Q3 2020 SmartCentres Real Estate Investment Trust Earnings Call
Sure.
[music].
Conference recording has been turned on.
[noise].
[noise] good day, ladies and gentlemen, welcome to the Smart centers right Q3, 2020 conference call I would like to introduce Peter Ford. Please go ahead.
Thank you good afternoon, I am Peter Ford, President and CEO and joining me on the call today are Mitch gold hurt our executive.
Chairman, Peter Sweeney, Chief Financial Officer.
And Rudy Gobain E V P portfolio management and investments.
The call will begin with my with comments by Mitch and myself, followed by Peter Sweeney, who will talk about our results for the quarter end.
Including IRS valuations liquidity.
And accounting provisions for bad debts.
And then we will take your questions.
Our comments will mostly referred to the outlook and mixed use development initiatives sections of our MD energy, which are posted on our website.
Hi refer you specifically to the cautionary language on pages three and four.
Four of the Mdna material, which also applies to comments any of the speakers make this afternoon.
Some of what you hear today, you may have heard before.
Our focus is on operating our existing shopping centers and on creating value through real estate development.
This process.
And the value it creates.
Is not conducive to a quarterly reporting cycle.
And while we have a significant amount of development projects underway each has its own timeline.
We are staying on course and on strategy within the context of real estate development. This strategy is moving us forward.
Nicely with the rewards starting this past quarter with the smart Vmc condo closings.
The last six months, we are unusual for all of us.
The spread of the pandemic and the accompanying shutdown impacted every one of us personally and from a business perspective to varying degrees.
Degrees.
Right was no different the pandemic added some challenges in the short term, but our focus remained on our long term strategy.
We were intensely fixated on our initiatives to grow the business through mixed use development.
Short term challenges required our attention.
In assisting our tenants and keeping our shopping centers operating effectively to take care of the more than 60% of our tenants, which are considered essential services that remained open even at the peak of the shutdowns.
These tenants were a priority for us as they were meeting food and other essential needs of communities.
Our attention was on assisting our retailers and getting back to opening their stores. Once the lockdowns were lifted such that almost 100% of our tenants were open and operating at the end of the quarter. This.
This percentage was down slightly in October as a result of select new shutdowns.
All the way through to the pandemic, we remained very focused on our longer term strategy of development.
Mitch as vision 30 years ago to build retail centers with Walmart as an anchor involve many details steps just as does today's mixed use plans.
As well as building and operating company around it.
The culture of our company is unique and that we are land development people operating shopping centers.
We are and always have been comfortable with land its possibilities and its path to profit. This is our core competency.
It is right now and in the foreseeable future that our core competency.
Will differentiate us as we work on the new path into.
Intensifying and repositioning many of our strategically located properties.
Another way of saying this we are real estate development company that owns many great shopping centers with substantial and reliable recurring income.
Most of which we developed.
But these great shopping centers with their outstanding access on or near highways transit visit visibility and most importantly in.
In the midst of growing populations are just a starting point to the development of higher and better uses and in.
Most cases residential.
And many investors and some analysts are not yet acknowledging or giving us the proper credit for this development that.
That is now delivering value and it's here to stay.
And with that I'll pass it over to Mitch.
Thanks Peter.
[noise] this year.
We remain on the offensive.
Accelerating not decelerating.
The processes of.
Of obtaining zonings inside pet approvals.
Because it is those.
Approvals approved land use changes.
So much value and opportunity.
It's created.
Strategic utilizing our lasting relationships we have forged over.
For the last 30 plus years with many of the Canadian municipalities.
As well as governments general Receptiveness to moving intensification forward.
And now this has started to pay off.
On page 19, and 20 of our Mdna Theres a list of examples of very active residential and other development applications per.
First submitted.
By our in House development teams during the cold shutdown or being advanced by our team of professionals.
Such that the applications will be submitted.
And the next one or two months.
Look at this look at the list of these pages carefully look at that.
On these pages carefully.
These are new initiatives.
Many very exciting projects.
And mostly residential.
Significant value creation.
Not recognized in our high FRS balance sheet values.
Well result from that.
Yes.
The list on these two pages encompasses excess of $40 million.
Square feet of additional density.
Some bolt on undeveloped plants someone.
Some on top of existing retail and it a limit on a limited number of replacing existing weaker retail making for a more dynamic.
Hi, Brent and welcoming mixed use center.
And of course that is not at all.
For example.
Many of the future phases of Vmc at our lands in Lavelle centre in Qubec are not included in that number.
Several seniors residents we are working on.
With our partner Vera.
And as a very recent example.
We were issued diminished Theres order as it comes at a prior 72 acre Cambridge right.
Retail property, which is on the first one.
Which.
Will allow.
For various forms of residential commercial and commercial uses.
As we redevelop the center over the next.
20 years, however, the value.
If additional 12 million square feet of density on that site and its rights.
Create.
Good.
On day one.
As with many of these redevelopment Enzo will allow for a growing mix of people living and working.
The existing shopping center, creating synergies per tenants and residents.
Now, let's talk about the new development initiatives already under construction.
Over the last several years, we have pointed out to the investment community or that is or that it is part of our culture to deliver what we say we will deliver.
This is true for the first two office towers at Smart Vmc.
Here in Boston.
Where we delivered exactly what we said 100% occupied now with strong tenants.
In the age downtown Toronto quality tower.
And under budget.
We have just delivered.
And.
The 177 unit residential rental tower in Lavelle, Quebec.
And the first of our.
10, Smartstop self storage developments and lease side in Toronto.
And now our third quarter results include closings.
Of the four of.
First 766.
Units in.
And the Smart Vmc Transit city, one in 255 story towers.
Our share of the profit can contributing $30 million to AFFO for the quarter.
By December 31st we expect the closing.
The thing that we expect to close the remaining 344 units in these two towers generating an additional $20 million in profit.
Totaling approximately.
28 cents of EPS.
FFO for the trust, 25% interest in the project for the year.
Yeah.
This will be followed in the spring and summer of next year with the closing of 631 units in transit city, three generating a further $20 million in profit.
For the three towers combined.
We are not only meeting, but exceeding our original planned profit by more than 30.
$35 million.
Are there specific project highlights.
Two additional towers transits CD, four and 500 to 1026 units sold out our under construction, 20% deposits now in place.
On the purchase orders.
We are nicely set up.
For recurring flow of condominium cash from us.
And projects.
Sure.
Smart Vmc.
Purpose built residential rental 451 unit building is under construction.
BMC for new.
140000 square foot Walmart store.
Opened on October 22nd.
The scope.
Allowing for the closing of the existing store on the strategically located.
Old Walmart store in smart volumes, despite BMC site and freeing up is very valuable land for residential density.
So still.
Storage in addition to the two open and operating properties or for others under construction.
On Brampton, Antoine Scarbro and six others in the process of obtaining municipal approvals.
Which are generally not controversial.
Five seniors residents.
First let.
Me clarify.
With all the troubling pandemic information is in the news related to seniors.
Almost all the tragic news relates to government funded long term care facilities.
Is this we are not in.
Instead with our two partners we're developing.
Seniors apartments with extra amenities.
And limited levels.
Of resident care, all tailored to seniors.
In new buildings.
Six with Rivera two groups the ILEC show.
All of these profit all of these projects are in the municipal approvals page.
A few general managers about our development pipeline and capabilities.
Most of the development initiatives we're planning.
Our on land, we already own unlocking value.
Supplemented by selective acquisitions with existing.
Or new strategic partners.
We use our in house development team to drive these initiatives.
We know the markets municipalities and every detail, but the properties.
This team was actively engaged in using our technology to connect seamlessly to the municipalities which are.
We're also set up to operate remotely.
As a natural for us.
Developed through turbulent times before both as a private company and as a public REIT.
As a general reminder, across our portfolio of properties, none of the additional land value associated.
Yes.
Our as.
As of right residential density or.
Our proposed density.
Is reflected.
In our property I FRS values.
And when we present development project yields.
Or profits from condo projects.
Land is included in the cost side of the equation.
At an estimated market price.
And all internal fees.
Applies costs.
Our included in cost, which is a more conservative way to present these development yields.
After hearing all of this and reading.
And the development initiatives section our Mdna you can see that the pen demick did not slow us down.
To the contrary.
We accelerated our transition to a more diversified read by moving municipal approvals forward, which as stated earlier is where much of the value is created.
Good.
We believe our current unit price is not reflecting the value of any of this development potential.
And it is very important to note that we will only move forward with the most capital intensive construction portions of these initiatives as market conditions warrant.
Sufficient pre sales occur in the case of color.
Condos and more than adequate financing is available.
More when when adequate financing is available.
The last development related comment relates to the disconnect between our unit price and the under construction in planned mixed use value creation underway not to mention the strength of our retail portfolio.
It is something we have highlighted before but worth repeating.
Our unit prices down say, 25% from its pre cobot levels that would be akin to the market's believing that one quarter of our entire retail portfolio is going to permanently generate no rent or value.
Any kind whatsoever.
For now.
And infant item.
Pat absurdity.
The absurdity of this goes even further and that valuations ignore the intensification opportunities already underway on our undeveloped plans and the.
Community to create value in place of any such vacancies by replacing.
They can retail with our mixed use initiatives.
Now I will turn it back to Peter.
The financial results for the second and third quarters and to a lesser extent for the balance of 2000.
Penni are being impacted by the pandemic our priority. During this period of uncertainty is to protect our employees. The communities, we serve our tenants and our business, while doing everything possible to mitigate the financial implications ensure liquidity and continue to strengthen our.
Two on sheet.
Our operating shopping center portfolio is 97.4% leased at September Thirtyth.
And remains focused on essential services and value oriented retail not fashion recreational or entertainment retail it.
It is well suited for these turbulent.
Clinicians.
As evidenced by the following.
60% based on revenue of the rights tenant base is comprised of the central services, which continue to operate throughout the crisis supporting local communities meeting the everyday needs of residents for groceries Pharmaceuticals banking household maintenance general merchandise.
And other essentials.
And this 60% of our tenant base being essential services increases to 70% for the markets outside of the greater victim area.
In these smaller markets our shopping centers are often the essential service hub of the area.
And our in all cases anchored by.
Okay Cellmark store.
With the pandemic and the Lockdowns early indicators are that the demand for housing and therefore shopping in these less urban markets is increasing as people consider leaving the urban areas for the suburbs.
Good for our shopping centers and the opportunities to intensify on ARX.
Ill listing lands in those markets.
Walmart, which anchor 75% of our properties and represents over 25% of our rental income.
Along with our family of value oriented focus tenants are well suited to serving its community. During this pandemic. This period, a pandemic induced weaker economic.
Rigs conditions.
Walmart, Canada plans to spend three and a half billion dollars over the next five years to make the online and in store shopping experience simpler faster and more convenient.
This continued commitment to its retail operations in Canada speaks to the ongoing strength of Walmart and its growing ability.
I'd to drive traffic to our centers.
Much of this capital expenditure by Walmart will be in our centers given that we owned approximately.
30% of the Walmart stores in Canada.
In addition, we are fortunate to have opened three weeks ago and Vaughan as part of this smart Vmc store relocation.
New.
[music] Walmart prototype store first of its kind in Canada, which includes a 10000 square foot E Commerce, Omni channel fulfillment center and a drive through pickup facility.
It will fulfill as many as eight times the online orders of an average Walmart store.
Hi.
Good day to all of you to get up here to see our Vmc project, including this new Walmart store.
Virtually all of our revenues from shopping centers are open format outdoor centers.
Enabling customers to practice physical distancing, while completing shopping for their everyday needs.
Shoppers are.
It's more comfortable and feeling safer in this on in closed format.
We recognize the importance of small independent really retailers to the Canadian economy our.
Our rent release focus to date has been on supporting these non essential small independent retailers representing approximately six.
Much cent of our contracted rent.
The federal and provincial governments put in place the Canada emergency commercial rental assistance or secular program designed to assist certain tenants such that effectively the tenant bears 25% of the costs, the landlord, 25% and the government 50%.
Yeah.
The program originally it applied to April May and June.
After communicating with all of our smaller tenants, we applied for relief for all tenants that qualified.
Approximately 700 for those three months.
And once the government extended the program for an additional.
Three months, we were pleased and proud to say that we offered the program to a 100% of the same tenants.
To us this was an important step in the continuity of business for many of these smaller retailers.
We applied and received government funding for all tenants that qualified for the full six months.
And now the province of Qubec has just announced the details of its planned to top up the federal program for Qubec based tenants.
That is expected to yield a further $450000 of recovery for us.
The federal program through the landlords ended in September and has been replaced by.
The Canada emergency rent subsidy program, which will assist the qualifying tenants directly.
In the meantime, some of our non essential medium and larger tenants have also asked for some rent relief.
Or have just not met their rent obligations.
While protecting our legal rights as a landlord we had.
The impressions with these tenants about rent deferrals or in a few limited cases rent abatement, we have found ways to accommodate tenants with a real need when appropriate and justified but also factoring in the reality of our own tissue situation and our unit holders.
There have been announcements of several tenant restructurings during the call.
This period, either through Cc double a or bankruptcy filings.
Major names such as Moore's Calmart sale treatments and Aldo.
Collectively all such tenants have indicated the intention to close 64 units in our shopping centers approximately 410000 square feet.
Which is less than.
And third of the total units, we have with the same tenants.
And represents 1.65% of gross revenues.
It is expected that the remaining two thirds of the units with the same tenants.
The same retailers will continue to operate once they are relevant restructuring process is complete.
One generally speaking these tenants have expressed a strong interest in remaining in our Wal Mart anchored centers.
A 145000 square feet of the 410000 square feet.
Previously mentioned, our two sale units that tobacco.
Near shore way gardens, and Vaughan our four.
Third seven.
Redevelopment site on the West side of highway 400.
Discussions with several other retailers for a tobacco are underway property tours have been completed with two significant retailers.
And the vonn location departure will serve only to alter the sequencing of the residential.
Joe redevelopment plans already underway for this project.
So if you back those out we are left with 265000 square feet of vacancy from all these cold winter related bankruptcies, a fairly routine amount for our leasing team who has commenced discussion with many potential tenants encompassing a wide variety of views.
Users.
As shown on page two of our Mdna cash recoveries from our tenants continues to improve.
In our April update press release, we indicated cash recoveries for the month of April of 67%.
As of now we have collected 82% of gross billings for that month.
April, including Secor recoveries and improvement of 15%.
Gross billings collected improved from that 82% for April to almost 96% for the month of September.
And to avoid any confusion gross billings used in these calculations are based on rent rolls.
Excluding the tenants that closed through cc doubly or bankruptcy process.
And now I'll turn it over to Peter Sweeney.
Thank you Peter and good afternoon, everyone.
As we know these challenging times will test the balance sheets of many real estate companies.
However for me.
Many years now we have encouraged to capital markets and other stakeholders to focus on our commitment to the balance sheet.
Our unyielding focus on Conservative capital management.
Our disciplined in the deployment of capital on acquisitions and developments and our continued desire to match gear.
Gearing and similar debt levels to the long term nature of our assets. This strategic focus on long term viability and growth will continue to allow us to manage through this period of uncertainty.
In this regard we note the following highlights relative to the.
The third quarter.
Number one.
Our unencumbered pool of assets continues to grow and increased by $200 million to $5.8 billion.
Number two.
Our conservative debt and aggregate assets ratio reduced.
Further to 44.3%.
Number three.
Our weighted average interest rate for all debt continues to decrease and was 3.37% as compared to 3.46% last quarter, which when coupled with our triple B.
Hi credit rating permits us to continue.
To attract debt capital at historically low interest rates for longer terms.
Number four.
Our interest coverage ratio was maintained at 3.8 times and our adjusted debt to adjusted EBITDA multiple.
The whole improved further to 8.5 times.
Both of these metrics, reflecting the business is strong and stable ability to fund its obligations even during these uncertain times.
And then lastly number five.
Our unsecured to secured debt raise.
Also further improved to 67% to 33%.
It's interesting to note that just one year ago. This ratio stood at 55% to 45% and as we have continued to focus on further increasing the proportion of unsecured.
Which had on our balance sheet and given the continued availability of long term low interest rate unsecured debt. We intend to continue our strategy of repaying maturing secured debt and replacing these amounts with longer term unsecured debt, which should result in this ratio continuing.
Third improve for the foreseeable future.
From a liquidity perspective, as we look to the immediate future and plan to manage through the current environment. In addition to the conservative debt metrics noted above please.
Please also consider the following.
Hey.
At the end of the quarter, our liquidity position exceeded $1.15 billion, which.
Which is represented by over $400 million of cash on hand.
Of our Undrawn $500 million operating line of credit.
And our 250 million dollar available accordion.
To feature.
Accordingly, we have ample liquidity when and if needed during this period.
B, we have approximately $70 million in mortgages maturing over the next six months and $250 million in unsecured debt that comes due in December and.
And we intend to use our.
Entering cash to repay both of these maturing amounts.
C.
We continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place to ensure project completion of our various projects.
Exists and we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments that are expected to begin later this year, including two retirement home projects two high rise rental building projects and one townhome project.
Okay, and then lastly, d. we.
We are so proud to confirm that during the third quarter we.
We experienced the beginnings of the closings of the first two phases of transit city condos.
During the quarter, we recognized approximately $30 million of FFO from these closings and we expect to.
Recognize an additional almost $20 million in FFO in the final quarter of 2020.
Similarly next year, we expect to recognize approximately $20 million in FFO from the closings of the third building in transit City and we expect this recurrence of FFO from closings of condoms.
Sure William Townhome developments to continue for many years to come.
The FFO generated from these closings further fortifies, our liquidity position and supports our distribution strategy.
As Peter has mentioned.
We continued to experience substantial improvements in our collection level.
Levels in the third quarter, and our provisions for bad debts with significantly reduced from our experience in the second quarter.
In this regard in addition to 15 and a half million dollars in provisions taken in the second quarter, we provided for an additional $9.7 million in Colgate really.
Related provisions in the third quarter.
These amounts can be viewed in the following distinct categories.
Number one.
For those sacra eligible tenants, we provided $2.1 million representing amounts that we as the landlord are compelled to provide as part of the federal program.
That Peter referenced to separate that ended in September.
Number two for those tenants that were not sacra eligible we provided point $6 million.
Number three for those tenants that have filed under cc double a or similar bankruptcy restructurings we provided.
$4.1 million and then lastly number four we recorded additional conservative provisions aggregating $2.9 million for other expected credit losses emanating from the current COVID-19 related business environments.
These third quarter provisions represent.
Approximately 65% of those taken in the second quarter, and we expect that any provisions required for the fourth quarter will be substantially reduced further.
From a valuation perspective.
Property values stabilized during the third quarter, we did not experience any reductions.
And value in our income producing ore development property portfolios during the quarter with cap rates discount rates and other modeling variables remaining status quo after.
After two quarters of valuation erosion, primarily reflective of additional vacant space and the additional time now expected to backfill such space in the ports.
Portfolio much of which is the result of the Covance nine experience our third quarter experience is directionally important because it suggests that the market has now begun to stabilize.
Based on the discussions that we have had with the appraisal community, we're not expecting any substantive further decline in profit.
Property values over the balance of the year.
It is also important to remember that we have not factored into our IRS values any values.
That accrues from the future development of mixed use space and these future values in increments as Mitch as noted that are derived from our proposed mixed use initiatives.
Our substantial.
And finally, a comment on distributions.
Our current annual distribution level is a $1.85 per unit.
And based on our current trading price. This distribution level represents an approximate 7.5% yield on our units which is approx.
At least 6.75% above the current 10 year government of Canada risk free rate of return.
This spread is extraordinarily higher than we have experienced or frankly would expect.
Decisions on distributions are always made by our board however, given.
Tax equity the strength of our balance sheet and near term prospects for cash flow generation from condominium and town home closings management continues to recommend the current distribution levels.
And with that ill now turn it back over to Peter for.
Hey, Thanks, Peter so to sum it up there.
Very interesting quarter.
$30 million of profit in the quarter from condo closings the trends at city, one and two and Vaughan.
And expected to generate $50 million of profit in total for this year for our rights interest in the project.
Our rapidly improving rent collection pitcher.
And an accelerated mixed use.
Just intensification and development program.
And with that we'll turn it back to the operator to coordinate us coordinate us in addressing your questions.
Okay sure.
So just remind everyone to ask a question. Please press zero one to queue up.
And the first question we.
In the Q comes from Brendan Abrams from Canaccord Genuity. Please go ahead.
Hi, good afternoon.
Just wondering if you could get you can give some color on.
On the leasing environment right now.
When you do have the vacancy or.
Or location goes dark who were the tenants.
We have.
Looking to add space or move into these.
These locations.
Would they need from.
It's Jason shopping centers up what type of tenants are looking to expand maybe just some color on the.
Leasing environment.
Rudy we're not sure.
Well like.
Like like we have in the past Brendan these the the portfolio of tendencies. We have now are continuing and the ones that we're open and we're carrying.
Business.
Continue to expand so our stable of portfolio tenants.
That we have are asking for expansion space in our other Wal Mart anchored sites and in our other sites. So we have a lot of active tenants that would be the typical.
All dollar stores.
Food stores liquor stores.
Pet stores, even QSR are are calling us up with because they don't have a lot of sit down space, but a lot of takeout.
So a lot of deals and talking and tore.
On being of properties with these tenants in addition to that.
We are also marketing and talking to tenants nearby in support of the enclosed mall space, who are called US up and are asking about you know what what can we do in terms of fitting them in so that is.
<unk> segment of the market, where previously as you know we have passion tenants, who may have said, we would like to leave the outdoor space and go into an enclosed mall.
Dod has stopped that activity has stopped.
In addition to that we are.
Looking at all of the I'm going to call that Sir.
Service type uses that serve each of these communities. So that would include industrial uses.
That would include labs medical.
Even even some of this material services have been calling us up again, so well.
While it was very very quiet in Q2.
It started picking back up during Q3 and now for this quarter going into the fourth quarter Theres a lot of discussions about what.
What spaces available and how people can utilize the best in the portfolio. So a lot of activity.
It will take a little bit longer.
To to backfill these spaces.
But we're making sure we get the right fit the right mix and for each of these communities.
As we go and some of the spaces will be we will have to of course.
Carve it up into smaller spaces, if its smaller users.
To make it to make it work.
But.
The the economics of the deals always seem to make sense, because again they want to be near.
And in a warmer generating.
Traffic center so so.
To turn very positive in this last quarter and it was improving during third quarter.
Okay. That's yes, that's good color and then maybe just sticking on the leasing.
Perhaps a bit more medium term taking.
Taking a look at the lease maturities in Walmart in particular.
It looks like about.
8 million square feet are a little bit more than half of Walmart square footage expires between now and 2025.
Just wondering if you could remind us.
How.
How much in advance.
Discuss with Wal Mart in terms of.
Leasing space and what your expectations are for maybe the next few years with them.
Well.
What.
Just in terms of upcoming Walmart lease maturities, maybe you could just remind us.
Historically or in the past how far in advance you would.
Get notice that they are renewing or or not renewing and I guess.
What your expectations would be over the next several years, where there are significant maturities there.
Well, just sort of understood what I mean.
Relationship.
Many layers to it and what are the layers is I mean, it's what I would like to.
We'd like to.
Yeah.
Their renewal notice I mean, we're we're part of your.
Generally part of it or.
The strategic planning.
So in terms of the country. So we know.
Together, we work together to true.
He'll be way ahead of those things first of all my career.
Good luck.
Brandon.
Situation, where waiting to find out.
Expires.
Expires here heading into renewal notice.
And given the huge investment to appear.
[noise] committed to in this country I mean, probably appreciate that.
Good.
Among many other things you know.
The offering of their of their stores.
And I guess, you know again at some point technically there is a renewal and so how does that go I mean, I don't know Peter do you want to maybe illuminated a little bit on.
On how that.
That actually plays out literally.
Yes. They are I mean, they are under their lease I think it varies the there is a six to 12 months notice depends on which leases.
That they would officially have to give us.
But as Mitch said, it's more a case of the relationship and if that was to ever happen, we'd be having much more of a heads up than that.
That I suspect, but I can tell you there that we're not aware of any.
In that relationship any discussions that would suggest theres any.
Space coming up for feel that they are not going to.
And remember what I said earlier about how much money they're spending.
On their portfolio.
And I would say that the rents that they pay us.
Sure.
Because of many of them came out of the joint venture between matches company and Walmart.
That the rents are quite cheap and it's pretty unlikely that they would ever leave.
The very reason.
Reasonable and cheap rents that they're paying and many of those locations, but again I just to say that we're not aware of any issues in terms of renewals.
Okay. That's very helpful I'll turn it over thanks.
Alright.
Next question comes from Tyler.
Hi, well Lee sorry, Tal Lee from National Bank Financial Please go ahead.
Hi, good afternoon.
Yeah good afternoon.
Just to follow up quickly on the Walmart leases.
Are these expertise they come with.
Are they effectively sort of way.
Renewal options for Walmart or will you actually had a chance to sort of.
Renegotiate up the ramp.
On those renewals not their renewal options, okay got it okay.
Just on the Cambridge site that.
That is that site.
The 12 million square feet of density that's currently a 100% owned by the right.
Yes. It is.
Okay and do you have intention to bring in partners. Now later like how are you thinking about that thought process.
Okay.
We we don't know yet I mean, we've been approached.
By a few.
Capable.
Developers.
So we will see theres enough to go around or probably be I mean.
Probably will make sense.
Some partners and.
Parts of it but obviously, yes.
Yes, I mean, we want to do.
What's best for the read first and foremost the and obviously considering everything else that's going on we'll be able to use Cambridge among other things to balance that.
You know everything overall poultry wise.
But yes huge project.
No.
I imagine there will be a few here.
Hurting phases of that.
About one with with with.
Partnerships.
Okay and.
Do you have any sense of like way.
You know density is are trading.
On a per buildable square foot basis in the market in that market I mean, we do but we're not we're not kind of there yet in terms of being.
Being sort of able to pinpoint what this is all.
So.
Exactly worth, but I mean, yes, I mean, there's no question, there's a move to.
There's already meal growth and momentum.
I know itself in the Tri City area there, but this is obviously is strategically located player.
Rezoning by the way it is so good spot spot.
But these owned it is official it is the actual law.
No.
But anyway designated.
There is lot of the.
So yeah I mean, you know it is a great time.
It was a great property for what's going on just in or on the greater.
Sure.
Putting a number on it like you could just take the density.
Being put on.
The range of value and you'll get a pretty good you don't get a pretty big range, but you will see this order of magnitude.
But we haven't put one on.
We haven't put one on yet.
There.
Good market so.
No it's not we're not loading.
Thought.
It's about northern.
Manitoba or something it's.
So it's.
DTA and good timing.
Okay and.
Apart from the fact that its strategic.
As you look at on the highways is there any intention to have further transit built in or around there. So it was obviously a big part of the story with BMC too.
Well as you know I mean transit.
Like go.
Expansions.
Across the north shore.
Sure.
Priority as a priority.
Okay of the province in the various regions. So I mean, we I.
I mean, we do anticipate.
There will be this will probably partly.
Potentially.
[music].
Okay.
Some potential.
Mass transit initiatives to this specific site, but in the meantime.
It is literally on the highway Lucky you can you drive by the site and you are looking at it for.
Whatever numerous.
On the highway you're looking at it for numerous seconds.
Yeah.
So.
So it's very easy to get to go transit in the various.
So five districts.
At the moment.
And we do have the off ramp now just like on the highway bill would be off ramp coming off before one flow slick glide.
Right into the middle of this property and by the way it's good shopping center in the meantime.
It's just a huge hit.
And.
Overtime its ideal to do.
Phase this mix you're seeing.
But.
Yeah. So.
Pure features but no I don't know of specific mass transit.
Imminently being.
Bill to be built right to our doorstep, but these.
These things are changing right now rapidly.
Yes.
Okay.
And then Peter you had mentioned subsequent condo closing so we'll have trying.
The city three closing in 2021.
It would be the next of the condo or for sale projects expected to close after that.
Likely live on northwest Townhome project.
We'll have closings in 22.
The sale of those count noses are expected to be so a sales program started in February.
This upcoming February and construction start shortly thereafter, so closings and 22.
And then transit city, four and five year after that.
Okay.
Okay. That's perfect. Thanks, very much gentlemen, I appreciate it.
All right, we don't have any other questions in the queue at this point, but just to remind everyone. If you want to ask a question. Please press zero one.
All right. So when we have a few people queuing up next question comes from Janney mouth from BMO capital markets. Please go ahead.
Oh your phone maybe on mute.
Third Jenny.
Thanks for that good afternoon, everyone.
Questions probably for for Peter Sweetie, but wanted to ask what is the the line item that is the sale tax related to see crown looks like you had about one and a half million dollars every quarter for the past couple of quarters.
All that is Jenny is it's the HST.
That.
Is.
Would have been in the top line would have been included in the topline there as a receivable balance net an amount that was charged pursuant to the rent roll.
That would be coming back.
Given the existence of both Sacroc and the rates 25.
8% share that re had to in this case for give all that is.
Okay.
And then it looks like there was the previously capitalized DNA.
Taken in this quarter that was coming from PC, one and two just wondering if that was all charged in Q3 related to these projects because of the.
Closing, starting or if they're going to be pro rated into Q4 as well.
It actually.
And then.
Jenny I'm going to I mean, maybe make a comment on what I would call sort of odd accounting that.
DNA was actually capitalize that relates to period.
Its prior to now.
And it's it's cost that really I think of as project costs, but I guess under the current under accounting rules.
We show it that way.
So there will be some more in the fourth quarter related to the the units that are closing in the fourth quarter of the same.
The same nature.
Okay. Thanks, and then it's actually DNA from a prior from a prior quarter that would scare for prior year actually that was would have been capitalized yeah. Yeah. No I I got that part I was just wondering if it's being recognized sort of all at one sort of as an event in Q3 because of probably the commencement or if it gets spread out.
Proportional there'll be there will be an equivalent amount.
In the fourth quarter, as well and that okay, and thats to Doug and that sort of factored into when we talk about we're going to have $20 million worth of profit in the fourth quarter.
That would be netted off when in arriving at that number.
Right right, so that would be something that.
Basically accompanies any future condo closings as well just as an accounting accounting item I guess.
Okay great.
Okay that is all for me. Thank you.
All right next we have a question from Sam Damiani from TD Securities. Please go ahead.
Thanks, very much and good afternoon, everyone.
Yes.
First off just wanted to touch on on occupancy Rudy was very encouraging to hear your commentary.
So and I think in the last quarterly call, we were giving guidance for between 100 to 150 basis points of.
Occupancy declined in the.
The latter half of the year and I guess in Q3. There was there was 80 basis points, including transfers of vacant properties under development would you say that.
For Q4, you will probably be toward the better end of that range.
Close to another 70 basis points of decline in Q4.
Yeah.
Better better better, meaning lower lower vacancy.
Vacancy, yes, the the activity we've seen.
In the end of the quarter like in the month of September and certainly in October this quarter, now where we're already into halfway through.
It will it would lead.
To believe exactly that Sam that.
There is a lot of tenants wanting to do wanting to this.
The space now it may be that we will end up executing the deals they may not be in place for Christmas shopping obviously, because there's a lot of fit out and work to do to get tenants Act operational but.
But in terms of commitments I would say so yes that.
With committed deals that we should be.
On the lower end of that range.
Okay. That's helpful. Thank you and percentage rent from the outlets that's been that's been a headwind for the last couple of quarters is there in anticipation of that substantially rebounding.
The short term.
No I guess.
I'll comment that we're not sure I guess that things are traffic is certainly picking up every month at the outlet centers both material and here.
And so we would expect in the fourth quarter that percentage rent.
Would would pick up but we don't know.
Yes.
Things are things are crowded sales have picked up for sure in the third quarter.
But we don't I don't have any read on that yet for the fourth quarter.
And we really know knowing that they report Simon that is because they managed the property.
They report a sort of a month later and as you know a large part of their search of the shopping is in the last two to three months of the year for the Christmas holidays traffic is significantly up.
For the people that are going there. They are saying that there is a lot of traffic in the centers, but we can't we don't have a handle on sales yet.
Yes, when it when it when they were when they reopened after the.
If I May June.
There was a lot of activity in the centers and people were saying that the sales were almost back to two pre pandemic and that might have been just a rush out to do a lot of.
Shopping before people thought kids were going to go back to school and so on.
Yet, but now with all the schooling.
Being split a little bit home and at school.
It's leveled off and now with the Christmas season that Thanksgiving shopping was really good.
We won't have a good handle on that until December for the month of November but.
But but traffic is high end.
And.
One and it is a lonely be limited by what the government mandates in terms of social distancing.
Okay. Thank you and my last question is on Cambridge, well that was a.
Significant achievement.
There was a with the M. zero.
How soon would the first phase of that be undercut.
That's a reduction and secondly, when we think of Cambridge.
I don't think apart from maybe one or two buildings you too much existing stock is above the five storey level.
What gives you the visibility for the demand for for that kind of living in that location and.
So I guess are there other similar zonings comp.
Coming or already in place for competing properties nearby.
Well first of all we could have had this conversation.
Gerberding Bowen.
How about the heightened by the way it's just around this.
Great I mean.
You can get a rather perdomo everything go to potential partners Boeing even.
So I'm sure first I mean, so yes, I mean, the way things chromium change.
There is great opportunities in these type of markets.
Yes.
Okay.
Taking the initiative in your markets by Cambridge, but.
Hi, you know we all we go I mean, we will.
Figurative.
But.
No it will be higher than what you what you were referring to.
And.
I mean, these kind of changes to begin.
Other changes.
Im not sure Theres anyone mix I know next door or they've converted.
And the reason why I'm from.
No on rose two rows and Theyre doing town houses our first phase I mean really hopefully will start sometime in the next year.
Sure.
Yep.
Plus or minus I mean, the margin of error getting started.
Is pretty high.
Robin just because there's always servicing and things related to that but.
Remind us.
It's very near term.
Well, probably start with some lower stuff.
Initially.
Maybe even turnover is actually.
We'll always sprint will be pursued developments we have.
Different forms.
You'll see us I don't know what we've talked about I was hoping you know.
Things no spin in London.
Our kids that are a little bit.
Hi.
Okay.
I mean overlook timber pushed demand there is reasons why there's things going on in Cambridge.
Cambridge is more.
Adrenalin them.
And those two but for all kinds of reasons, but but even like some of those markets took a lot of potential you know, where we are doing and Barry.
As well.
So, yes, theres going to be a lot of changes, but somebody's got to initiate the changes.
And some of these cases will be us.
Okay. So I mean, the markets out there, we're not going to do it I mean, we've got to.
Got a sustainable run collecting shopping center.
I mean.
That's great. Congratulations again on it then I'll turn it back.
All right and we don't.
Seem to have any other questions.
Yes, we do actually.
We have dean a.
Wilkinson from.
Okay.
CIBC World markets, just chewed up go ahead.
Thanks.
Just on the rather large amount of money that Walmart its spending across their store network.
What are they doing that work independent of you have they asked for any capital contribution.
And you get that that sort of come back and former branch right yeah.
They they're doing it independent of us, meaning, but we're obviously involved were we know about it.
Being the owner of the shopping center in the store, but there they are doing their own work inside there.
Where we do end up doing some things outside in terms of we just coordinate other work we might be doing in the shopping center in any event like parking lot.
And restraining and paving if necessary but.
And so the and then the answer is no. They have not asked us to contribute at all to to what they're doing okay.
Okay great.
And just turning to the balance sheet, you've got still.
Still still carrying that elevated level of cash.
How I mean is it as simple as you know we're post pandemic someone's come up with a magic fewer Pfizer whoever that you start looking at utilizing that sort of 420.
$5 million or or do you want to keep that on their end market for development capital.
It's good question Deane.
I think I mentioned, we've got some debentures maturing in December that will require $250 million of that 400 plus million that's on the balance sheet.
So that will put a large dent into that cash balance ended.
In addition over the next six months I think we've got mentioned 70 or so million dollars of mortgages that are maturing that we would intend to repay in full and again, we would intend to use that cash for those purposes. I think the other question you know that.
So you might ask is.
How do we see the future and the reality is we don't it's almost impossible to predict with any level of precision or Ics.
Extreme.
Visibility and so similar to what we did back in early June where we were uncertain as to what the future might hold given.
No the pandemic and everything associated with it and certainly given how the first three or so months of the pandemic period gone.
Our board strongly encouraged us to.
Players sake and go into the market to raise capital in advance of those liquidity requirements coming down the pipe.
And so we've got sufficient as we know some sufficient liquidity currently but we do have a large series of debentures maturing in June of next year for $350 million.
I mentioned, you mentioned capital for development, we are trying to ensure that before we commence.
And development initiative of at least of consequence that we do have.
A specific project financing facility in place to accommodate the needs of those respective projects and so they will be funded by traditional project financing.
But again, we're still continuing to play it safe and yet.
It is perhaps somewhat diluted at least temporarily to unit holders, but again it ensures that we're not exposed in the event that the markets were to close as frankly, they did in the early part of this pandemic period. So.
That I think would be our.
Preferred.
Add strategy at least in the more immediate future.
Yes ill make sense on the belt and suspenders is probably still the order of the day and I suppose to the extent that we it's going to be cash out debt off.
Mathematically to leverage looks the same but your coverage ratios should improve.
Okay.
Yep.
Yes, okay.
Yeah, that's it.
I'm, probably the last question. So thanks guys.
Thanks Deane.
Okay.
All right yes.
Yes, Dean wants correct. He was the last question in the queue at this time.
Okay.
Well in that case, we'll just say thank you.
Thanks for taking the time to participate in our third quarter 2020 call and please stay safe everybody.
Good afternoon.
Ladies and gentlemen, this concludes the smart sensors, a read Q3 2020 conference call. Thank you for your participation.
Again and have a nice day.