BTB Real Estate Investment Trust

TSX:BTB.UN

Earnings Call Transcript

[Operator]

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's 2018 Fourth Quarter and Year Ended December 31, 2018, Financial Results Conference Call. [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 known and unknown risks and uncertainties that may cause the actual results of BTB Real Estate Investment Trust to be materially different from those expressed or implied by such forward-looking statements. The risks, uncertainties and other factors that could influence actual results are described in BTB Real Estate Investment Trust's management discussion and analysis of financial results and its Annual Information Form, which were filed on SEDAR and on BTB's website at www.btbreit.com.I would like to remind everyone that this call is being recorded. Thank you. I will now turn the conference over to Mr. Michel Léonard, President and Chief Executive Officer; and Mr. Benoît Cyr, Vice President and Chief Financial Officer. Mr. Léonard, you may begin your conference.

[Michel Léonard, President, CEO & Trustee]

Thank you very much, and welcome, again, to our Q4 and year ended 2018 conference call. I'll go through the highlights with some comments, and then Benoit will dwell through the details of the performance for 2018.So for the quarter, we saw our rental income increase by 8.2%, to $22 million. Net operating income went up 11%, to $11.6 million. Of noteworthy is our same property portfolio, the SPNOI, went up by 6.9% in the last quarter, and this is a turning point for the last 5 quarters. We had a decline of certain performance indicators -- distributable income, FFO, AFFO -- mainly due to, first, a known fact that we have been carrying through 2018 which is the bankruptcy of Pharmetics, and the departures of Philips in Cornwall, whose spaces were re-leased. The first, the Pharmetics space, was re-leased to Nuera for 130,000 square feet. They're moving their manufacturing facility from Mexico to Montreal, and they produce BEAM products, Duovac products and Husky products. And the assembly line will be installed in our building, and we foresee that they will be in full occupation of the property in June 2019. Also, we re-leased the Philips space in Cornwall to Johns Manville for 68,000 square feet. We saw that the Pharmetics has cost us $500,000 in Q4, or 10% on our payout ratio, and the departure of Philips in Cornwall is less significant.Also affected by the capital raise in last June cost us $450,000 and by the timing of the redeployment of capital regarding our capital raise and the different properties that we sold in 2018 and purchased in 2018.Regarding the year-end 2018, we saw an increase of 15% in rental income, to $87 million, and increase in almost 18% in net operating income, to $47 million. We had an extremely strong leasing activity, as we saw in 2017. We saw the renewal of 450,000 square feet of leasable area, an increase of 2% on the -- 2.7% on the proceeds and the leasing of close to 546,000 square feet of leasable area to new tenants. We solved certain problems of chronic vacancies in our buildings, either by leasing these properties or disposing of these properties; so chronic vacancies in Saint-Martin, in TransCanada, King Street East in Sherbrooke, King Street West in Sherbrooke, Turgeon in Ste-Thérèse, Thetford Mines, Menten Place and Macdonald Street in Saint-Jean-sur-Richelieu. So, still problematic, we have our property in Three Rivers, where we see an occupancy rate of 59%, Henri-Bourassa at 62% and our property in Magog at 22% of occupancy rate.We almost resolved the issues at the 1001 Sherbrooke, where now we are standing at 75% occupancy; at St. Charles in Longueuil, where we are at 63% occupancy. Cornwall, we're seeing a lot of activity, as described earlier: 705, we only have 30,000 square feet left to lease in that property, and 725 almost leased. We still have the property under redevelopment at 805, where we have interest, and 2901, which we understand that our current tenant may need to expand in the property. We have our property in Harvey under the market where -- in the market, where our occupancy rate is 77%. Brewer Hunt, we leased 10,000 square feet before year's end, and we have interest from a tenant for 25,000 square feet that would bring our occupancy rate in that property north of 60%. And we also understand that Complexe Lebourgneuf Phase I, we should be close to 92% occupancy within the next month.So our occupancy rate was steady at 91% compared to 2017 and that is taking into account the bankruptcy of 2 major tenants that have -- Pharmetics, that I spoke about earlier, and Diablo in Ottawa -- that left us in 2018 with a huge vacancy, and this property located on Aberdeen is now currently 100% occupied.We saw our debt ratio reduce from 65% to 62.5%, an increase in recurring FFO from $19.2 million to $23.5 million, and an increase in 12.2 -- of 12.2% in total asset value, from $762 million to $855 million. And I would like to bring to your attention that 65% of our property -- properties were externally valued.Regarding our extremely important activity of purchase and sale of properties, 2018 was a very active year. We sold approximately $50 million of assets and purchased approximately $100 million of assets. Obviously, our move to better quality is an important plan for us, and we realized close to 80% on that plan. So we did sell -- as a reminder, because you know -- TransCanada Highway for $5.6 million, Marleau for almost $500,000, St-Joseph in Drummondville for $3-point-some million, Thetford Mines for almost $500,000, Chemin Chambly in Longueuil for $5.6 million; disposed of the properties located in Sherbrooke for $30.5 million and, subsequent to the year-end, we sold the property -- shopping center located in Delson for $22.5 million.Regarding our acquisitions, we did acquire the remaining 25% interest in Complexe Lebourgneuf, and I remind you that we paid -- the proceeds of dispositions were paid in units of BTB.We purchased a retail property that was located adjoining to the property in Delson that we did dispose earlier this year, and this property will soon be disposed for a profit of roughly $100,000.We purchased our head office property, located in Downtown Montreal at the corner of Ste-Catherine Street and Crescent, for $25.2 million, acquired a shopping center in Lévis, Québec, where Walmart is the anchor tenant, for $42.6 million, and lastly, at the end of the year we purchased 2 properties located in Saint-Martin Boulevard for 25 -- $24.5 million, representing 152,000 square feet of properties that are extremely well located.So as far as summary of our other significant events, we are now standing at 67 properties for 5.4 million square feet. With this, I'd like Benoit to go into the details of our results.

[Benoît Cyr, VP & CFO]

Thank you. Good morning, everyone. So as Michel said, at the end of the year, our portfolio consisted of 67 properties, $4.5 million (sic) [ 5.4 million square feet ] and a market value of 885 -- $855 million.For the quarter, rental revenues were up 8.2%, or $1.7 million, compared to the same in 2017, and for fiscal '18, rental revenues were up 15%, or $11.4 million. Acquisition in '18 generating an additional income of $3.3 million, while disposals generated an estimated shortfall of $1.9 million.We've recorded an increase in our operating expenses of 5%, or $0.5 million, between the fourth quarter of '17 and the fourth quarter of '18, and in fiscal '18, expenses are up $4.1 million, or 18.6 -- 11.6%, and stayed at 45.5% of rental revenues, compared to 46.9% last year.Our NOI is up 11%, or $1.2 million for the quarter, compared to the same last year, and is at 54.5% as percentage of revenues, compared to 53.1% last year. Net financial expenses before fair value adjustments are up from $5.3 million to $6.1 million, or 15% for the quarter, mostly due to mortgage loans on properties recently acquired and to the use of our lines of credit and to distribution of Class B units accounted as financial expenses. We've accounted a fair value decrease of $1.6 million on our swaps at the end of December. This decrease of value is recorded as financial expense and is due to a decrease of interest rates in Canada at the end of December.For the entire fiscal year, financial expenses before fair market value adjustments increased 17%, or $3.4 million, compared to the same in 2017.Our average weighted contractual rate of interest on mortgage loan is now at 3.99%, 27 basis points higher as at the end of Q4 '17, and the weighted average term on our mortgage loan portfolio is at 5 years, 7 months less as a year ago. Our trust administrative expenses are at $1.2 million, approximately $150,000 more as in Q4 '17. And for the entire fiscal year, trust administrative expenses are at $4.9 million.At the end of the quarter, we used external chartered valuators to appraise a significant portion of our portfolio. The 10 largest properties and approximately 1/3 of the remaining properties are independently appraised. And in addition, a part of financing or refinancing and at the request of lenders, other properties are independently appraised during the last months of the year.At the end of December, 65% of the fair market value of our portfolio was subject to external appraisal, and 35% was internally appraised using capitalized -- the capitalized NOI method and cap rates received from external chartered valuators and experts. We have estimated that the value of our real estate portfolio recorded in the balance sheet as of December 31, '18, required an adjustment of $22.2 million to adequately represent its fair market value. Industrial property accounts for almost 60% of the portfolio's increase in value, mainly due to lower cap rates in this segment. The office segment was up $8.9 million, accounting for more than 40% of the portfolio increase. The -- this increase mainly reflects an improvement of occupancy rate for certain portfolio office properties.The weighted average cap rate of our portfolio is at 6.8% at the end of December, down 20 points from last year. We've recorded $1.2 million during the quarter and $2.1 million during the year as transaction costs following disposal of properties. These amounts have been accounted as nonrecurring items in our key performance indicators.We present a net income of $24.4 million for the quarter, $0.437 per unit, compared to $15.5 million or $0.33 per unit last year. For the entire fiscal year, we present a net income of $41 million, compared to $28 million last year. As mentioned, the same property portfolio for the quarter shows an increase in its revenue, its NOI and its net property income of, respectively, 4.4%, 3.9% and 6.9%.For the entire fiscal year, revenues of the same property portfolio are up 5.1%, while the NOI and the net property income show a small decrease of 0.5% and 0.6%, respectively. Our distributions increased from $5.1 million in Q4 '17 to $5.9 million in Q4 '18, including 11.9% of our distributions in units under our DRIP.Our distributable income for the quarter amounted $5.2 million, $0.093 per unit, compared to $5.1 million or -- and $0.105 per unit in Q4 (sic) [ Q4 '17 ]. Our distribution payout ratio for the quarter stood at 112%, from 103% in 2017. As previously discussed, our main performance indicator has been negatively affected by the gap between revenues from disposal and contributions of acquisition and also by the unexpected departures -- departure of 2 main tenants.For fiscal '18, distributable income amounted $23.9 million, from $18.5 million last year, 50 -- $0.456 this year and $0.452 last year. Recurring FFO reached approximately $5.1 million for the quarter, compared to $4.9 million last year, $0.091 this quarter and $0.103 last year. The recurring FFO payout ratio for the quarter stood at 11 -- 115%, from 102% last year.For the fiscal 2018, recurring FFO reached $0.45, compared to $0.453 last year, and the payout was at 93.5%, from 92.7% last year. Finally, our recurring AFFO amounted $4.6 million, $0.082 for this quarter, from $4.4 million and $0.093 per unit last year. The payout stood at 128%, from 113% in 2017.Our balance sheet presents investment properties at fair market value amounting $839 million, compared to $751 million last December -- December '17. We had $8.8 million in cash and other assets amounted 4 -- $7.4 million. We spent approximately $1.5 million in recoverable and nonrecoverable CapEx during the quarter. Also, we spent $1.3 million in TIs to meet the specific needs of our clients as well as commissions to brokers.For fiscal '18, we spent $4.3 million in CapEx, of which $2.5 million were recoverable, and we spent $5.2 million in TIs.Mortgage loans payable amounted $473 million at the end of December, compared to $428 million at the end of December '17. Our mortgage loans value ratio is now at 55.8%, compared to 56.5% last year, and our total debt ratio is down from 65% to 62.5% this year.We have 2 series of debenture outstanding for a net book value of $48.7 million. The Series E are now redeemable at their principal amount. They mature only in March 2020, and for now it's not our intention to redeem them before maturity.At the end of December, our acquisition line of credit was partially used in the amount of $15 million, and our operation line was unused. We will have $58 million of mortgage loans coming to maturity in 2019, of which $40 million have already been renewed, and we are under discussion with lender to renew or refinance the balance coming due in 2019.We also have received some questions before the conference call that I will answer right now.

[Benoît Cyr, VP & CFO]

First one: were there any onetime items in the NOI for the quarter? The answer is no. But remember, in Q3, we've accounted a penalty charge to Shire in our Technoparc building. The penalty was $1.4 million in replacement of a $100,000 per month rent that Shire was supposed to pay.Second question: what is a good run rate G&A going forward? Somewhere between $4 million and $4.5 million per year; $1.1 million, $1.2 million per quarter.Where do you expect your occupancy to be year-end '19? Difficult to answer, but we expect to be -- to have a better rate as the one we have this year.And can you provide some additional color around the brokers -- broker fees in the quarter? We paid $775,000 as broker fees on properties sold during the quarter. We pay around -- we have a broker on our side and a broker on the buyer side, so 2 brokers, we paid around 2.5% of the market -- of the sale price of our properties.So that's all for my questions. Thank you for your attention, and I now turn back the conference to the facilitator for questions from analysts.

[Operator]

[Operator Instructions] And your first question is from Fred Blondeau at Echelon Wealth Partners.

[Frederic Blondeau, MD & Head of Real Estate Research]

Three quick questions for me. First the AFFO payout ratio was 128% for Q4 as you mentioned, 102% for 2018. I was wondering, what should we expect in terms of the AFFO payout for 2019?

[Michel Léonard, President, CEO & Trustee]

I think that it's safe to assume, Fred, that we are still -- we're still affected, if you compare 2016 to 2017, 2017 to 2018, we are still carrying the bankruptcy of Pharmetics until June. So we are going to be affected, again, $500,000 for the quarter. The re-lease of the Cornwall space is taking into effect on -- the first payment was received on February 21, so there was a, call it, a delay in occupancy. So we are going to be affected by it, let's say, for half a quarter. And we don't foresee within our portfolio events of the nature that we lived in 2017 and '18 regarding bankruptcies. Obviously, it's difficult to forecast a bankruptcy because that's -- it's like the wife is the last to know -- well, it's the case as a landlord, we see sometimes that there is mounting accounts receivable, but sometimes it's very sudden. We've never mentioned in 2018 that we have a tenant -- a large tenant -- in our portfolio, called The S.M. Group, that put itself on the protection of the law. And they've never defaulted under their loan -- under their payment of rent, sorry. And they found a purchaser for their assets, and so we never encountered a loss of revenue. So sometimes it does happen, sometimes it doesn't. But so far, I mean, if I'm being clairvoyant a little bit this year, we don't see this kind of event for 2019.

[Frederic Blondeau, MD & Head of Real Estate Research]

That's fair. And what should we expect in terms of same property NOI for 2019?

[Michel Léonard, President, CEO & Trustee]

Well, our crystal ball right now shows that it's -- at least for the first quarter, it's going to be positive. So that's our crystal ball. As you know, we haven't closed our books for the first quarter, the process is going to begin on March 31. But the crystal ball is showing that we're trending positively.

[Benoît Cyr, VP & CFO]

I can add that we have around 250,000 square feet of firm signed agreement with future tenants that will bring future revenues in our properties.

[Frederic Blondeau, MD & Head of Real Estate Research]

Yes, I saw that in the MD&A. Do you have more details for us on that or -- on the timing at least, or...

[Michel Léonard, President, CEO & Trustee]

It's -- well, maybe we could do the exercise, Fred. I can't answer your question just like that. But we could do the exercise. As Benoit said, it's obviously positive, but I understand that you want to know when is this going to be positive.

[Frederic Blondeau, MD & Head of Real Estate Research]

Yes. That's fair enough, okay.

[Michel Léonard, President, CEO & Trustee]

No, I get it, I get it.

[Frederic Blondeau, MD & Head of Real Estate Research]

I don't want to put you in trouble. And could you remind us what would you consider noncore in the portfolio at the moment? Or what's left for sale in the portfolio today?

[Michel Léonard, President, CEO & Trustee]

What's left for sale? As I mentioned, we have our Harvey property that we are -- we have ongoing negotiations. And unfortunately, we don't have a closing scheduled. It's still being negotiated. The -- I mean, we have looked at like -- the problematic buildings are, for us anyway, could be an opportunity for others. But Three Rivers, is a flagship in Three Rivers, we're barely at 60% occupancy. There is action in the market. And if you remember, our vacancy was creating by the departure of the government from our property to a government-owned property. And so we're still struggling with that. But I am pleased to report that there is activity in the market. So we know that there are tenants that are looking, and we're not the only game in town, that's for sure. However, we're probably the best property out there. So it is a property that was, has been on our radar to sell. We've done all sorts of analyses in order to determine do we sell it at 60% vacancy or not. But I mean, the loss of NOI and the loss of the -- given the sale at a 60% vacancy rate would be, I guess, too hard to support. So we've decided that we were rolling our sleeves, and we have for quite a while rolled our sleeves in order to get this property's occupancy rate higher, and that's our -- at our forefront. Henri-Bourassa is a property that has been slated for lease -- for sale. We have had interest, but the price has been difficult for us to swallow. So again this is a property where we are going to increase the occupancy rate and then dispose. And then there is the Magog property. So this is the only property that we have left in the greater area of Sherbrooke. It's an industrial property. We were -- we secured a tenant for that property in October or November for 10,000 square feet, a food processing plant. We're hopeful that they're going to expand in the property. Before Christmas, we received an offer to purchase. We accepted the offer to purchase, but unfortunately, the purchaser withdrew from the transaction, for reasons that are difficult to understand. So we believe that the purchaser may come back and agree to the purchase -- to purchase the property.Then we had -- the last one is Antonio Barbeau, the property that, Fred, you visited and you saw that this is a property with a greenhouse on the roof. And so we have received interest, and we are finalizing an offer to purchase -- or we are finalizing the waiver of conditions. So this could be a property that would sell not in the first quarter but probably in the second quarter.

[Frederic Blondeau, MD & Head of Real Estate Research]

And you don't own anything in Sherbrooke after you sold all these buildings last year, correct?

[Michel Léonard, President, CEO & Trustee]

Correct.

[Frederic Blondeau, MD & Head of Real Estate Research]

Okay. Perfect. And if you could put a dollar amount on these properties for sale today, what would it be, approximately?

[Michel Léonard, President, CEO & Trustee]

Well, I won't put an amount on Three Rivers, because the timing is wrong, but Henri-Bourassa would be, I would say, between $4.5 million and $5 million, Magog would be around $2 million, and Antonio Barbeau would be between $7 million and $7.2 million. And Antonio Barbeau is a property, if you remember, it's a property we had purchased for $4 million.

[Operator]

Next question will be from Matt Kornack at National Bank Financial.

[Matt Kornack, Analyst]

Quick comment on NOI in terms of what's coming online. I think you touched on it. But with the lease up of the 133,000 square feet, 68,000 square feet and 11,000 square feet that you disclosed in the MD&A, I think you hinted that the timing on the big portion of that is going to be in June, but what's the dollar figure of NOI you would expect to come online as a result of that?

[Michel Léonard, President, CEO & Trustee]

We leased the property, 133?

[Benoît Cyr, VP & CFO]

133.

[Michel Léonard, President, CEO & Trustee]

I always call it 132. So it's 133,000 square feet at $6.25 net. So it's an easy calculation because they maintain the property, so it's direct NOI.

[Matt Kornack, Analyst]

And that's June that that comes online?

[Michel Léonard, President, CEO & Trustee]

That's June.

[Matt Kornack, Analyst]

And will there be straight-line rent or anything in advance of that? Or should we just sort of bring it on cash rent and...

[Michel Léonard, President, CEO & Trustee]

Cash rent in June.

[Matt Kornack, Analyst]

Okay. And then Boundary in Cornwall, is that -- that sounded like that was nearer term?

[Michel Léonard, President, CEO & Trustee]

Boundary is -- the tenant is paying as of February 21 of this year, and the net rental rate, I believe, is $3.75.

[Matt Kornack, Analyst]

Okay, perfect. With regards to your 2019 maturities, there is a big chunk of retail in there. Do you have a sense as to -- could you provide how much of your 2019 maturities are committed at this point? And it sounds like you're fairly confident that you're not going to lose any occupancy, so I was just wondering what's the character of the retail that is maturing this year?

[Michel Léonard, President, CEO & Trustee]

The retail properties, we don't -- I mean, I quickly mentioned that we disposed of the Delson property. And the reason that we disposed of the Delson property was the fact that Loblaw went dark on us during the course of 2018, I think it was July or August of 2018. And we were not necessarily in a vulnerable position regarding NOI for the property, because they were under contract to pay us until 2022 or 2023. But timing is everything, and we received an offer to purchase from a Montréal-based group to acquire -- and they had obviously in their pocket a merchant in similar trade as Loblaw. And -- so they offered -- I think our profit was roughly $1 million on the sale, not cash on cash, but just on purchase price, and we had purchased the property at $21.5 million and sold for $22.5 million, so $1 million of profit, again not cash on cash. But -- and so given the struggle that -- and the fact that they -- it was clear that they had a tenant in their pocket. We elected to sell the property and not to cause further grief to our other tenants because, as you know, being an anchor tenant, when you lose your anchor tenant, then it causes other problems or repercussions within your shopping center. So we took the bull by the horn, and that's how and where we decided to sell this one. And as I mentioned earlier, there was a small brand-new strip mall that was built adjacent to our property that we had purchased in February or March of last year as a defensive move, because we didn't want a third-party to compete with us. Well, we got -- we have an agreement with our purchaser for the Delson property that they are going to purchase this small strip center adjoint -- adjacent to now their center for $1.95 million. So we'll be completely out of Delson, and makes sense that we sell this little strip, because next to us would be an elephant, and we will be -- I don't think that we would be successful in leasing. So other than this, within our portfolio, we don't see events of that sort. Our tenants are generally smaller. So our -- again, our crystal ball doesn't demonstrate that in our retail properties we would be suffering in 2019.

[Matt Kornack, Analyst]

Okay. And it seems like Québec is a good place to be these days from a macroeconomic standpoint. Your retention ratios for the last 3 quarters have been pretty high. Would you generally say that the environment on the ground has improved from an operations standpoint for most of your portfolios?

[Michel Léonard, President, CEO & Trustee]

I think that my answer is going to be twofold. The first one is to say yes to what you said. The second one is that, let's remember that I don't -- I'm afraid to use a certain word because this is recorded, so -- but let's just say that our lesser-performing properties on that front have been generally disposed. So -- and our migration to better quality is going to help us solidify the first answer that I gave to your question, which is yes.

[Matt Kornack, Analyst]

Okay. And then, from a cap rate standpoint, we've heard about some industrial assets in the Montreal area that cap rates are interesting, to say the least. But how are you competing going forward in acquiring assets accretively, given where the pricing of assets has gone?

[Michel Léonard, President, CEO & Trustee]

I have to say that it's very difficult to acquire industrial properties. There was -- Great-West Life purchased in Laval certain properties and the cap rate was below 5%, which was new to us within our environment. And it basically propelled real estate brokers to meet with potential vendors and to tell them that they could get below 5% as far as their industrial properties are concerned. So that created some kind of problematic within the market, purchasing industrial properties. Retail properties are not the flavor of the month, as you hinted in your question. But if you are adopting a little contrarian kind of view to your position, Matt, I think that we could basically transact very well within -- and carefully -- and very well within the realm of the retail properties, being -- obviously being careful as to what we're purchasing. But generally, retail properties, you've seen -- I mean, buying a Walmart in Québec City at 7.25% cap rate, I think that was a great transaction. And Walmart being Walmart, I think that we pulled it off in 2018 there. And I think that it has established -- anyway, for BTB, it established a certain benchmark that purchasing properties of that nature generally should be at a 7.25% in Québec City, maybe in Montreal at a 7%, 7.10%, something like this, but not crazy, below 6% or close to a 6%. So it is difficult. I'm not going to hide and say that purchasing properties is an easy task. Again, they have to be accretive, and for us accretion has always been key. The property that we purchased at the corner of Ste-Catherine and Crescent is not fully leased, and it does impact our NOI for this property. We've been successful in leasing office space. We just concluded a retail lease for -- on the Crescent Street side of the property, and we have action regarding the Ste-Catherine side of the property. So it is something that we'll pull it off, and we will pull it off in 2019. So it is -- again, sorry for the long-winded answer, but I don't want people to believe that hocus-pocus and it's so easy to purchase, that all you got to do is meet the guy, shake the hand, and it's over. It's very complicated, and the market condition doesn't make it easy.

[Matt Kornack, Analyst]

So I guess, would you go further afield and look in sort of secondary or even more rural markets where you can get a good tenant with some lease term to get a higher cap rate? Or are you going to look to sort of those higher vacancy opportunities, I don't know how many properties would be -- maybe you can't make a purchase on Ste-Catherine's, but if there are and they make sense, is that something that you would look at?

[Michel Léonard, President, CEO & Trustee]

Matt, I've got a great barn for you to buy. Our strategy has been to concentrate in larger markets. So Montréal, Québec City and Ottawa. We have been in the outskirts, the Drummondvilles of this world and not to say anything bad as far as Drummondville is concerned, because it's a booming town, but when you're involved in a town that's got -- that has a lot of self-made millionaires that sort of control real estate and you are the only group, external group, that buys real estate or makes an investment, it is very difficult to lease space to -- if you have a certain vacancy, whether it's 8%, 5%, 3%, it's very difficult to lease space to local people, because they're always going to go to lease space from their local citizens. So smaller markets, we've gotten out of them as a result of the fact that they go out to have breakfast -- and this is my expression and I don't want it to be pejorative -- but I mean, they go and have breakfast every Friday morning and they discuss what's going on in the market and which tenant is looking for space, and they're trying to steal the tenants from the outsiders. So we are fed up of this kind of discussion and this kind of difficulty, and hence our concentration in larger markets. So in the larger markets though, to finish my long-winded answer, in larger markets, it doesn't mean that we cannot pull something out of the hat. And I think that we have been successful, whether in Ottawa, whether in Montréal, Québec City, again, in doing so, but again, it's not easy and negotiations are arduous, long and difficult.

[Operator]

Next question will be from Yash Sankpal of Laurentian Bank.

[Yashwant Sankpal, Analyst of Real Estate Investment Trust]

Michel, I just want to understand how you think when you look at your balance sheet, your portfolio, and your leasing schedule and the cap rate environment, in terms of growing your FFO per unit? Like what do you think is the best route in your mind when you look forward?

[Michel Léonard, President, CEO & Trustee]

The best route is to redeploy the capital that we glean from the sales of our properties in order to increase our NOI. The -- it's obvious that if you -- we've sold -- like, I'll give you examples. We sold properties in 2018, so -- from the list that I gave you earlier, so -- and these properties had a collective amount of NOI of $2.6 million, and we had purchased the properties that we sold for $42 million, and we sold the properties for $49 million. So that's the total amount. The property, where we deployed some capital, if you -- including a stabilized Ste-Catherine and Crescent Street property -- our NOI would be $6.7 million for a purchase price of $100-and-some million. So we purchased twice as much as what we've sold for an NOI that is more than what we sold. So generally, as Ste-Catherine will stabilize, we're going to see that these numbers are going to come and kick. And for me what's important is, number one, buy accretively, and number two is, when we redeploy the capital, make -- to ensure that the NOI that we are purchasing is better than the NOI that we've sold. So those are the 2 prime considerations when purchasing.

[Yashwant Sankpal, Analyst of Real Estate Investment Trust]

And do you think that will help your FFO per unit?

[Michel Léonard, President, CEO & Trustee]

I think it will. I think it's going to be slow. The reason that I think it's going to be slow is because when -- we buy accretively, we see that, let's say, a property after financing generates, let's say, $0.48 to $0.50 of FFO or AFFO, and then you put this into the overall bin of all the properties, then it kicks in on a slower incremental basis than if we had less than $865 million of assets.

[Yashwant Sankpal, Analyst of Real Estate Investment Trust]

Right, the contribution is going to be smaller?

[Michel Léonard, President, CEO & Trustee]

It's slower, but it is, I think, the right attack.

[Yashwant Sankpal, Analyst of Real Estate Investment Trust]

Right. And just a follow-up on that. So because your portfolio base is quite big, these accretive acquisitions are not producing enough impact. So -- and given where cap rates are headed, especially for the industrial asset class, would you be willing to sell some of your industrial product to capitalize on that capital appreciation?

[Michel Léonard, President, CEO & Trustee]

The answer is not yes and not no. I think that it depends on the offer. So if we do have investors interested in purchasing industrial assets, we are definitely going to look at it on the basis of what I can do with the proceeds and how I can redeploy it and how accretively can I redeploy it.

[Yashwant Sankpal, Analyst of Real Estate Investment Trust]

So just the cap rate itself is not the factor. That's what you're saying, right? You want to see where you can deploy...

[Michel Léonard, President, CEO & Trustee]

Yes. But obviously, if somebody were to shake us up with an unbelievable offer -- like, we haven't fallen in love with our investments. It's just -- it's like business as usual, you look at the positive and the negative and then you make a decision whether you are selling or not.

[Yashwant Sankpal, Analyst of Real Estate Investment Trust]

Would you be willing to buy your shares with those proceeds?

[Michel Léonard, President, CEO & Trustee]

It is something that we've looked at. And it is more -- it is -- I mean, if you look at producing NOI and increasing AFFO, it's better for us to redeploy the capital in purchasing assets than it is to purchase our units.

[Operator]

[Operator Instructions] And at this time, there are no further questions. Please go ahead, Mr. Léonard.

[Michel Léonard, President, CEO & Trustee]

Again, thank you very much for joining us, especially Matt. Matt hasn't been here for, like, last 2 quarters, so thank you, Matt. So 2018, I think, was a turn -- a very important year for BTB as far as requalifying or reassessing its -- the quality of its assets. And I think that we've shown that we were able to better the quality, buy accretively properties that are located within our areas of purchase, within Montréal, Québec City and Ottawa. And this cannot be done without the collaboration of all of you and the collaboration of the market, where in 2018, we were able to raise funds, and for us, it generated an increase in some numbers, affected again by certain events that are, again, unforeseen, but it happens. It's business as usual, unfortunately, that we deal with tenants and they have -- we have successful tenants and those that are not so successful. So again, thank you for joining us, and we look forward to speaking with you again for our Q1 2019 results.

[Operator]

Thank you. This does conclude today's conference call, thank you. You may now disconnect.