Q1 2021 SmartCentres Real Estate Investment Trust Earnings Call
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Good day, ladies and gentlemen, and welcome to the smart centers of the REIT Q1, 2021 conference call.
I would like to introduce Peter for please go ahead.
Good afternoon, I am Peter Ford, President and CEO. Thank you for joining us this afternoon.
Joining me on the call today are Mitchell Goldberg and executive Chairman, Peter Sweeney, Chief Financial Officer Rudy.
Judy Gobin E V P of portfolio management, and investment and moral Pamby Yankee Chief Development Officer.
The call will begin with my comments by Mitch.
<unk> and myself, followed by Peter Sweeney, who will talk about our results for the quarter.
Including <unk> for S valuation and liquidity and our financial metrics.
We will then be pleased to take your questions.
Our comments will mostly referred to the outlook and mixed use development initiatives sections of our MD&A, which are posted on our website.
I refer you specifically for the cautionary language and.
Pages, three and four of the MD&A.
Cereal, which also applies to comment any of the speakers may make this afternoon.
Today, we will provide you with the highlights of the quarter update you on our development applications and major projects and that's what.
All of this provides some insight on tenant and operational initiatives.
The focus remains squarely on our tenants and operating our existing shopping centers.
Well simultaneously, creating value through real estate development.
This mixed use development process and the significant value of it creates.
It takes time and the specific to each one of our significant number of development projects underway.
For which you mentioned and I will provide you some highlights shortly.
We remain on course with each of these projects as well as the remaining on strategy with the portfolio.
Within the context of real estate development. This strategy is moving us for it nicely with the rewards from the city, one and two smart V M C condo clothing.
Last year, which generated $45 million and F F O and the clothing I'm trying to the city three this year, which will generate a further $20 million of F. F O.
The pandemic period has been unusual for all of us with the initial shutdown the restart of the second and third waves of shutdowns across the country.
This impacted every one of us personally.
And from a business perspective to varying degrees.
The pandemic added some challenges for us and the short term.
But we remain firmly focused on our long term strategy of growing our mixed use development.
Initially the pandemic required our attention and.
And the assisting all of our tenants and various ways and.
And we continue to do so even now.
Keeping our shopping centers.
Operating so as to effectively serve their communities.
With more than 60 per cent of our tenants are considered essential services.
And with food and pharmacy retailers and every one of our centers.
Everyone, who worked incredibly hard to maintain a safe operating environment for tenants and customers alike.
But every tenant and needed attention and our organization stepped it up.
Working as one finding individual solutions for many circumstances and tenants needing assistance.
For this and both grateful.
And humbled by the strength and Oh pouring of ideas from our team.
Our attention remains on assisting our retailers and getting back to opening their stores and operating at full capacity once the lockdowns of liquid are lifted.
In addition to assisting our value of tenants.
We're proud to have offered our centers to all levels of government and public health authorities.
The play a role and reducing the impact of the pandemic.
Initially we offered over 1 million square feet of our properties for COVID-19 testing and P. P E storage.
And had several institutions accept the offer.
More recently, we have been contacted by government agencies requiring of vaccination centers.
Which we have offered at no cost.
And for which many.
And have taken us up on the offer and I'm proud to say, we have over 250000 square feet.
And being utilized today.
For the vaccine centers or other COVID-19 related uses.
And with that I'll pass it over to Mitch.
Thank you Peter.
And thank you all for joining us today.
As most of you know we started with the vision some three decades ago to build retail centers with Walmart as an anchor.
Staying attentive to every detailed step.
Just as we do today with our mixed use and plans.
This includes building a strong dedicated team with an operating company around it.
Our entrepreneurial mindset and culture makes us unique first and foremost and land development as well as operating.
Large shopping center portfolio and platform.
Our core competencies and land development and make us very proficient and driving profitability through intensifying and repositioning many of our strategically located properties.
[noise] almost all of which.
We know very well, because we develop them and the first place.
We didn't buy these properties is finished.
As managers of our asset managers for them and for that matter or for that mentality.
[noise] weird of culture.
[noise] of change.
And we are always focused on change.
And we have the and whose capabilities of executing well.
And that change.
These great shopping centers with a strong tenant base and cash flows.
Outstanding access to and near highways and transit and most importantly.
Most importantly, and I have a phone call here of itch.
I'm sorry.
And most of the Bali in the midst of growing populations, particularly now.
Providing a solid foundation.
For the development of.
The higher and better and better residential and other uses.
Some investors.
And the analysts.
We're just beginning.
To acknowledge this.
And seeing the planning applications and physical development and that is now underway and so many of our centers driving significant value.
Which is.
Also growing and us.
Also here to stay.
This.
Prolonged and challenging time has been difficult.
But we've learned a lot.
We have learned about the strength of our portfolio.
We've learned about the strength of our people.
And it has been particularly and peculiarity.
Productive as well.
Yeah.
Over the course.
Of the last year, we have where we have we went on the offensive accelerating the process of obtaining rezoning and site plan approvals.
It is through these approvals land use changes.
And we were able to drive value and our properties.
And our NAV.
The last thing relationships, we are for us over the last 30 years with Canadian mist and municipalities through the development of the initial development of our properties.
As well as governments general openness now to moving on and Testification.
Just the it's just beginning to pay off.
On pages.
21 to 23 of our MD&A.
There's a growing list of examples of the act of residential and other development applications made.
And rezoning of achieved recently by our in House development teams.
When you look at this as closely you will notice.
And matter of residential along with the variety of other new and exciting initiatives, creating significant value not recognized and are.
The offer and our I FRS balance sheet values to date.
The list on these three pages encompasses and excess of 42 million square feet of net additional density mostly built on undeveloped land within our centers.
And a very limited amount of replacing existing for retail.
It makes for a dynamic vibrant and welcoming and mixed use center.
For some of the highlights.
Our rezoning application of the rezoning application of the made.
And just this quarter for several projects, including Pickering.
Linked and east West side on Eglinton.
At Chelidonium, Richmond Hill, Aurora with the and.
And London, that's this quarter.
Many of the future phases of the V. M C R. Our lands and Laval Center, and Quebec, and our Master plan.
For the many of for many of our projects.
Our not included by the way.
And that 42 million square feet, we talk about.
The several seniors residences, we are working on with our partner Rivera are also reflected and our NAV recently, we obtained zoning approval for for residential towers.
Berry's waterfront for 25 story.
And so each.
And mirabelle, Quebec North of the Montreal, we obtained the residential zoning last quarter to add 4000.
Residential units on a 50 acre site adjacent to our outlet center.
And theres residential all around us.
This is a site where for recently doubled down and bought the interest from our partner of raising our interest from 33% to 66% after acquiring simons interest and the property.
The first phase.
And will be developed and it would be about 170 the apartment units.
Sometime in the next 10 months or so from now.
Yeah.
This quarter, we closed with the Canadian tire Hunter and 80 acre parcel of long Young Street.
And Jason to our Aurora retail center up and really drive.
Supported by the municipality, we intend to undertake.
A mid rise residential development.
And finally, we.
We obtained board approval this quarter to move forward with a 26 storey residential tower and our Stoney Creek project.
Just across from for these Kate.
And the acquisition of a Sidelong Jane Street and tried to build.
137000 square foot, new smart stuff and 126000 square foot starts of the smartest time will now be built at Hamilton and center site.
Now, let's talk a little bit about 57, new day.
Development of initiatives already under construction or about to commence construction has summarized on page 19 of the M D and E.
For the last several years for you pointed out.
What we say we have pointed out.
To the community of the investment community that it is part of our culture.
To deliver on what we say we will deliver.
This was true for the first two towers and smart B M C, where we delivered what is.
Oh, what we promised which is 100% occupied.
Office tower with strong tenants.
And a downtown Toronto quality.
And office tower, and we delivered it under budget for.
Office tower to be completed in the emerging volume of Metropolitan said won the award of excellence.
As volumes urban side of the word and.
Because urban design of word.
Now for some specific project highlights the transit Citi trends of city three is nearing completion.
With the scheduled closing and.
And closing in over the next two quarters contributing approximately $20 million and F. O to go along with the 45 million dollar generated $45 million generated from last share from T. C. One and two as Peter mentioned earlier.
What we have not yet where we have not mentioned to date about.
Those two.
Events.
Is the that is based on our 25% interest.
Going forward.
So the other than transit city for and five.
And the REIT will most likely at a significantly higher percentage of its core.
Condo developments and other developments at the B M C.
Speaking of which ends its 84 and five of 1026 units are sold out or all of those construction 20 per cent deposits are in place from the purchasers and.
And we are nicely set up for more of this recurring flow of condominium cash flow from projects.
Smart P. M. C purpose built residential rental for 151 units under construction continues to be the gross well.
And it continues to progress well out of the ground go have a look.
Better yet rented an apartment.
It's the only new rental apartment in volume.
And by the way, we we own 50 per cent of that.
Smart V M C. The new 145000 square foot Walmart store, which opened late last year, an applewood and.
Allowed for the closing of the existing store.
On the Smart P. M C site and freed up valuable land for residential density. We now held we have now held our statutory public hearing and presented our residential proposal to the design review committee for that property.
More importantly, we are now and for site plan approval.
Yeah.
For the first phase of this 4 million square foot intensification block.
Two of developed 627 residential units and for towers and at varying Heights, which we expect to bring to market potentially later this year.
Self storage and addition, too.
The acquired Dupont project and the free recently constructed properties. There are two others under construction of the offshore itself and Scarborough East and six out of theirs and the process of obtaining municipal approvals totaling.
Nearly 1 million square feet of new development.
With regard to of seniors Reds and so let me again remind you that we are not in the government funded long term care for facilities business instead with our two partners we are developing seniors apartments.
With tailored amenities.
Six of them sort of error and two with groups of the electrical.
And lastly, we are about to commence 174 unit rental building along with a 228 unit retirement residents at the Laurentian place in Ottawa.
Keep in mind, a few general reminders of put our mixed use development pipeline and capabilities. Most of the the development initiatives. We are planning are on land, we already own and have owned for many years.
Unlocking value supplemented by selective acquisitions adjacent to our properties such as our recent acquisition and Aurora.
For residential development, and Jane Street, and Toronto for the smart stuff with our partner.
We use our fully integrated in house development team to drive these initiatives and we know our markets the municipalities and every detail about our properties. We have developed in headfirst conditions before and will continue to drive value.
For the long term.
As an important reminder, our current I have for S value does not reflect our as of right residential densities or our potential densities and resuming completion.
After after hearing all of this and reading the development initiatives and our MD&A you can see that the pandemic did not slow our engines to the contrary, we accelerated our transition to a more diversified REIT by moving approvals forward, which as stated earlier is where the significant value is created.
And while the unit price has been recovering a bit of late it is clear that our current price is still not reflecting the value.
Of the significant development potential.
Take care of a large.
73 acre property and Cambridge.
Ontario and for example.
Which is included in the eye for a value of book at $92 million and is now.
With the recently issued minutes the disorder.
Hmm.
We were able to we're currently approved in zone four.
12 million square feet of mixed use.
Yeah.
If you were to.
And put even $30 per square foot.
You would you.
You you you would.
Conservatively b and the free to $400 million range of value of the property with the zoning.
It is currently on our books for 92 million.
That's the prudent managers.
Not only are projects, but also of our balance sheet is especially important to note that we will only move forward with cabinet of the capital intensive construction issues as market conditions warrant sufficient pre sales occur in the case of condos and the only when financing is fully available and in place.
Additionally, let me point out some of our capital cycling initiatives.
We have undertaken nearly $100 million and strategic conditional.
Deal so far.
In 2021.
And average slow of five caps.
Yeah.
The assets are non core and the per.
<unk> will help fund.
Future development of our mixed use initiatives.
Now I will turn it back and can.
Turn it over to Rudy coping.
Thanks Mitch.
As Peter mentioned earlier, the pandemic continued.
The effect our operating results through the first quarter of this year, albeit to a lesser extent the last year.
Our operating shopping center portfolio remained.
And its strong 97, 3% leased.
As of March 31st and remains focused on essential services and value oriented retail.
It is well suited for these turbulent conditions as evidenced by the following.
One.
The 60 per cent of our reach tenant base is comprised of essential services.
What may be less known is that this increase is the 70 per cent for the markets outside the greater victim area, where our occupancy is very close to 100% if not 100 per cent.
And the smaller markets our shopping centers are often the essential service hub of the area.
And all and our and.
And all cases anchored by Walmart Supercenter.
With the pandemic and the Lockdowns early indicators are that the demand for housing and therefore shopping and the somewhat smaller markets is increasing.
People consider leaving the urban areas for the suburbs.
This is good for our shopping centers and further enhances the opportunity to intensify and our existing land in those markets.
And number two our tenants are quickly adopting by expanding their e-commerce.
Product lines delivery model.
Pick up capabilities space utilization, all while striving to maintain customer loyalty and sales.
Three Walmart, which anchors and 75 per cent of our properties and represents over 25% of our rental income along with our family of value oriented tenants are well suited to serving its community even during this pandemic.
And we highlighted previously Walmart plans to spend $3 $5 billion over the next five years to make the online and in store shopping center experience simpler.
Foster and more convenient.
This continued commitment to its retail operations and Canada speaks to the ongoing strength of the Walmart and its growing ability to drive traffic to our centers.
We are fortunate to have opened last quarter, and Vaughn and new Walmart prototype store as part of the Smart D. M. C store relocation and the first of its kind and Canada, which include a 10000 square foot E Commerce, Omni channel fulfillment center and the drive through and pick up a facility.
It will fulfill as many of eight times the online orders of.
And average Walmart store.
For virtually all of our revenues from shopping centers are from the open format outdoor centers, providing a safe and comfortable environment for customers.
Practice physical distancing was shopping for their everyday needs.
Five for Q1 of the completed near the 157000 square feet of new leasing even in these challenging times, which helped and maintaining our 97, 3% leadership position carried forward from the last quarter.
And six of that being said the day, we every new and you will.
Experienced for Q1.
The relatively flat at the 0.2% with $2 7 million square feet of renewing.
And what's not unexpected given the current environment, but beginning to improve as existing and new retailers begin to see opportunities to expand their offering and different markets as populations and begin to shift.
We recognize the importance of small and independent retailers to the Canadian economy.
Our rent relief program and focus to date has been on supporting these non essential small tenants.
Representing approximately 6% of our contracted rent.
And you know and 2020, the federal and provincial governments put in place the Canada emergency commercial rental the assistant program.
Otherwise known as background to assist tenants and we participated providing relief to over 700 of our small and independent and tenants.
While the federal program ended in September It was replaced by the Canada Emergency rent subsidy program, which is assisting tenants directly those who are qualified.
Many tenants are still suffering and with the continued shut down and we are assisting where we can and prioritizing those most in need.
Last year, there were announcements of several tenant restructurings during the COVID-19 period, either through Cc double a or bankruptcy filings major name names as you know such as Morris Co Mart sale.
And all of the.
Collectively and perhaps fortunately less and a third of the stores of these tenants actually closed in our portfolio.
The meeting about 415000 square feet or one 6% of gross revenues.
The remaining two thirds or 128 of the stores with the same tenants have continued to operate.
For the most part of these tenants have expressed their strong interest and remaining and our Wal Mart anchored centers.
Now with the 415000 of 145000 square feet with two sale units.
It's all of the coal near share away gardens, and and Vaughn and.
And our 407 redevelopment sites.
We have now conducted site visits with interested retailers for both locations and have received an LOI for one and which we are evaluating.
Ultimately the higher value use it.
It's the convert to residential or other mixed use overtime as we obtain appropriate municipal permissions, but we will continue to maximize cash flow and the interim with strong tenants wanting a presence and the market.
For the remaining 270000 square feet of vacancy from the balance of the COVID-19 related bankruptcies, we will continue our routine work of filling up all of those with the best fit tenants for each center.
In addition, due to the Reis the growing resiliency of our remaining small tenants.
And there have been no further filings and 2021 affecting our portfolio.
I show and in our M D and a cash recoveries from our tenants continued to improve for the first quarter. We recovered the full 94 per cent of tenants rents and improvement over the prior quarter and showing signs of continuing to improve.
And to avoid any confusion the gross billings used index calculations are based on rent growth, excluding that close during and through the <unk>.
Regardless, our same property metrics did reflect the negative three 7% over the prior period, largely due to the lower renewal rates quarterly and the slightly higher vacancy.
Albeit we maintained our 97 three per cent.
As we close the prior year.
And with that I will now turn it over to Peter Sweeney.
Thanks, very much Rudy and good afternoon, everyone.
We have encouraged the capital markets to focus on our commitment to the smart centers balance sheet.
Alright, and you're yielding focus on conservative capital management.
The discipline and the deployment of capital on developments and acquisitions.
And our continued desire to match gearing and similar debt levels to the long term nature of our assets.
The strategic focus on long term viability and growth.
Continue to allow us to manage through this period of uncertainty.
In this regard we note the following highlights for the first quarter of 2021 as compared to the comparable quarter in 2020.
Number one.
In keeping with our strategy to repay maturing mortgages and to grow our unencumbered pool of assets.
Unsecured debt in relation to total debt increased to 69%.
From 66%.
And our unencumbered pool of assets continued to grow incur.
Increasing by approximately $263 million to $5.9 billion.
And as we maintain our strategy to continue to repay maturing mortgages. We expect these metrics to further improve.
And the future.
Secondly.
Our triple the high credit rating from D. The R. S. Morningstar permits us to continue to attract the debt capital at the low interest rates for longer terms.
And in keeping with our strategy to take advantage of lower interest rate environment.
And to our refinancing activity over the last 12 months.
Our weighted average interest rate for all of that continued to decrease and as at March 31 of 2021 was $3 two 6% as compared to $3 four 1% for the prior year.
This 15 basis point reduction is expected to yield approximately $7 million and savings and annual interest costs.
And our weighted average term of debt was five one years as compared to for eight years last year.
And lastly number of three.
Our interest coverage ratio net of capitalized interest was a very strong three six times multiple.
This in spite of the impact that COVID-19 has had on our operating results over the last 12 months and.
And it further confirms the foundational strength of our core business.
In addition, our adjusted debt to adjusted EBITDA multiple was $8 six times once again, reflecting the business is strong and very stable the ability to fund its obligations.
Even during these most of uncertain times.
From a liquidity perspective, as we look to the immediate future and continue to manage through the current uncertain capital markets environment in.
In addition to the conservative debt levels noted earlier.
Please also consider that at the end of the quarter, our liquidity position exceeded $1 $1 billion.
Which is represented by approximately $400 million and cash.
Our Undrawn line of credit, which stands at $490 million and our $250 million available accordion feature.
Note. Please that $323 million of this cash is earmarked to repay our series T debentures that mature in June of 2021.
And the balance.
And is expected to be used to fund costs associated with our development pipeline.
Note also that we continue to deploy a strategy that permits construction of any large development project to begin and when it has appropriate project financing in place.
To ensure project completion of our various development initiatives and we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments.
All of which are expected to begin construction. This year and these include a large retirement home project and Ottawa several apartment building projects in Ontario, and Quebec.
And lastly, a large townhome project and Vaughan, Ontario.
Our liquidity position was further strengthened in 2020 with total proceeds in excess of $53 million.
Being received from the closing of over 1100 units and the first two phases of our transit City project.
Similarly in 2020, one we expect to receive approximately $25 million and total proceeds from the closing of the 631 pre sold units and the third transit and city fate.
The cash flow generated from these closings further fortify our liquidity position and supports our distribution strategy.
As Mitch mentioned earlier, what is important to remember.
Is that the contribution levels experienced in 2020, and those expected in 2020, one represent only a 25% interest.
And these respective transit city phases.
As we plan for the imminent launch of our next phases of residential development at smart BMC and elsewhere.
It is our expectation that smart center ownership share in these projects will be substantially higher.
Please also remember that we expect this recurrence of F F O and cash flow from the closings of condominium townhome developments to continue for many years to come.
Notwithstanding the challenges associated with COVID-19, as we have seen since the third quarter of 2020 of.
And our collection levels continued to show improvement.
Also during the first quarter, our provision for bad debts were significantly reduced from our experience in 2020.
In this regard our expected credit loss provisions and the first quarter totaled $2 $3 million as compared to approximately $30 million and ECL provisions that were taken for the nine months ended December 31 of 2020.
From a valuation perspective, the stability that we experienced in both the third and fourth quarters of 2000, and 'twenty continued into the first quarter with cap rates discount rates and other modeling variables remaining substantive lease status quo and resulting values.
Remaining relatively stable for our portfolio of investment properties.
After the evaluation of erosion that was experienced during the first and second quarters of 2020, which was primarily reflective of additional vacant space and the additional time expected to backfill such space and the portfolio much of which resulted from the COVID-19 experience.
This first quarter's experience is directionally important.
'cause it further confirms that the market continues to stabilize which should further improve our credit metrics into the future.
As we have said many times in the past it is important to remember that we have not factored into our eye for S values.
And he value that of crews from future development of mixed use space and as Mitch pointed out earlier these future value increments that are expected to be derived from our proposed mixed use the initiatives are expected to have a meaningful impact.
And the growth of both F F O and net asset value.
And with that I will now turn it back to Mr. Ford.
Thanks Peter.
So as you can tell.
The organization remains focused on.
And mixed use intensification well.
And while it's taking care of our tenants and properties.
With $45 million of profit last year from T. C. You want into we are now expecting a further $20 million.
This year from T C three and Vaughan.
We have and improving rent collection picture and payout ratio.
And we're delivering on the 57.
Construction projects underway with more to follow.
We are maintaining and improving a leading occupancy level of 97, 3% throughout the year.
And prudent and strategic acquisitions and with established partners as the.
Well as targeted capital recycling.
And a strong focus on cash flow management, and our balance sheet further enhancing our ability to fund all future capital requirements.
And with that well.
Now I'll turn it back to the operator to coordinate us and addressing your questions.
Of course, so just to remind everyone to ask a question. Please press the zero one.
And we do have a few questions queued up first question comes from Sam Damiani from TD Securities. Please go ahead.
Thanks, and just to just a quick one for me and then I'll turn it back is the.
Some of the NOI of decline in the quarter was due to the decline in GLA as properties are transferred into Pud.
Could you just tell us for the rest of 2021 of you expect for.
Further GLA of any consequence to the to be transferred into Pud.
Yeah.
Yeah, I don't know Rudy or Peter.
Yeah, the the the decline and the same property. Sam is is you know it is a result of.
Much more than that it was the result of a lower occupancy general occupancy because they were of bankruptcies that I mentioned earlier.
And it's a result of the lower rents from some of the remaining tenants who are renewing and you saw the renewal you saw the renewal rate being fairly flat given the the condition of the markets with some tenants who are again, the non essential tenants and then very very small portion of that would've been redevelopment and for.
For the balance of the year, we don't see much in terms of that because again, we have no.
And no sight of any bankruptcies or filings and and as such I think you may see the opposite you may see some stuff come out of redevelopment and once we have identified the the use the alternate use for the for such space. So not much expected for the balance of the year.
And.
Okay, Thanks, and I'll turn it back.
Okay.
Alright does that answer the question Sam.
Yes, so I'll turn it back for others to ask questions.
Next question comes from Mike and Michael Marquis from day, one of the capital markets. Please go ahead.
Thank you everybody.
For questions on my and I guess, the first one I'm not sure if I heard you correctly and mixed during your comments, but did you mentioned that you had $100 million and index.
The industrial conditional on the deals in terms of strategic sales that were pending and this year.
Yeah.
Okay. Thank you for.
Give us a little bit more color or something.
Of our properties what markets and.
And the price per square foot.
Yeah.
Well.
I'm, Joe first of all I guess I should mentioned.
You mentioned that.
This is something we may have more of them the era.
And probably a fairly regular.
Occurrence and the next day.
The number of yours and that just.
And we're not just a couple of non strategic.
Non core assets, but maybe in some cases, even from some land but.
Those are looking at but I think.
The low fives and does it.
And I believe where we are with put to the cash cap rate.
Yeah, I mean, he's one of the things that are I believe you know just there we're just giving you some visibility on this but.
They're sort of the we're under contract right now.
Yeah.
Okay, and it sounds like Theres not a wholesale.
The bigger larger program and just this is something that perhaps.
More of a recurring yeah. There's a couple of assets that are not are you know, we just don't see the.
They're just the strategic them.
For where we're going.
And they don't have the.
The potential.
For you know.
We don't see the potential for for intensification of repositioning and redevelopment and so you know there's quite a few of those situations where the rate cap rate.
For them.
You know we will so and you know we're not we're not yeah. We're not to just you know sort of blanketing the mercury with the whole bunch of things we're just the.
Selectively we are fine with the centers holding them and managing the but ideally over the next few years will be it will go.
Disposal of this he was the disposal of the non strategic ones.
Okay great.
Second I think you guys sort of emphasize the point that.
Current what's I guess, the future phases of the city kind.
One of the Williams that haven't started yet.
And 5% for should we interpret that to me and that it would just be.
The two partners and you hadn't you wouldn't have a condo developer involved or would it just read of the condo developer would be involved and the other lessors.
I mean, we've built we you know you kind of remember it for these 355 story towers to basically be well. They are done two of them are completely closed one of them started closing yesterday.
We made the deal with Central Court.
And what five years ago.
So in the five years since then and by the way they have been fantastic partners.
Could not ask for better partners.
But during that five years, we you know we we've built our own residential program keeping in mind this hole and.
The initiatives. These initiatives go back six seven years ago, non COVID-19 and everything just gets blurred together.
So in that time, we have built the residential department. We are now and are positioned to develop our own and.
Congress and the residential rental so.
So we're doing that and we're going to do that so and we did the deal with center core we'd be really bought in the you know a cause.
And then Merck of price.
And <unk>.
No we've and.
And the benefits of our share of the profit of 25 per cent. He was still significant but just imagine the back then and we were selling trends of city, one and two at like 700, and something of a foot and maybe 757 and 10 of food trends to the.
Maybe the average one two and three of probably at about seven and 10 of foot.
The market today across the road.
Leave their lost sales or over 1000 doors and foot.
And of course the yeah.
We we are land price of we were not we don't have to acquire the next phase and the next day so yeah.
And just imagine on the M C alone.
And the subsequent phases like true it will be building, most likely without and I would say.
The partner will not just be at 50% ownership for the REIT, but also at a higher per square foot.
So person.
Okay, great. Thank you and last one before I turn it back maybe this one's for you just for me.
And your MD&A, you've got committed and uncommitted retail developments and I think of that total investment costs against the committed and Nanking.
$200 million.
And the carrying value of your property under development and this is just the on.
And the balance sheet.
What country.
For the other guys that's it.
Just curious if you could reconcile that $400 million differential.
And.
Mike.
Thanks for the question unfortunate I just don't have the information in front of me, perhaps I can undertake to get back to you after the call that'd be great.
Okay. Thank you.
Mike I wanted to also clarify something.
To.
The important tangible to your question one is we intend on proceeding with another.
The M C.
The residential.
Phase there.
This year I mean, it's going to market.
So and.
And maybe to maybe to the.
Additional phases and each phase of.
Yeah.
And at least one if not.
The two towers each of them.
And.
And secondly, I just wanted to point out of course, we always real valley.
Evaluate.
For the pros and cons of bringing in the partner so for where some of it.
Had merit of who you might still do that but at the moment.
That's about what it's about it's about how it's looking.
Excellent. Thank you you're talking about.
Alright. Our next question comes from Jenny MA from BMO capital markets. Please go ahead.
Thank you and good afternoon.
I wanted to ask about the the lethal spread and I apologize. If you adjusted for fans question I got cut off I'm not sure I picked that up but it looks like for Q1 of its gone flat and and it was actually marginally and make it and when you exclude the okay.
Can you give us some more color on what's driving that you know it has been.
And sort of.
Slight changes and the restructure of our or pushing out some banks that are in later years and because it looks like there's a pretty good volume of anything would be helpful and all that.
And sort of how to think about that number going forward.
And I guess Rudy share.
Yeah, maybe.
Yep, Oh, hi, Jenny the yeah, the the spread and that's happened in Q1.
<unk> is really a result of.
The I'm Gonna say 10 to 12 Cc double a bankruptcy filings prior year, where in those properties and those tenancies, where they've closed they've closed the one quarter, but the other or the one third and the other two thirds of our three quarter that remained open and the we reduced the rents a little bit because they wanted jesper.
The lead to stay and our Wal Mart anchored center. So when you combine any maturities that are happening and this quarter in this COVID-19 environment and because he got prolonged you combine the two effects of a renewal of renewing tenants and we had a small number of the fashion tenants. None of these by the way with the essential tenants, causing this but the fashion tenants and.
Apparel type tenants.
The struggling through it and asking for rents that in the short term we lowered so I don't think this is an ongoing thing. This is something that you see now and because we are because of 'twenty 'twenty was negotiated by the way sorry, 2021 that was negotiated by the way mostly in the latter parts of 2020, because everybody would give their notice.
And then and then we would negotiate and that's the result of of of the pandemic and the bankruptcies and.
And the maintaining the tenancies that are there and a shorter term rental structure to get them back the full rent after the for after that year. So I think you'll see a good recovery of that but that's that's the cause of it. It's a small number of tenants out of the out of the three almost three and I think it's $2 7 million square feet, we need.
And so far this year.
Okay. So is it fair to say that if you X out those tenants that the rate you've been getting out of renewal would be consistent with that sort of low to mid single digit you've been tracking prior to the pandemic correct correct and we've done that we didn't disclose it that way, but but that's correct. Because again there were there were enough of them that we didn't want to say except for you know these.
But that assumption is accurate.
Okay, and then and then the little growth and you've got I guess kind of the acres.
Would that primarily be more growth.
Our free oriented anchors and the portfolio.
Yeah, it's the grocery it's the grocery it's the it's the biggest bigger guys as well for the entire Lowes you know anyone as you know and our anchor list, which is over 30000 square feet is considered and anchor so it it's all of those yes.
Okay, but the fair to say and sort of non Walmart anchors.
Correct.
Great and could you just remind us just given the discussions about.
The construction cost going up across the board and.
And your developments that are currently and go away could you comment on how much of those costs have been fixed already.
Well everything this.
Under construction and V M C is locked him.
Which is great actually didn't even experience increases we got it and just the early on T C for five.
Four and five of which was great.
Sure.
Yeah, and but any construction.
Anything that we haven't commenced construction on and him and the GTA has thought of being locked in.
But you know the projects for example that are under construction and you know and Quebec.
Or locked in so it's fair to say anything that's under construction right now is locked in.
But I will say that construction prices and the G T for sure our.
And where are the higher there's no doubt about it.
Okay, Great that's helpful and then.
This quarter you guys had maintained your distribution and highlighted that the strength of your balance sheet and also.
Wondering you're thinking sort of longer term about door development funding and it does.
Does it suggest that you're going to maybe push the leverage of a little bit.
The fund that sort of back up and the physicians you mentioned.
And these are do you think of it.
Uh huh.
For the question.
Yeah, where are we prefer to try to maintain our debt levels are where they are.
So the lots of other levers.
We mentioned already the sale of non core assets I'm, obviously, we could bring and some partners.
You know more passive you know partners and to some of the developments of new.
New and profitable experiments.
You know there's other there was other.
Other believers.
The other lever we have is just to not actually.
And for development.
If it's going to move our debt levels and two.
You go into an area that we're not we're not come from really the drivers going to be the level of debt.
Okay, great and and with regards to the distribution like is that is that a lever that you know the pleasure is that something that you're still evaluating at this point or are you pretty committed to maintaining at current level.
Well as you know, it's the monthly decision and.
So and as the board decision. So you know obviously.
We've intimated in the past you know that.
We're.
We're we're comfortable with our distribution based on everything that's going on right at the moment, but of course.
Things can change.
And we'll monitor that so you know obviously, we'll leave the decision to the board of every month.
Okay.
And then my final question is I think I said that the $253 million of expected credit losses, and does that number of bathrooms.
The real decline sequentially, which was nice to see them and that doesn't include any reversals.
Maybe it's bad debts, taking the place money.
Peter.
No I think Jenny it's fair to say that it principally reflects the business's performance in Q1 and.
Patients for collections of remaining amounts outstanding and I think of as I mentioned, it's the demonstrable improvement over the experience of last year and you know we had been trending this way, you'll see and Q2 of last year and I think we provided for about $15 million, one 5 million and.
And Q3, it was closer to 10.
And Q4, it was closer to five and so at least Directionally. The Q1 experience of $2 3 million sort of follows that of that trajectory that and.
And that we've been following through for the almost now of the last 12 months.
Alright, that's the that's definitely nice to see Ah. That's all for me. Thank you and I'll turn it back.
Alright next question comes from Tammy <unk> from RBC capital markets. Please go ahead.
Thanks and Ironwood.
Maybe just sticking with the.
The leasing spreads and I'm just curious how long would those Oh, you mentioned short term rent reductions how long would those be in effect for and then secondly.
Do you have any of these leases perhaps.
Clued rent.
Rent bumps on an annual basis after the initial reduction.
Yeah, and it really answered it but I was just kind of pointed out many of our real negotiations around that.
Also included things to clear the way for.
You know for for development.
Hum.
Well keep the the mine Rudy.
Yep.
With regard anyway.
For the tenants that did come to us and asked that question. During you know when they were maturing there were two categories. The first category are the tenants, who says we're struggling a little bit and we need some help and.
And when they renewed we renew them and that would be for one year term generally and then it would bump back up after the year. Some of them were even shorter term may even the meaning even late last year when the game to the the last part of the year and and and because of the pandemic carried on a you know we would.
And that for a few more months. So generally it it's that some tenants came to us and said of fewer said, we would like to renew but can we renew for a shorter term and.
And we said, we will need flexibility and at least because again and these are the small you know think of the the smaller tenants that the the apparel type tenants and so the combination of the two both of it ended up being short term and both gave the landlord the flexibility to either increase the rent or take control of the space after that initial year.
Yeah got it okay.
And then just maybe coming back of the comments around.
Non strategic assets and disposition and that 100 million that you mentioned are those transactions be relatively in line with your iron for S values the image.
And the low five cap rates just curious on that and also are any of those the Walmart anchored centers.
And you're interested in the eye.
Hum.
Yes in one case.
But you know you'll understand.
Better later on.
Matt.
I guess, Woody I think there probably are in and around.
And for Us there.
They are actually you know you may have one or slightly lower but the collectively there are actually higher than of our F or S values that we currently carry and our books.
In terms of the value that we have contracted.
That's interesting.
Yeah, Yeah got it okay.
And then just lots of the coming back of the other comments I guess about the successful rezoning.
Completed and the quarter.
I'm just curious and you also mentioned sorry of the Cambridge property and what do you think even at a low density value per per available for what that could be worth and just curious can you remind us.
First of all of it was there any gain or markup recorded on the successful results in the quarter and then.
It doesn't appear to be the case, but and then secondly, what is your approach to marking up the assets. Once the successful zoning is achieved.
No I don't we haven't not marked up.
Alright, and you know our properties.
And rezoning.
Including I don't think even the M C.
Reflects you know for.
Oh P secondary plan.
And zoning permissions.
The vacant land there.
M, which is today extremely valuable and it might be worth.
You know who knows what.
112 of the $200 a foot probably if there's.
And I'm, just going off top of my head of it's a bit of theirs.
Tony over six seven more.
Millions of square feet still yet.
To be built at the other than on the and the reach.
Hi, there and.
And I know you'd have to back out the existing.
The existing iron and for us value there, but just the unlock it you know casino and we don't have for that.
I'm not I'm not sure if you could even say I don't know, we could probably say theres virtually no value right at the moment, but we are looking at that we have discussed it and we were contemplating at what point it is appropriate for us to.
You know to adjust for values.
We want to make sure you know and we continue to be conservative.
For taking the long term approach of that but we are discussing that internally.
Okay, and then just to be clear when you when you do let's say.
When you are involved and the transaction, where you see zelle and interest to the co owner honest to say the gas and would you then mark up your share of what you retain yeah, Yeah of course right. Okay.
Thanks, very much of a whole lot of pardon me, it's Peter Sweeney just for clarity, we would only mark up to the extent that you know it represents that portion of of property. So for V. M. C. For example, if it was the single phase with the partner, we would only mark up for that that pro rata share of the entire of M. C. It wouldn't be for the entire.
The entire of EMC space so to speak.
Right.
And in that case, you know you've got maybe for.
Three or four of five acres, that's been used for the five towers.
Four of which are and and.
And six hours for them.
Five of which are in the partnership.
And Theres 50 acres, plus or minus there. So yeah. Each one of those those individual towers have been.
And adjusted the vacant land and all around it is lumpy.
Thanks, very much and I'll turn it back.
Alright, and before we go to the last question in the queue or we currently have in the queue just to remind everyone. If you want to ask a question. Please press the zero one now and the last question and we currently have in the queue comes from Tal Woolley from the National.
Bank of financial please go ahead.
Hi, good afternoon everybody.
Hi.
Todd.
Just wanted to start with the collection rates when do you see those getting back to normal.
Yes.
Well first of all.
Yeah.
I mean, obviously a lot of it's sort of from more or less common sense.
We we normally would have collected 99% plus.
Plus.
And we come up to 94%. So we're talking about five per cent here.
Overall so.
Yeah.
But.
Indications are the things are normalizing in that regard.
And so and getting stronger.
Steadily stronger so I guess it'll be somewhat.
I'll be back to normal when you know and when we are all more or less open keeping in mind that so much of our stuff and.
As essential and so it's really the you know the.
Five 6%.
Of our portfolio, which are smaller retailers that are disproportionally affecting that so really did you want and maybe also.
And some things of that yeah.
Yeah, I would say if you look back of the year as pre pre COVID-19 and then what Mitch said is exactly right. We were between 99 and 99, 7%.
And you know on an $800 million of revenue and in those prior years. We may have had you know $1 million to $2 million.
And all of bad debts and that was it. So you know as soon as this.
Net we're in is over I expect that we will return to that and because of the the tenants that don't make it through won't and the tenants who have adapted through this environment and.
Would've come out stronger as you've seen some of the retailers who are releasing results are doing very well and some and some still have struggled because of the closure. So I expect we go back to the the norm of the pre the pre COVID-19 period.
And have you started to have thoughts about how like let's say, we get past that I can't remember the exact month and serves starts winding down and like if these rates Joan and crew what what are sort of how you're thinking about how you will.
The deal with that issue.
I'm, sorry can you say that again.
I'm, just saying like once we sort of get past say.
And they like the.
Range from the federal run 70 for subsidies starts winding down and if these rates maybe improve a little bit or maybe they don't quite go back to where they were when do you start.
Thinking about.
These tend to like Oh in terms of what to do with some of these tenants who have been lagging let's say non payment.
Oh, I mean, each one really is and individuals but many of its an individual by individual case. If you saw you know the range of tenants like the.
That would be included and what you said I mean, you know each one is going to have its own tailor made.
You know, it's kind of you know.
Solution and you remember we're also developing so and some cases, you know we want and move things tenants round, so there'll be a lot of and things going into that decision but.
And no Rudi do you want to add anything to that.
Yeah, I was going to say to all of the other thing too that's happening simultaneously there will be of I'm going to call that of trail off of the very small proportion of that because everybody is adapting now but there are a large number of tenants that are calling us up and asking for space, which is why the occupancy of stayed so high so when we look at you know the the categories the medical categories. The.
Pet store categories the dollar stores.
The drugstores are calling us up and you know the the the clinics the LCB OS and so on winners home since expansions. There are a lot of tenants that are still expanding their footprint into our centers and that's why we were able to do you know upward of whatever almost 200000 square feet of of of releasing.
Re leasing of space in Q, Jeff and our Q1, so there will be of churn like there is always every quarter.
And unfortunately tenants will adopt and they will get help from governments and us and.
And and and some and some of the struggled through it. So we will just keep introducing new tenants of the portfolio and keep our flexibility and our leases.
Okay.
Capital spending for this year, Peter do you have like a the approximate amount for maintenance and development.
And that you could offer for us.
Yeah.
I mean on the Capex spending for maintenance I don't want to sound glib, but it's not as some standard number.
From the REIT perspective tell when we think about development spending.
And again as Mitch said this this number is variable and it really is a function of when we want to or not start the projects, but at least for now the expectation is for 'twenty one the spend in the area of about $200 million.
And that's on the balance sheet and and the JV.
Yeah, Yeah yeah.
Oh, sorry, when I say, he spent and what I really mean and commit to spending as our share of the projects.
Okay.
Got it.
And then just on.
On the on the development side I am just wondering like where.
And you announced the trends of three fixed you know.
And the launch of that last night, that's going to be in other condo building.
How are you feeling about condos versus purpose built rental right now.
And again that depends on where I mean, but good I mean, there's lots and lots of places the answer would be good.
And there's no there's some places would be on the condo.
And that's sort of interesting.
But it's interesting I'm, usually the most of the places where the condos not particularly.
Necessarily interesting it is interesting from a rental of Roes point of view and you know generally speaking wherever the rent of the condo is viable.
So as the multi res so.
But.
Yeah, I mean, even in places 10 years ago, you wouldn't have thought you know of course.
And you kind of was variable.
There's there's there's interest of lot of our centers are in these communities just outside of core.
And what are now becoming very desirable they were already and we're already desirable just.
The Toronto World doesn't necessarily the brush up against.
The Cambridge is of the world, but we have very strong positions in those places and.
And we've noticed the.
The strong increase in demand for our residential there.
Before we even started the match from the residential development community.
And you could also see some of the other launches and these communities as well. The two you can see some of the strength and some of these and these markets.
Some of them. Some some of these places we'd say there wasn't much of a condo and interesting kind of opportunity you are now looking like for us.
Okay, and I guess my last question.
I think like when I thought about how the development would unfold that smart center thought of it.
And what is going to be really focused on intensifying the existing properties and certainly there is a lot of that going on there also has been however, like some.
The projects that you guys have taken on that have been outside of like I'm thinking about the.
The Berry project with Greenland, and you've got another one in downtown Toronto, I believe with them.
Hum like can you just talk to me a little bit about like why choose why commit to those kind of projects versus.
The stuff, where you're sort of being closer to closer to home on.
As I said earlier, the land developed and all the land you know the best.
Yeah, well you know it's not so much just that we know of Atlanta, the best and just we don't want to pay a market price to our growth is not going to be a you know kind of.
And give us and take the full way I mean, you know, it's just and then and exercise and just exercising.
So and <unk>.
Along with we do no other properties intimately, but we know those markets and to me that I mean, we've been and Barry.
For example, first of all I grew up and the summers and Barry.
And kept and felt bay and.
Secondly, the first Walmart kind of ever opened was and Barry and then we went on to do numerous other developments and Barry I mean, we know that market intimately and so the location of the property in downtown La.
And the waterfront and Barry we know that we were also looking at the senior somewhere around there. So that's an easy natural kind of sort of extension of what we're doing there.
And that's probably true for most markets across the country that are over two five or 10000 people. That's the principal population.
But but you know it's a very you know it's a valid question why would we buy in a market. That's really to me the issue and we won't be doing a lot of it just won't be but those were really fantastic opportunities one Barry the price for us right.
And the property was right and we believe there is going to be very interesting sort of keep an eye on it.
Widening the highway the goes increasing.
It's a matter of you all of the things that are happening with COVID-19.
The Lake.
And it's it's going to be an interesting market for the next 10 years 2010, and 10 years and beyond and then below and that's the other one we bought in the market and and so it was an opportunity of the Greenwood head of unique to them to buy it from partners and they go back 50 years.
And the right. After so many I can't remember how many decades, the coldest and so do we want it or otherwise it would have gone to the market and the true to who knows what it would've gone for it but we thought it was a unique opportunity. So there was in the sort of stories behind those two but and there's a million and things of course that and we say no to them. So we are very very much of it.
And so it was we were very much sticking to our.
And so our knitting what you are.
And so you are saying.
Okay. Thanks, very much strength gentlemen have a good week.
Thanks, Tom.
Alright, and that was the last question we had in the queue.
Okay, the logistical and well again, thank you all for taking the time to participate and not.
First day.
Hum and.
The lease all of you continuing to stay safe.
Thanks.
Ladies and gentlemen, this concludes the smart centers of REIT Q1, 2021 conference call. Thank you for your participation and have a nice day.
Yeah.
Okay.