Q3 2021 SmartCentres Real Estate Investment Trust Earnings Call
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The conference is now being recorded.
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Good day, ladies and gentlemen, welcome to the smart centers reach Q3, 2021 conference call I would like to introduce Mitchell Goldberg. Please go ahead.
Thank you good afternoon.
And thank you for joining us Mitchell gold her executive chairman and CEO.
And I am joined by Peter Sweeney, Chief Financial Officer, and really Goldman EVP portfolio management and investments.
Yeah.
This is the first analyst call since the passing of Peter Ford.
Peter was a true gentleman.
A wonderful partner.
And they're running of the smart series business.
We were not just colleagues.
But good French.
When we spoke to each other many times a day over the past 23 years.
I think Peter Daily and we all Miss him dearly.
Today's commentary will refer mostly to the outlook and mixed use development initiatives section, although M D N a.
Which are posted on our website.
I refer you specifically to the cautionary language on pages, three and four of the MD&A materials, which also applies to the comments any of the speakers make this afternoon.
Our results this quarter are the culmination of improving conditions in every aspect of the business and continues to reflect the strength and resilience of our tenants.
And of our strategic real estate here in Canada.
Our strategy to grow through mixtures intensification continues to gain momentum and bear fruit.
This strategy unlocks deeply embedded NAV value to our unitholders on lands they already own.
Here are a few highlights of the quarter.
Operationally with 75% of our open air format shopping centers are anchored by a Walmart supercenter and virtually all anchored by phone by a full grocer.
Consumer tracking consumer traffic has begun to return in a significant way.
This is driving new tenant interest.
There's also improving occupancy to 97, 6% and cash flow to above 97% already.
Both metrics are expected to improve throughout the holiday shopping season.
What's the depth of retail greatly exaggerated.
This year alone we have advanced zoning applications for nearly 22 million square feet of additional density.
For those of you not as conversant, that's not a small amount.
This is in addition to our current permissions in place such as smoke B M C.
What is it worth.
I will not get into the details of that right now, but I will say.
It is more than zero.
We currently have over 3 million square feet under construction, which include six rental apartment buildings two in miscues.
One in Laval, two in Ottawa and one in our flagship Smart B M C.
I expect volume of construction activity to continue to grow in the coming months and years.
Also.
In smart B M. C. We completed the remaining 192 condo unit closings in transit city three in the transit City three tower this quarter.
This brings the total to 1741 units closed in.
In the first three transit city towers, delivering over $60 million, Connecticut to the REIT.
With five sold out condominium towers, 50, 550, 550, 550 and 45 stories.
Smart T. M. C has become one of the fastest growing communities in Canada, which says something since there are a lot of communities in Canada are growing.
The next phase of smoked B M C called heart walk.
We'll be launching imminently under our wholly owned residential banner smart living.
Art work is a 12 acre mixed use district in the heart of Smart Me M C.
Kate I'm, a former Walmart Purcell.
When fully completed artwork will consist of approximately 5 million square feet of density, including 5000 residential units and up to one after a system for 150000 square feet of nonresidential buildings.
Phase one of Outwork includes over 370 condo units 190 rental apartments tech.
Tech office and event space.
It is worthy of noting that smart centers owns 50% of the Artois condos two.
As much as the 25% at one of the trends in city condos.
Well smart VNC represents our vision of the future and there's only one of 94 REIT properties currently slated for intensification.
We are literally growing a new portfolio out of our existing one.
Pages 21 to 23 of the MD&A highlights over 'twenty mixed use projects totaling in excess of 55 million square feet of net incremental density to be built.
Some with our partners.
And mostly on undeveloped lands within our existing portfolio upon approval at all.
Yeah.
Keeping in mind, we do this.
While simultaneously maintaining a conservative balance sheet with an unencumbered pool of assets in excess of $6 billion and significant liquidity, which Peter will speak to shortly.
We only move forward with capital intensive construction initiatives as market conditions warrant sufficient pre sales occur in the case of the condos at all.
Only when financing is fully available and in place on terms that will happen.
[noise] reshaping and intensifying our lands takes us back to our roots our mindset of embracing change too forward looking strategic land use some amendments and timely real estate developments.
Our third quarter results.
There are indications of strong growth to come.
I will now turn it over to Rodrigo Ben.
For some operational review.
Yeah.
Thank you Mitch and good afternoon, everyone.
Throughout the quarter, we saw the reopening of the balance of our retailers.
With the improving.
Leading interests from the likes of that.
Store expansions medical uses personal services home decor grocery.
All of the T G S banners usr's.
Fast food pet stores financial institutions, and a host of services, all driving more traffic and improving our tenant mix and occupancy.
About the quarter.
While nearly 100% of the REIT properties include a full line grocery store as an anchor of a shadow anchor and 60% of the REIT tenant basis comprised of essential services.
Our essential service tenants.
<unk> increases to 70% in markets outside the greater victim area.
Where our occupancy rates are very near to 100%.
Our tenants continue to work with us to adopt by expanding their ecommerce.
<unk> line there.
Their product delivery models pick up.
And space utilization, all while striving to maintain customer loyalty and sales.
And we are there to support them every step of the way.
Recently, we've had some largest tenants approach us wanting to expand their stores to allow for development of an e-commerce platform and distribution network.
This demonstrates that the demand for FIS.
Physical space continues as retail continues to adapt to the changing customer preferences.
As we've highlighted previously Walmart plans, Walmart, Canada plans to spend $3 $5 billion to make their online and in store shopping center 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 to drive traffic to our centers.
For Q3, we completed nearly 270000 square feet of new leasing.
And therefore, improving our leased occupancy to 97, 6%.
Now regarding our premium outlets in Toronto and Montreal, both are now open and there are at near full occupancy.
While sales were severely impacted during the prior quarters traffic counts are now approaching the pre pandemic levels and sales have shown great resiliency.
With higher conversion rates.
And with the pent up demand accumulated savings and the reopening of the Canada U S border, we expect a strong fourth quarter into the Christmas season, and an even better performance in 2022.
Yeah.
By the end of the third quarter, we have completed nearly.
$3 5 million or 83%.
Square feet of our 2021 lease maturities.
COVID-19 was a real life test of our portfolio's resilience.
Our high quality tenants and portfolio continue to adapt intensifying with residential another real estate asset classes strengthening with the expanding tenant base.
Proving customer traffic.
And with a leading occupancy rate.
And of course reliable and growing cash flows.
And with that I will now turn it over to Peter.
Thanks, very much Rudy and good afternoon, everyone.
Yes.
The financial results for the third quarter reflects the substantive improvement in our core business that Mitch and Rudy has mentioned earlier.
For the three months ended September 30.
There is a 2021.
F F O per unit with adjustments after removing the influence of ECL provisions and condominium profits.
Grew by four 4% or two cents per unit over the comparable quarter last year.
This four 4% increase is principally a reflection of incremental new tenancies and interest cost savings.
In addition, our third quarter results include <unk> from the closings of the remaining 192 units at transit City three.
ECL provisions were $700000 in the third quarter as compared to $9 7 million.
In the comparable quarter and this is consistent with the theme that we've experienced year to date on continuously improving tenant collection levels.
In addition.
The I F or S fair value of our investment portfolio improved by $79 million or <unk>, 9% to $8 $98 billion at the end of the quarter.
And lastly note that our annual distribution level continues to be maintained at $1 85 per unit.
Solving and an 87, 8% a S F O a CFO payout ratio after adjusting for the nine months ending September 30th as compared to 88, 7% for the comparable prior year period.
All of these financial metrics represent a common theme of continuous improvement to our core business.
We have also continued our focus on further fortifying the strength of our balance sheet.
And in this regard we note the following strong debt metrics for the third quarter of 2021 as compared to the comparable quarter in 2020.
Number one in.
In keeping with our strategy to repay maturing mortgages and to grow our unencumbered pool of assets.
Our unsecured debt in relation to total debt increased to 70% from 67% and our unencumbered pool of assets continues to grow increasing by approximately $239 million to $6 billion.
We continue to employ this strategy to repay most maturing mortgages.
Accordingly, we expect these metrics to improve further in the future.
Please note that this strategy permits us further agility, when considering opportunities and alternatives for our portfolio of mixed use developments.
Number two our current triple B high credit rating from D. B R. S permits us to continue to attract that capital at lower interest rates for longer terms and in keeping with our strategy to take advantage of lower interest rate environments pursuant to our refinancing activity.
Over the last 12 months, our weighted average interest rate for all debt continued to decrease and at the end of the quarter was $3 two 5% as compared to $3 three 7% for the prior year.
While concurrently we have extended our weighted average term of debt to five years.
Excluding construction financing substantially all of the Trust's current outstanding debt is fixed rate debt.
This continued focus on both increasing the weighted average term of our debt and fixing interest rates is deliberate and is yet. Another example of the risk mitigation strategy that we've employed to insulate the trust from interest rate volatility.
And then lastly number three our interest coverage ratio net of capitalized interest was maintained at a very strong three seven times level. This in spite of the impact that COVID-19 has had on our operating results over the last 18 months and further confirms the five.
<unk> strength and stability of our core business.
From a liquidity perspective, as we look to the immediate future and continue to manage through the current uncertain capital markets environment. In addition to the conservative debt metrics that have been noted previously consider also that when factoring in our cash on hand, together with our new $150 million.
Operating mine that was completed during the third quarter and the $250 million accordion feature associated with our existing undrawn $500 million of operating line item.
Liquidity position approximated $1 billion at the end of the quarter.
Recall also that the next series of debentures and our debt ladder does not mature until may of 2023.
However, as we've previously noted we are continuously considering opportunities too early redeemed debentures and mortgages when appropriate.
Notwithstanding the challenges associated with Covid over the last 18 months. Our business has continued to demonstrate its ability to generate sufficient cash flow to fund our operating needs.
Accordingly, we anticipate our requirement for additional funding over the next 20 months to be limited to construction financing and any potential acquisition financing requirements that may arise.
And with that I'll now turn it back over to Mitch.
Thanks Peter.
As you can see it has been an encouraging quarter with much work to do.
With that I will now turn it back to the operator to coordinate us and addressing your questions.
<unk>.
For people on the phone if you'd like to queue up to ask a question. Please dial star one on your phone's keypad and operator will pull you assigned to ask you. Your name if ever you wish to withdraw from the questions queue. Please press star two so again, if you want to queue up to ask a question. Please press star one now.
We have one maybe more people and as soon as we have an email that they'll be able to ask a question.
Yeah.
Hum.
Alright.
The first question is from Jenny MA from BMO capital markets. Please go ahead Jenny.
Hi, good afternoon.
Hi, Jamie.
We have to meet her.
I'm just picking up on a comment you just made about your funding to loop and a best friend to acquisition I'm wondering if that is right.
Part and parcel with that the general strategy and there's not much to read into that or am I, just trying to look at possibly buying some properties at this point.
Uh huh.
Yeah.
Are you asking about Peter's comment about.
And then the last.
Part of this is his presentation.
They are potential or potential acquisitions that may arise is that what you are saying well I'm. Just wondering if that statement was just you know potentially.
The acquisitions in the normal course or is that something that you are trying to increase focus team now that we've put coca.
Coalbed, mostly behind us.
They're not you're seeing any opportunities in the market.
I mean, we're gonna be a pretty strategic with any.
Any purchase but yes, we will of course have always been.
We have our eyes peeled, but for strategic acquisitions.
So.
Yeah, I mean, I guess with improvements to the.
The general environment climate by T.
Like more likely acquisitions might be a little bit more likely than just saying Oh are you.
We're ago Mhm.
I guess I'm on balance just given some of that that's probably a prices or for essential anchored asset like how should we how should we think about balance, but not investment between acquisitions and dispositions because I know you've been selling some.
Some assets here and there although on.
On balance sheet to kind of net each other out or are you seeing them opportunity on the buy side.
Yeah.
It's a difficult question to answer I mean, well, obviously, where you're not and we are.
Both are strategic you know if we are.
<unk> have an opportunity to sell something that.
It is not a.
Strategics and that's what that's the overused term, but to me you know where we don't see any.
<unk> long term potential for intensification.
It doesn't mean it isn't a cut our expanding asset and you know the prices rights et cetera, et cetera, it might be something that we would consider selling I mean, the ones that we have sold recently are clearly on the margins are not strategic for your outside margins. So you know they're very specific.
Yeah. It was very specific agenda with those acquisitions again, they're going to be strategic.
And I don't know that I would sort of describe them as canceling each other out because you know acquisitions are going to be.
I mean, you know that you're not going to be the same type of assets that will be acquiring a free buy than the ones, we would be disposing of them.
But in terms of volume no I don't think they'll be up but overall you're right.
Our strategy in terms of structure and financing in your balance sheet, but they're not.
There's not going to be an absolute symmetry between the type of assets and the cap rates, we sell it and yes, it should be by.
Both of them going on I think you know maybe even with greater.
There'll be greater activity and probably both areas over the next couple of years.
Okay. That's helpful. I should've been more clear and then canceling each other out only in terms of dollars, but not definitely not cap rates. Our appetite. My my second question is you talk about an office component and art work and when we think about the strategy for next year understanding everything nice office to a very small part of what you guys do.
But coming out of Covid are you thinking about an office component and mixed use project.
Your friendly or you know do you see them as being a core part of it or is it specific to art work given the transit orientation of that specifically.
It's a great I love that question very thoughtful question.
We are first of all the dimensioning of office and artwork.
Not to be interpreted as some taking some position on the future of and you know the changing.
Your use of those of office.
But more that it is a really cool to Super Cool office building, that's quite small, but we will as it is small and square footage will be.
You know you don't add a lot to artwork phase one you'll see that in the plan and maybe some others.
Time.
I'd be happy to show you that but it's a large floor plate office building low low rise and it's being specced, but it's it's just animating.
That.
That first phase, but it is also.
Also you can yes read into that as that we will be watching and looking for mixed use including office.
M C N I should say, but we have other interests.
In office and B M C N a significant like you know significant square footage interest.
Yeah, I would say if 10 was an executed deal. It's it's probably you know what.
Three or four but it is you know it was a one and now it's a three or four.
And there's a lot of you know they they qualify for sure. So there was activity we wouldn't spec a large office that's for sure.
Nor would we have 505 years ago or for that matter.
We will never spec office building, most likely of any size.
We definitely want office and other nonresidential uses to.
To complete the full vision of V M C.
Okay. That's also helpful I'm, probably a little bit too early to get into the details, but would there be any significant changes in how you approach office development in a post COVID-19 world or was it really more so like internal configurations that are part of that you know the design process that doesn't necessarily affect development or construction.
I mean, we're going to build office for a tenant when we build an office other than that little building.
The and yard work phase one.
So yeah. We were obviously, we're all in like yourself are all in the trenches.
All of these different states.
States are you all with all the different forms of real estate. So we're pretty I think tuned into what's going on with office.
Obviously, we're learning all the time from the tenants that we're talking to potential tenants. So we'll be building to what they think they know what they want and what they need.
And the architects that we use are kind of cutting edge in terms of office architects. So they're hearing what everybody's thinking and saying with respect to the officers of the future of course, we're not going to get into all those details now, but it's really interesting and.
And.
And as I say, we we were not going to go ahead and spec office.
BMC is probably one of the only places will be building.
Very much office across across the country of our intensification brocade, but.
It is a it is definitely you know.
And by the way a journey, it's it's also <unk>.
Part of the momentum as his from the movement not suggesting that there's necessarily not there's there's a lack of activity downtown because theres not.
There is increased interest outside the core for all kinds of lifestyle reasons. So we're seeing inquiries, we think are kind of driven by that too.
Yeah that definitely makes sense that was very insightful. Thank you.
Yeah.
Thank you Jenny.
As a reminder, if you'd like to queue up to ask a question. Please dial star one on your phone's keypad.
A few questions queued up.
The next question is from Tal Woolley from National Bank Financial. Please go ahead Tao.
Hi, good afternoon, everyone.
Good afternoon.
And Intel.
Let's start with the new condo announcements at M C.
I'm wondering if you could put like sort of a you know the the pricing in contact with respect to the prior projects that have been completed now so we have an idea.
You know what the accretion what what do you think would be appreciated from ultimately has been over time and in that market.
[laughter], you're taking away our.
No.
You know all the drama around.
The price list yeah.
Yeah, I mean, let's just say it's gone up some.
From our last you know.
Please at T C.
Right.
Which averaged I think 868 or something afoot.
So I mean, obviously I can't say, what the pricing is going to be because we're about to kind of launch it and we're just fine tuning it.
Across the road and again don't.
Don't.
Take this as an absolute accurate number but I understand that they sold across the road from us.
Pat I don't know 10, 15, maybe 10 75 average and I don't think they released everything they sold everything that they released because I think they hold back.
And yeah, so, we'll see but definitely stronger indications from our last larger and keep in mind. So I mean.
We're not releasing that many units in this particular phase for condo you can see them relatively small so.
We're I mean, it's very deliberate obviously, Andy Oh, he rental unit is also.
Manageable.
So you know this pricing should should be okay. Considering you know, there's a lot of market demand and we're not releasing that many units at the moment.
And are you find it and do you think that like the margin profile.
Everything that's gone on in the World is there's still a manageable.
Yeah.
We haven't and we have a bit of an advantage.
That we have such right. We have an ongoing program at V. M. C. So in terms of construction prices, that's not to say that we're.
Not affected and we're immune to the increases but.
We were able to I think leverage the fact that we will have ongoing we have an ongoing program.
C. One owner, who knows if they're going to be building at least one if not two or three buildings.
Continuously for the next 10 years I think is it helps us in negotiating some of the larger items and alert longer term items.
But that's one of the reasons, we're just fine tuning our pricing right now is because we're just kidding, we're just buttoning down as much as possible some of the larger items would've increased so.
That's a big issue, it's a concern in some cases in the future tell we're going to be potentially even tender the page before we go to market.
So you know two to kind of try to mitigate the risk.
This case buildings are not we don't think it's warranted here I Should've mentioned on the previous answer to you as well that we may.
No.
We were Gonna released this building, but you know if things go well, we hope to to release another building on the cartels of of this art work phase one.
Sure.
Okay.
It is thought that we're going to go with it.
Released there's some and that'll be it for a bit or anticipate that if it goes well. We we may put me on the hotels that have have another building ready to go.
And can you just talk to me a bit about the decision on something like art work the choice to go for sale versus rental I would've thought maybe with the one building going up in progressing while that you know you might have to add more rental into the into the facility.
We have so much square footage.
So much density at.
At Smart V M C that I mean, we we we're not gonna be lacking in rental up there. We just want to go carefully.
I'd be cautious obviously I mean, when it comes through condo, we presell, and we have deposits and et cetera, et cetera, whereas with rental you know, we don't really really generally stabilized until fuze. After completing constructions complete of course it requires borrowings.
And term financing so.
It really is just an exercise in managing the overall balance sheet conservatively.
There'll be some years, where to look you know overly conservative there'll be other years, where it will be very happy that we played at that conservatively. So yeah, we could do more rental, but it's really a case of a belt and suspenders.
Okay and then.
You know some of your other you know other other uses that you've been building up self storage seniors the retirement homes.
Can you just talk a bit about how those have been performing like self storage. The publicly traded guys across North America Ive, just been on fire and so.
I'm, just wondering how you're thinking about the progression of that business going forward too.
I'll start with I'll start the answer and I'll turn it over to to Rudy but.
We've been very lucky to have teamed up with who we teamed up with well we were afraid of the team came up with anybody but.
And you know just the smart stop relationship has been going really well there pros.
There's just a good simpatico in terms of the real estate.
You know.
The real estate minds over there together with there.
There are operational expertise has just been a really good fit.
And so we've got a number of those going it's calling because momentum is strong we've got a bunch more in the pipeline and they'd be leasing up very well and all that really talk to that I wanted to just acknowledge.
Alan Sculley who's done a great job with with with a smart stop.
Right from the beginning and of course, Peter forward was.
<unk> was very involved and instrumental in the relationship with our smart stop.
But it's a relationship that has a lot of legs Rudi do you want a movie.
Came in for.
Certainly.
The relationship Mitch talked about with where these guys are is something that.
We can't say enough outside they are great partners that we share information with each other openly really we talk about you know how to market. These guys know how to market. The properties. They know how to bring it to market operates open they know how to compete in each market. There's a lot of diligence that's done in advance market studies done in advance.
That that advantage.
It made us great partners with the lands that we have and the indications we have as you know we've got five locations opened one four developed out of our lands and doing well and I will tell you that we expect them to do better than pro forma once they're up and running they're not all stabilized yet but.
There's time for it to stabilize but they're performing better than we had thought a these are large a large multi storey units and there are I think three or four more under construction as we speak.
So we can't say enough about this and it will be more to come in in this in this area.
Okay.
And then Mitch just lastly, like you.
You know I feel like your closest peers in the public markets you know their development efforts have been.
You know I I guess I would characterize is predominantly focused on urban mixed use.
And your strategy has been somewhat different you're including these other types of asset classes.
And making a real push on them.
In your head is there like a.
Is it like a perfect mix of these asset classes that you'd want to be at like in 10 Years' time or.
Is it just hey, this is what I think I can get out of this particular piece of land that they bought.
And I'm just I'm focused on what it can do best for that one site.
Yeah, you know the way I mean, okay. So no there isn't.
Like a number.
That we're seeking.
Per se and then that sort of dictates that I think if we were just sit down and look at any one of our properties that are sort of on the list of intensification of redevelopment.
And we we we we went there and we drove around and we looked at the <unk>.
Site plan and all the options and so on and so forth, we probably come through like after you know going back and forth and thinking through we probably would come up with you know logically a lot of the same.
Abuses and and and densities.
So that is to say that he.
And each side, if you think in the future. If you can extend the trajectory of what's going on in any one of these communities and what's going on in terms of.
You know family structure, and you know household incomes and so on you layer. It all in you can you can pretty much you know you should be able to predict you know what.
What what what's going to be needed there and two to 10 years and that's organic.
That ended up totaling at the end of.
Every you know analyzing every sites.
I would say that you know in 10 years from now it's going to be harder just to get to 50 50, but it's quite possible.
We will be 50% or more non retail income.
And it goes back to something you had passed earlier pardon me and that is it depends on how much condo versus rental we do but in terms of sheer or square footage it'll be substantially more than that but but.
But I would say that our benchmark of thumbnail would be then in 10 years from now we'll.
We will be you know, 50% are maybe more than 50% non non retail income.
Okay. That's helpful. Thanks, gentlemen.
Thank you Tom.
The next question is from Michael Mercatus from additional debt capital markets. Please go ahead Michael.
Hi, everybody. Thank you.
My first question is just with respect to the establishment of smart living and I know DMC your economic appointing taking down a greater proportion increasing to 50%.
On the residential component.
Going forward on future projects, where the REIT owns 100% of the land.
With smart living with a residential equally at 100% of smart sensors to where you'd look to bring on a parcel.
Partners for for a source of capital.
Yeah, I mean for sure we're gonna be bringing in partners.
And lots of deals you know when we find the right fit.
So yeah were not trying to be heroes.
To do everything ourselves I mean, it's a great way.
To raise equity.
After we make some land you say you know we do have Diandrous amendment approvals.
But we do want as much as possible to be the.
Yeah at the forefront.
Element to build our brand.
So you know I think that that's probably something we will.
Probably more often than not be the lead you know kind of in terms of the Pud development manager and and you know.
And brand, but you know it might happen that we will even sell a parcel land to a third party developer who has their own you know.
Brand equity.
Or there might be cases, where we just got too much on our plate and we [noise].
We want a hand off some of that.
Some of that horse new horsepower to somebody else, but I think more often than not we will be the lead developer.
When we bring in a partner.
Okay. That's helpful. Thank you sung.
On Cambridge, one of them you've got to put.
Crossing with the first phase of that.
If you could just give us a little bit of color on what that entails.
The site will be the first part of that question and then secondly.
I don't think it's a new disclosure necessarily but I think you guys made a point of pointing out that it's actually subject to all our leasehold I'm. Just wondering if you could also explain if that at all impact smarts, our economics on the cycling.
Yeah, I mean first of all chambers as you know is zoned for close to 12 million square feet. We have 700000 on there right now.
So we've got a long list.
It's a significant up zoning.
Phase one is looking really good really.
A lot of towns.
Towns by the way is the.
Cause the let's see the lingo for for Townhomes.
The original two world So a lot of towns.
And and some mid rise and then one for one initial high rise.
And <unk> seen a part of the project that you know is the kind of.
The the.
The most affected by maybe in all of our centers, even one of the most affected by just the amount of retail in that market supply demand. So it's it's.
Good place.
Place to start.
So we're excited to do that I don't know, how well you know, Cambridge and the whole Sydney area there but.
So it's definitely a whole world unto itself and we think our timing is good there.
When it comes to <unk>.
<unk> four.
Four four for housing just outside on the edge of the city.
In terms of the leasehold yeah. There is a leasehold just a land lease goes back to one of the early projects today.
Had sold into the REIT on different terms most of them were straight up sales, but there were some some leasehold sales.
Which at the time was quite common or not uncommon that's for sure.
Some of the other Reits.
And.
So as it relates to the development or redevelopment of Cambridge M. It does require us to to work out.
Some tweaking.
Tweaking of the structure there.
I don't want to say too much about it I mean, you. Obviously you know if we don't work something out so.
But you know what kind of.
Assuming that like everything else.
For the last year.
Whatever number of years.
That'll work.
Work itself out.
Okay. Thank you for that and then just last question for me before I turn it back.
With respect to the Jv's, that's where a lot of the occupant developments going on right now and some of its completed and can stop such as all we keep them detail, but if we look at that.
That NOI coming from the.
Equity accounted investments and just given that there are now property is going to be completed in lease up.
Is there any way you could give us some help in terms of how you expect.
The amount that's there and re queue will progress over the next call. It 12 to 24 months.
The marriage of which NOI coming from the JV just to get a lot of the stuff. That's approximately where recently completed is it a number and I just suspect that theres good growth in that component. So just trying to get some some.
Some way to triangle, you mean in that particular JV you mean in the Oh no no sorry, just with within all of the JV is like a storage there was oh I see yeah. So there's a lot of stuff that's not stabilized yet and just trying to trying to get a sense of it yeah, I I don't want to say I'm going to turn that over to Peter but a computer I'll give me a SEC.
To.
To get ready, but I think you know Rudy was was because it was happy that Didi was so conservative in his description of the lease up which are smart stops actually because.
They're going you know they are going.
Better than plan and plan was kind of you know conservative So you don't care.
Okay.
So it's good to see that they are performing.
Performing our plan and when we base things based on our conservative players.
So we're pleasantly surprised and I also wanted to add to that Holy Smokes thoughts thing I don't know whether everybody appreciates how great. It is to be able to wedge AIDS.
Our storage facility on land that you wouldn't necessarily go build anything else.
So it's a great actually a vehicle for us to create you know additional income, where we probably wouldn't be able to and because they use so much so little parking.
And the buildings are somewhat flexible so.
So yeah without Peter Sweeney do you want to.
Illuminate a little bit yeah, Yeah sure Mike I mean, we tried on pages 31, and 32 of the MD&A to give you.
At least at a high level, the NOI and income generating results.
Results for anything that's equity accounted.
Maybe what we can do just to provide some additional information going forward. We can have a chat. After this call and you can give us sort of a broader.
Spectrum on expectations, and what we're trying to do going forward. Therefore.
Is augment this information to accommodate your needs and those of your counterparts.
That would be great.
Okay.
Thanks very much.
Alright. Thank you Michael as a reminder, if you'd like to queue up to ask a question. Please dial star one on your phone's keypad should you wish to wish to withdraw dial star two.
The next question is from Sam Damiani from TD Securities. Please go ahead Sam.
Thanks, and good afternoon, everyone.
Just on the on the VM see there's been a lot of units that are.
Mark read is completed and in others as well absorbed in the market do you have a sense now with many of those units are closed or are they physically occupied or they offered for rent what's the what was the actual market like for <unk>.
Occupied units in that and that no one at the moment.
You mean renting up you mean, the actual or the rental rate for for somebody rented condos and not the rate just make just wondering if I assume a good portion of the buyers were investors.
And just wanted to know if you know what if those rental units have been successfully I guess at least.
Yeah, I mean, I don't think we know exactly the numbers so again don't.
Goodbye this but Sam this is very disappointed because I can see that you haven't been enough to be M. C lately.
So [laughter].
[laughter], we're gonna have to do something about that.
I'm actually trying to find an apartment up there right now.
Well you called you come to the right place.
[laughter] Yeah, you know, it's busy I mean, it just feels like.
You know, it's funny, because obviously they've got occupied sort of throughout Covid, there's just people everywhere.
M C. Now I don't know the percentage, but I would say that.
The majority of them from what you know when I spoke to Andrew Hoffman, a number of months ago, we were talking about the rental you know.
<unk> on the T C on the trends of city projects.
We were talking about the rental rates and so on and Oh.
I mean.
He was talking about from what they could tell there.
That everything is that was to be rented is rented and.
And if you'd go up there are you sort of get the sense and if you're there that you'll see the lights on.
Up and down.
Three towers, so I don't know the answer but it's got to be substantial Sam I mean, I don't think there's any thing peculiar going on there like a whole bunch of investors who are unable to lease I mean, it's almost somebody the buses are rocking and rolling I mean, you Gotta go up there. It's just a done deal with it if theres any it's got to be a very small.
A lot a lot of people out there now obviously, you've got 1700 units you've got you know.
Anywhere between two and 3000 people coming and going out of those buildings every day.
Well that's good to hear the other question I had was just on the inclusionary zoning.
Which I guess is a reality in the city of Toronto, how does that affect your.
The entitlement complications that you're processing at the moment.
They were all but it's not well first of all you know getting into the whole politics of it but it's not.
Going forward is imminently as originally thought.
But if and when it does yeah it'll be part of our.
It'll be part of our pro forma and it will be part of our decision to proceed.
But.
For the most part I mean, we were baking it in.
And the last number of months, we were breaking it in and.
It's not going to most of most overwhelmingly it will not.
Alter our decision to go or no go.
But.
But luckily we don't have to go anywhere we don't have to do any of this actually so you know we'll be baking in.
Some of those requirements.
The requirements if in fact, they get legislated.
Okay, that's great I'll turn it back thanks very much.
Yeah.
All right. Thank you Sam.
The next question is from Penny beer from RBC capital markets. Please go ahead penny.
Thanks, everyone.
Just looking at the in place occupancy is picking up nicely here based on what you're seeing in the pipeline. What's your sense of how long it may take to get back to the pre pandemic levels I think if I go back to 2019, you were running at just over 98%. So just curious of any thoughts you can share there.
Barry do you want to take a shot at that.
Sure.
I mean, the you know the I would've thought given that the lockdown hasnt completely lifted as you know they've delayed it a little bit again, now for restaurants, and so on and and clubs and so on but for the restaurants as part of our business, it's a little bit slower the sit down restaurants, and what we're seeing.
Is so much other interests coming in and you and you know from last quarter to this quarter. It was a 0.3, taking us up to 97, 3% and 97 six by the way with executed deals.
I think it will still take a couple more quarters to get there but.
But the again, assuming the market stays as it is doing now and it remains vibrant and the interest continues to hold its moving up faster than we had thought and very pleasantly surprised about what's happening and who's who's coming so I don't think it's going to be long before we get back to that 98.
Good to hear and just maybe coming back to the leasing spreads we talked about it on past calls and frankly, I guess lumpy flat spreads you've telegraphed and where.
We're pretty much expected, but you know on the deals that you are doing today do you feel that you you'll be getting back to some stronger growth in 2022 or is that more of a 2023 scenario.
In terms of the renewal leasing spreads.
Yeah.
Yeah go ahead, I'm, sorry, yeah, well yeah. You can you can go ahead with it.
Yeah, I was just going to say I mentioned and I talked a lot obviously about.
Leasing leasing the tenants the rates the spreads.
And obviously, we want to keep.
Keep the lights on the space rented collecting the rent and driving the NOI growth in the in these properties tenants.
No its still feeling their way this we're not out of the woods yet with this pandemic and I think until we are out of the woods, we're not going to see that complete return to what I'm going to call for full market rent. So right. Now. We're you know, we're probably being a little bit conservative and being careful and tenants are opening stores are being a little bit more careful.
And we will also probably find that we will have a little bit more growth rate in the rents as opposed to.
Doing these 10 year deals where you have bumps every five years and we will have a greater bumps every year or two as you see in the in the Toronto premium outlets. So it's getting there, but it's not back to that norm yet.
Thanks for that maybe just one last one for me you know I think last quarter. There was indications of call it roughly $200 million of potential dispositions in the pipeline I.
I think you've got 90 million held for sale some of that did transact I guess after the quarter can you just comment on whether there is more to come in from a disposition standpoint, you know closer to that 200 million dollar figure and then secondly, just on the income producing assets that are in that call. It 90 million worse pricing coming in from a cap rate standpoint.
Mitchell you want me to go ahead with that Yeah go ahead yeah.
Yeah.
Penny so two parts of that so the first part of that is we're obviously not selling assets, where we have intensification potential. These are noncore assets. We don't have a list of assets listed for sale or held for disposition by the way a lot of our smaller markets as you know and even our noncore are 100%.
And Wal Mart anchored so generating pretty decent cash flow. So with that said there are are there are those who are knocking on our doors and looking for that great cash flow and that Wal Mart anchored income and not much not as much concerned with intensification from there.
Organization's perspective, so we've looked at that so in our in our portfolio, where we have some of that noncore, maybe smaller weaker market. We are we have been looking at that.
But again.
The pricing is coming in better than our current ifr S, which has been amazing for them what we're experiencing so so we expect that to continue.
In that way and we don't have a target number that we're trying to achieve so we will continue.
Collecting the rent managing the properties as long as we can and to the extent that those opportunities come up we will take advantage of them and again only where we can have some NAV appreciation in those transactions.
I wanted to just.
So it's just something that we've been we've received offers for [noise] for some sensors in.
Our mid markets and.
Yeah.
They are interested in the other.
Sub sub six okay.
And I'm not talking 599.
Good solid sub six.
And.
But we do have very strong market share and dominate and we really have great to you know very strong tenants. I mean, you know keeping you know think about it like the.
The weaker tenants generally speaking don't go too.
So some of those markets because that's not where fashion goes for example, but it is where L. C. D. O goes so goes and of course, all the banks.
So if you look at our profile in those markets pretty good I don't really know that there's too many weak markets in Canada, I don't know where that notion comes up are we well first of all we're not in any weak markets I mean, Walmart and yourselves your own institutions.
You know look for the healthiest markets and that's where Walmart tribes, that's where we are maybe smaller in population, but our relative.
Market share is exponential.
Okay.
And hence our Occupancies. So you know to let go of those and E. Commerce is not as big a factor and you know there's much less retail per capita I mean, it's not you know.
So if you think about it and you're really understanding you know what's going on there you know youre not.
Turning to bail there there are some centers that you'd want to bail in some of those smaller markets I don't want to get into them, but not are not the ones we have.
But we do want to manage our balance sheet, we do want to manage our energy allocation and so there may be a price at a time when disposing of those assets might make sense, given everything else, that's going on but I'm not because push.
Cheers.
Or by any means.
Yeah, you know problematic.
That's oh, that's great color, thanks, very much I will let behind it back.
Okay. Thank you.
Okay.
We have one more question do we have time for that.
Sure one more question.
Okay very well.
This question is from Dean Wilkinson from CIBC World markets. Please go ahead.
Thanks afternoon, everyone. One question two parts.
Just given the the spend that you've got ahead of you with all the development over the next couple of years.
How comfortable are you taking the balance sheet up in terms of leverage like to what point.
The second part of the question is given that the units are trading now at above a a book value where consensus NAV you what would the thought to be advertising some of that spend as you look out over the next.
612 months.
It's very much one of leavers.
Do you mean, you mean selling.
Land versus developing it out you mean to raise equity.
Either that or just going out to the market to raise equity given that it is more like five or six.
That make levels.
Yeah, well I mean look at in terms of selling the units don't reflect the value.
Of the lands that we own.
So you know.
You know raising equity by issuing units.
You know may not be the right way to raise equity compared to selling off some of the labs. We are exploring you know raising equity by bringing in partners to some of the lands end market.
That would be obviously much more.
But it can be more accretive more effective more efficient than issuing units, but yeah at some point when our units get too.
You know what we think is appropriate now which is up for discussion are up for debate.
It certainly isn't to wear.
We are now however, better we are now than we were six months ago.
We will look at that as an option you know we've got lots of levers I mean, we don't have to do anything which is the good news, but you know it's going to be the same thing we're gonna play it safe all along the way and we're not going to stress our balance sheet just to say we're building. Another building, it's just not going to happen, but we have so many levers I don't see.
Any limits to us executing what we've got approval for them you know at the moment.
Perfect. Thanks.
Yeah.
Thank you Dean.
We do have one more is there time for one more.
Sure.
Alright. This question is from Mario <unk> from Scotia Capital. Please go ahead Mary.
Hi, Good evening I'm, just maybe a question for Rudy on the operational side, if we flip back.
I presume they're going through.
Strategic reviews.
Budgeting and whatnot at this point.
Sit back and think about 2022.
And it's up to identify one or maybe two primary objectives operationally.
2022 for the organization what would those be.
The operational objectives for 2022, well I know that with my boss on the line I would get to a 100% leased.
We have a strong tenant base Mario.
Mario and obviously, we want to bring a lot of discipline to keeping our tenants not just happy about being in the center, but keeping our centers operating at full efficiency.
Paucity and also ensuring that it is primed ready for intensification, given that's our growth mode. So everything we do with every tenant we do it with whether it's in renewals or new tenants. It's always with a view of how do we keep the nap growth in the property from an over.
All perspective growing so it is balancing.
The growth in the occupancy in the.
And the rents in the NOI and managing that with keeping are keeping space and land use available for future growth.
Right.
Do you think there's been any impact to the leasing spreads as a result of wanting to maintain that flexibility for interpretation going forward.
So I'll jump in a really good.
No because you know.
Yeah.
We know where we're leasing where leasing you know.
Yeah for the most part.
We did get a lot right now.
We do insist.
No no.
I'm pretty much insist on getting rights to Redeveloped.
When we do a new deal but.
Most of the major sophisticated tenants I understand that.
Even if we have to give some relocation provisions or.
You know on site relocation provisions.
Wouldn't say, it's affecting our rental rates, they're are going to be anomalous situations where.
You know, maybe the speed at which we lease up might be affected as we sort through those things.
But most tenants don't decide to come you know.
We're getting a little bit lower rent and but you know they don't like that provision.
So it's not really a rental rate issue Moody's Germany.
So there's yeah I know I was.
I'm going to say the E. R land use for doing what we're doing in terms of condo development departments.
Storage is not a significant amount of land, which is why the density is going to be as significant as it is and as you know there are lots of lots of our projects, where we have capacity to build within a built out shopping center without impacting our tenants.
And in fact, it's it's complementing our tenants to have this residential and other uses.
Sitting right beside them. So I was exactly what it said it is not it's not in our minds in my mind anyway affecting the rental rate other than because the people who choose to come one come because it's the right place to be at the right center to be in Walmart's, there, they're coming now it's a question of negotiating a market rent for that for them.
Being in that space and making sure we can accommodate the future use that we're going to do and you know these things don't develop Mitch talked about it all the time their length of time, it takes to get everything rezoned and built and occupied it doesn't happen very very quickly and it gives tenants the chance to Denton.
And develop their business and develop their brand and develop their own customer allegiance is within that center.
We're going to just keep building it out for them as we go yeah got it and maybe just one follow up on on the operational side then.
Some of the other asset classes like residential some of them surely tuition classes, there's a positive correlation between.
Spreads and occupancy.
Perhaps a little less so in retail but.
Do you foresee on your Mark to the 100% occupancy that you mentioned.
Does that is that something that could be a catalyst in terms of improving the leasing spreads going forward.
Thank you I mean do you mean, you mean, taking taking space off the market because we redeveloped thing.
Improving leasing spreads.
No I mean like as the occupancy in the portfolio inches up back to pre pandemic levels and then you just have more space to lease.
The conviction of our confidence.
Less space to lease.
Result, and perhaps maybe being a bit more aggressive in terms of the rent the two charge without the mix there.
Yeah, Yeah naturally naturally.
Will.
Where we sit.
Come out of Covid I mean, we're happy leasing at the rate, we're leasing up we're not being greedy and tenants are being fair I mean, I think it's been I don't know if it's brought retailers and retail landlords closer together by the way this whole exercise I feel like everyone's treating each other you know.
Really fairly and then I guess as things tighten up a little bit and things get back to the normal rhythm you know.
I think there'll be a lot less a lot less meeting.
It'll square footage, but.
It's a little bit less per square feet per capita and it will result in improvements I have no doubt new space and Redeveloped centers that have retail in them will generate higher rents than the pure.
Sort of larger retail centers without any mixtures.
Over the next number of years I think you'll see some of the higher rents in those mixed use projects.
As people are living on the site and shopping living around the site and shopping on site.
Okay, two more quick ones for me just on capital allocation.
When you look out over the next two to four years can you can you give us a sense of.
Kind of a ballpark estimate of development spend per year and development completions. I know you provided great detail in terms of individual properties, but if we think of it holistically.
Five years.
Should we think about this time the completion rate.
Peter Peter screening arena.
You heard that.
Yeah, I'm sorry, Mario just just so we understand the question are you asking for our capital spend expectations for the next few years is that the question. Yeah. So I agree with you just if we look over the next five years in terms of your expected development spend per year and then.
The amount of development completion.
But you're looking for.
High level, how should we think about that.
Going forward.
Yeah.
Again, I think the caveat here are the key item to always remember and Mitch mentioned. This earlier is that we don't have to do any of this we do have the opportunity to put the brakes on.
On any project before it begins but notwithstanding that I think it's fair to say given our current thinking.
Capital spending for next year at least.
Is somewhere between $100 million to $150 million.
Net and the year thereafter, so 2023, we would be again based on current projections.
Around the $300 million level.
And again those could change but at least for now that's that's our preliminary thinking for the next few years once people once we go out beyond <unk>.
2023, you have to keep in mind.
<unk> City, four and five we will have closed we expect them to a closed number one number two.
The town has projected Vaughan again units would have closed so with the recovery of all of that initial capital and the expected profits from those various phases.
The actual cash spend or cash capital requirement to support for these projects for 2024 and going forward.
May may rise to it may increase from the $300 million level that we expect for 2023, but if it does again it'll only rise in the event that our balance sheet and the metrics associated with our balance sheet.
US that we're not putting the balance sheet at risk.
Otherwise as Mitch said, we have the opportunity to hold back on things. So for now it's still the conservative approach to spending on these projects.
And we can say with some level.
Of of expectation that next year will be in the $150 million range and perhaps.
All other things being equal in the 2023 year doubling up on that.
Yeah.
Thank you very much for the color there.
Okay.
Thank you Mario.
That brings it into our Q&A I will pass it back to Michelle Goldberg.
For final remarks.
Thank you.
And again thank.
Thank you all for.
For taking the time to participate.
Third quarter call and of course, please reach out to any of us for any further questions.
Yeah.
I continue to be safe and have a good evening. Thank you.
Ladies and gentlemen. This concludes this more centers reached Q3 2021 conference call. Thank you for your participation have a nice day.