feet at 21 net. And last but not least, the CLSC renewal that I discussed with a 47% increase in the renewal rate in [indiscernible] for 10 years. With this, I'm going to turn it over to Charles for the financial overview.
Thank you, Steph. Good morning, everyone. Overall, the 2023 operating results again showed resilience despite an increase in interest expense. Year-over-year rental revenues increased by 7%, again reaching an all-time high of $127.8 million, and the NOI also showed an increase of 7%. Same-property NOI increased by 6.6% for the fourth quarter and 2.1% for the year, mainly due to strong leasing efforts made trout the year, resulting in an increase in the in-place occupancy rate of 99 basis points compared to the same period in 2022 and an overall increase in lease renewal rental rates of 9.2%. For the year, SP NOI for the Industrial segment increased by 2.3% for necessity-based retail segment by 11.1%, and the off downtown core office saw a decrease of 2.2%. However, with the active increase in leasing velocity for the off downtown core segment, the trust included the fourth quarter with an increase in SP NOI for this segment of 7.7%. Adjusted FFO per unit was $11.1 per unit for the fourth quarter, a slight decrease of $0.7 per unit compared to the same quarter last year. Year-to-date, the adjusted FFO per unit was 45.1 per unit, a slight decrease of 0 fee per unit. Year-to-date, adjusted FFO increased by $1.1 million due to the increase of NOI of $2.7 million due to acquisitions net of dispositions, of which $1.4 million was the result of securing new leases and lease renewal. This positive commercial result is offset by the increase in net financial expenses of $3.0 million. The increase in financial expenses is caused by an increase in the average interest rate for mortgages of 28 bps to 4.37% compared to last year. BTB has proactively appraised a fair value of a large part of its portfolio. So as mentioned previously by Michelle, we externally appraised 75% of the fair value of our portfolio during the year. For the office segment, the Extel appraiser's recommendation was to increase the capitalization rates by 25 bps to 7.1%. This caused a $27.5 million loss of fair value for this segment. It's important to note that for the last 2 years, BTB reduced the fair value of its office portfolio by a total of $59.3 million, around 11.4% of the fair value of the office segment. For the necessity-based retail segment, the external appraisers recommendation was to increase the cap rates by 22 bps to 7.06%. esulting in a technical loss of fair value of $3 million. However, this loss was mitigated by the increase in NOI further to the successful leasing efforts throughout the year. The Industrial portfolio showed strong performance again this year as the external appraisers recommended an increase in the fair value of $32.5 million. Please note that 17 industrial properties were externally appraised. Now looking at the capital structure, BTB concluded the quarter with a total debt ratio of 58.6%, recorded an improvement of 8 basis points compared to the year 2022. During 2024, a total of $145.4 million of mortgages will come to mature. The trust has been proactive in commencing negotiations with its lenders and has received commitment letters from financial institutions for all or almost all mortgage loans coming to maturity in the first half of the year, and we are already engaged in securing financing for the remaining mortgages coming to maturity in 2024.
Thank you, Charles. Now I'd like Bruno, the Vice President of Operations of BTB to take you through our ESG efforts. As you noted, in January, BTB filed its initial ESG report. It's available on our website. And consequently, Bruno is going to take us through the goals and objectives for 2024.
Good morning, everyone. Like Michele said, we published our inaugural ESG report in January 2024. This report discloses information about our environmental, social and governance management approach and performance for the year 2023. The inaugural report establishes our ambitions describes our approach to managing ESG across the business highlights our accomplishments and communicates our future plans and explain our road map initiatives. I would like to share with you some achievement that we have completed so far. Regarding the environmental aspect, 42% of our portfolio is BOMA BEST already certified. I just want to mention that this is excluding industrial and single-tenant buildings. We have also 14 rooftops BIs installed and maintain with our partner, Albion. We replaced more than 10 rooms with a white membrane to avoid urban heat islands. We conducted climate risk assessment. We began collecting energy consumption and carbon footprint data. More than 15 HVAC units replaced were replaced with better energy efficiency. We can also mention some social related projects. We donate to several foundations annually. We implemented employees recognition program. We have completed employee satisfaction survey. Also, we have completed tenant satisfaction survey. On the governance side, we have established ESG county. We have implemented new policies, including our DEI policy. We have determined focus areas and KPIs. Now I would like to talk about the scope of work for 2024, we will complete energy data collection for our office and commercial properties. We will quantify GHG emissions for our office and commercial properties. We will increase our BOMA BEST and LEED certifications to 68% of our portfolio. We will create action plans for properties identified in the climate risk assessment. We will also strengthen our client relations through events, workshops and newsletters. We will organize quarterly ESG-related internal events. We will increase our involvement in drivable foundations. We will also increase ESG awareness and best practices and employees by providing ESG and DEI training for our employees. And we will include ESG and employees' objectives for 2024. On the governance side, we will monitor ESG reporting trends. We will strengthen ESG reporting. We will implement an internal ESG policy. We will improve our environmental causes in our procurement policy. We will integrate ESG into due diligence for the acquisitions. We will -- we're aiming for 2025. On the environmental side, we need to plan a decarbonation strategy. We will implement energy savings program. We will integrate Green Lease program. We will certify entire portfolio, BOMA BEST or LEED. On the social side, we will formalize the health and wellness program for employees. We will offer incentives for active and public transportation for employees, and we will obtain great assessment and will maintain the policy and procedures up to date. As you can see, we are fully committed to our environmental, social and governance responsibilities. Was my pleasure to present to you our ESG road map. Thank you.
Thank you. [Operator Instructions] We will pause a brief moment to compile the Q&A roster. And your first question will be from Mark Rothschild at Canaccord.
Following all this leasing that you've done, can you maybe just talk a little bit more about what your plan is or if there be any changes to the outlook for divesting assets in areas outside of industrial, and I'm referring to office in particular.
Well, we are dedicated to continue to divest of our office in an organized fashion. So we're not going to -- there are -- we know that out there, there are people that are looking to purchase office at a heavy discount, but we're not going to be a player in that environment. But as far as our low-yielding properties, definitely that there is going to be an incentive on our part in order to divest of those in priority to others. So we're still dedicated to increase our industrial holdings. As I reported earlier, we went from 18% in 2020 to 36% today. So I think that we're showing our dedicated on that front. And also, as Mark -- as you know, I read what you write. And I do agree with you that the patent here is not necessarily in industrial in the sense that you have to buy well. You can't believe that tenants that are paying $26 net for an industrial property is going to renew the lease at $28 net. I think that there's going to be an adjustment in the market. So it's going to stabilize a lot lower. And as far as cap rates are concerned, we've seen an increase in cap rates also. So -- and that's basically as a result of having a lot less transactions to conduct and vendors wanting to sell. So I think that we are treading very carefully on that front, and it is important to tread carefully. We're not buying on our line of credit. So our strategy is to continue to divest and then purchase and not basically load up on the line of credit, given the uncertainties in the market as far as raising capital. And as I mentioned at the last call, we're not raising capital at $3. So it makes no sense for us. So we -- what's also important is the efforts that we're deploying in order to uncover value -- hidden values in our properties. And I think that that's going to be stellar in the sense that it is going to bring new evaluations of our assets when these -- when transactions become firm. So -- and as far as Stephanie reported, leasing efforts, we are office. Yes, there was a time where it was more difficult. And now we're seeing that there is increased demand. And again, I'm talking about suburban office properties. So I reserve my comments regarding downtowns because I think that, that's another matter altogether. And at one point, somebody is going to have to put their pass on and ask the employees to come to work downtown. But suburban real estate is something that's completely different as far as office use and so on. So we're seeing that our office buildings are occupied. And I won't go through the day, but yes, for sure, Fridays are less occupied. It seems that some people are taking 3-day weekends. But we're seeing an increase in occupancy even on Mondays now. So Tuesday, Wednesday, Thursday High occupancy high occupancy compared to where it was, but Monday is coming up as well. But Friday is still a difficult day for occupancy and office building.
Okay. Great. You answered a few of my questions in there. So I'll turn it back.
Next question will be from Tom Callaghan at RBC.
Maybe just start a bunch of great detail there on leasing and spreads. Curious to get your outlook into 2024 and on that front. If I look at lease maturities, particularly in the retail, it looks like there could be some further running room on spreads there. But just kind of curious for high-level thoughts.
Tom, I think in terms of our -- Stephanie here. In terms of our renewals for retail, as I mentioned, we're active -- for 2024, '24 outlook and we're actively monitoring our retail situation. Right now, retail is very hot for a lack of better words, especially in Quebec City, if I could add in. What we've managed to do for certain of our properties as we've actually managed to lease spaces in anticipation of certain tenants not exercising their options to renew. So we have some sort of a waiting list structure coming through where we're able to increase the overall net rents that we're achieving and as well as change the tenancy to be able to achieve a better cotenancy. So in terms of retail, we see definitely that we could increase our spreads there. I think there's in our power centers, for sure, San Bruno, Quebec City or MVZ specifically. And I think that there's a great opportunity for us, as I mentioned, to rejig our tenancies there and to be able to grab a better tenant base and increase the overall dynamic of our centers, and that's where the name of the game for '24 right now. In terms of '25 maturities, we have tenants that want to renew in anticipation as well in terms of retail. So I don't foresee there being too much turbulence within the retail sector. Ukalta, it's an active segment right now that we're patiently choosing who we want to -- I'm trying to say this in the nicest way possible, with whom we want to do business and with who we think that is going to bring the best tenancy to our site. So we're in a fantastic position in terms of retail, in terms of our big power centers. Of course, we have a couple of little retail sites that, as I mentioned, we -- we happen to lease Savanna, which is a fantastic tenant for us and saying also huger. So there's some great velocity in our smaller markets as well, but there's a big, big potential in our big markets.
That's great. And then just maybe one more, switching gears to the mortgages. Just curious to get a sense there on -- in terms of spread on refinancing? And then just in terms of the refinancings, are they weighted towards a particular asset class this year is fairly spread out.
ll right. So in terms of spread, if I could give you a little exposure on that. For the first half of the year, I would say the weighted average of what we have in place is 4.49%. So we're looking at a 5.88% in terms of refinancing. So I would say 100 bps -- 140 bps on that one. And then second half of the year, for now, we're at 175, we're expecting 546. So just to keep in mind, the first half of the year is a nice mix of retail, small office properties and some industrial. So we have -- there's no risk on the retail properties. Otis, we already have signed commitment letters for all of those and industrial, again, no risk. And the second half of the year, which is the other half of what we have to refinance is all industrial properties. So again, with market expectations and the optics to stay stabilized, I think we can -- we have a positive outlook for the second half of the year in terms of our mortgages with these industrial properties.
But also keep in mind the fact that -- we hope that the Central Bank at one point is going to reduce interest rates, and we're not too keen on booking too early the loans that are coming to maturity towards the last part of the year.
Next question will be from Sumayya Syed at CIBC.
I just wanted to follow up on the office market discussion. And you comment that leasing interest is picking up. Just wondering if you could dive into what exactly is driving that? Is it just more return to office or certain tenant industries or relocation? Just any color on the pickup in interest in office?
I think I can illustrate the answer in Three Rivers, which is not exactly the primate markets in the province of Quebec. We concluded 2 transactions, one with an accounting firm called Mallet Group, which is a well-known Quebec-based accounting firm for almost 30,000 square feet. I siamese is that if they didn't need or if they weren't going back to work, they wouldn't lease 30,000 square feet in our building. So -- and this is a move from one property to our property. So I surmise that the accounting firm has decided that they were going to work from the office. Then in the same complex because we own 2 properties that are basically siamese properties. The -- we -- M&P, which is the other accounting firm that used to be Deloitte in that property, renewed its lease for 10 years and increased its footprint by almost 5,000 square feet. So we're talking about 2 accounting firms in a secondary market and where they have both committed on for 15 years, the other one for 10 years, one increasing its space, the other one remaining stable as far as space taking is concerned. And that's what we're seeing in the suburbs. So we're seeing professional firms taking a little bit more spaces. What we're also seeing is in the financial industry, which we're not really subject to as far as our tendency is concerned, but we do have some of these tenants. I'm talking about, let's say, the insurance field. We're seeing that insurance companies are basically regrouping everything under one roof or reducing their footprint. But as far as the other professional firms, we're seeing stability or an increase in space making.
Okay. And then for the leasing you did for the accounting firms in the quarter, the incentives, what did they look like? And I guess, just in line with historical? Or are they elevated?
It's basically commensurate to how much it's going to cost to build. So you can imagine that building in Three Rivers is less expensive than building in Toronto. So we're not talking about Sky high incentives.
Okay. And then -- so you obviously made good progress on your occupancy this year, all-time high. Do you see it moving much more in 2024? And if there's any known vacancies on your radar?
We're not in 2024, we're not seeing a lot of our tenants not run away. So I think we're going to remain stable on that front. And as far as leasing activity for our vacant spaces, you'll note that from our MD&A that obviously, the after segment is the one that suffers the most, but it's not really all in Montreal. It's mainly in Quebec City, where our occupancy rate is roughly 86%. So that's why we are deploying a lot of efforts in Quebec City in order to bring it back to -- it used to be 92%. In Quebec City, I don't think that we can call any building at 100%. But for us, a 92% for Quebec City is 100%. So if we could bring it up by 4%, 5%, 6%, that would reach our target. And then it would again increase our occupancy rate overall because we're seeing a lot of stability elsewhere. In Ottawa, we're almost 100% occupied. Montreal, the blended is 96%. And where we have vacancy is in the Technopark on the island of Montreal, where we have -- we own 4 buildings, 3 are 100% full and 1 is 60% full, and we are entertaining transactions for that property. So we're seeing that it's correcting itself. And this is not like -- I'm not justifying keeping office. I'm just saying that right now, we're working to basically fill these properties and eventually get a buyer, but properties that are going to be very well leased with great tenancy. So there's going to be an increased demand for those properties.
Thank you. [Operator Instructions] And your next question will be from Anthony Bogdan of National Bank Financial.
The gap between in-place and committed occupancy widened a bit this quarter. Could you provide some color on the proportion of committed space that will ultimately convert to in-place rents this year?
I think it's mainly caused by the Mallet transaction, which is 30,000 square feet, where we're going to -- there are going to be in occupancy in June or July of '24. So that's -- I think that, that's the big one.
Great. And just one more for me. CapEx spend was up a bit this quarter. Was that a function of more leasing activity? Or are you generally seeing leasing cost per square foot increase?
It's just because we're leasing more.
Thank you. And at this time, there are no further questions. Mr. Leonard, please proceed.
Well, just to remind you that our plan is to continue to monetize our low-yielding properties and increase the -- our portfolio towards industrial. Our low is 60% industrial over the next 2, 3 years from 36%. We are still steadfast uncovering value by rezoning of certain properties, and leasing is still our #1 priority. One thing that is important to note is that the increase in interest expense was almost 100% compensated by our increase in revenues. So that's an important fact to note. Our upcoming debentures. So yes, there is a series of debentures that comes to maturity on October 31 of this year. We are addressing the situation and monitoring the market, and we are not going to make a decision until the month of June or July of this year. So just to recap, we had a solid year, where an increase in revenue, all-time high increase in NOI commensurate with the increase in revenues, an increase in same-property NOI, and we're sitting with an AFFO at 74%. So I think that we managed to balance very well our business and we are continuing in the efforts in order to conclude our plan. So again, thank you very much for participating in the conference call this morning, and I hope to see you very soon. Thank you.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please discuss your lines.