Q3 2022 SmartCentres Real Estate Investment Trust Earnings Call
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The conference is now being recorded.
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Good day, everyone and welcome to the smart sensors to read Q3, 2022 conference call.
A reminder, you if you'd like to queue up to ask a question. Please press star one.
Turning to use Mitchell Golar. Please go ahead.
Thank you.
Good afternoon, and thank you for joining us on our Q3 conference call Mitchell Golder Executive Chairman.
C E O and I am joined by Rudy Goldman.
E V P portfolio management and investments Peter Slim.
Our new Chief Financial Officer, joining us a wealth of experience spanning nearly 30 years.
20 of those with Scotiabank, we will compete or to the smart centers team.
And look forward to working with Peter.
In the future.
Months and years.
Peter Sweeney.
Who will be leaving us shortly having served us well over the past eight years as Chief Financial Officer. Thank you Peter for your great contributions over this very active period and on behalf of the analysts and Investor community. We wish you all the best and personally I am very much enjoyed working with you and I wish you all.
And your next chapter.
Yes.
The third quarter.
It was both interesting and relevant from the continued in store.
Customer resurgence and leasing momentum.
Okay.
Yeah.
Yeah.
Yes.
[laughter].
[noise], sorry, if I'm going to go anywhere.
Thank you.
Sure.
I want to preface that by saying today I'll be speaking about the <unk>.
Quarters strong operational results.
Which is taking place virtually in every operational category as well as our success in achieving some significant mixed use entitlements.
And I'll provide brief updates on the near completion of transit city, four and five condos in the railway.
I refer you specifically to the Cosmos.
Through the cautionary language at the front of the MD&A materials.
Which also applies to comment any of the speakers make this afternoon.
The third quarter was both interesting and relevant for the continued in store customer resurgence and leasing momentum.
At least in unearned closed value oriented formats.
The Canadian consumer is voting with their feet and their dollars again this quarter.
And the direction of physical retail.
No there are not only are we experiencing higher demand.
For space.
In our value oriented.
I didn't close.
Retail centers in their existing form.
But we were also welcoming a new retailers to our centers and nearly every segment, allowing us to expand beyond existing banners.
Pushing our occupancy through 98% for the first time in three years.
This momentum continues to build into the fourth quarter holiday shopping season.
We continue to not only expand in our existing footprint, but but demand for new retail construction is also growing in various segments.
Such as full on full line grocery pet stores furniture beer and wine crafts home decor.
In Q S R.
And nearly all with strong e-commerce delivery <unk> pickup channels.
From a portfolio perspective, we continue to work towards.
Derisking, our tenant base as reflected by our improved tenant covenant liquidity and recovered.
And recovered collections.
Retailers have figured out how best to adapt their product offering store sizes and in store experiences.
And distribution to fit the needs of Canadian consumers.
Initial tenant collections have now reached 99% and continue to improve with provisions for non payment.
For near Zero.
On the land use permission and development front, we soldier on.
Most recently, we have achieved nearly 750000 square feet of mixtures rezoning in the latest quarter alone, bringing the total to 6 million square feet. So far this year.
Okay.
Yeah.
Development is a long term game.
And we are committed to unlocking the tremendous value embedded in our labs.
Which I remind your sits in the midst of highly populated communities in nearly every major market across Canada.
We are what we are zoned.
Well, we can read the details of many of the developments planned for our portfolio in our MD&A here are a few highlights.
Whats currently underway.
Construction of the fourth and fifth Transit City towers, Smart BMC, comprising 45, and 50 stories respectively are nearly.
Our near completion and remain on budget and on schedule anticipating first occupancies in 2023.
Yeah.
Also within smart BMC.
The mill way her 36 story apartment building is nearing completion and commitments for space have already started showing strong demand.
Our apartments, and miscues and Nobel are near completion and demand for rental suites in those markets is also reflecting a high level of interest.
Structuring continues on our new retirement residences in seniors apartments.
[noise] totaling 402 units at Ottawa Laurentian.
In Vaughan Northwest, we recently commenced the construction of a townhouse subdivision with a partner construction of.
A 241000 square foot industrial space has commenced on 16 acres of a 38 acre site in Pickering with half of the space pre leased.
Lastly, we are under construction.
Of three additional self storage facilities in Markham, Brampton at Aurora of which two will be completed before the end of our fourth quarter.
And all we have 70 projects scheduled to commence construction next two years again, demonstrating the significant opportunity that lives with him or underutilized land they're already owned.
Yes.
On the financial side paint.
Maintaining.
Our conservative balance sheet remains a priority.
With an unencumbered pool of assets of $8 4 billion.
A 43.7% debt level.
And significant liquidity, which Peter screening will speak to shortly.
Yes.
[noise] lastly.
Today's environment higher interest rates or inflation.
Sure.
U S political shutdowns.
We'd be easy to say, but we at Spartan centers are heating the challenges adapting to new risks and otherwise playing it safe navigating carefully.
Thoughtfully through the various minefields.
And while that accurately reflects our approach.
And it is the tie to your script to follow.
This linear narrative is not the whole story for example, well how are your interest rates may cost us in the short term it smart centers, we believe.
The benefits.
We will outweigh the cost of higher interest rates.
Smart centers were far too forward thinking to be derailed distracted by noisy headlines to take our eye off the long term price.
Do you see for example.
Is and has always been woven into the fabric of our organization.
Yeah.
It is embedded in everything we do and how we oversee our business interact with their tenants and engage our associates engaged.
Engage with our communities and of course impact our environment.
Although yes, she is getting renewed attention as of late has been part of our DNA since the beginning and when you assess our portfolio you can see that ESG principles have been applied throughout.
We are developing our metrics and refining our three year plan and commitment which will be posted in the coming days.
So look out for that.
On a final note my thanks and appreciation for.
For the exceptional work of our talented and dedicated associates, who bring their enthusiasm and focus to our business and communities.
Every day.
Now I will turn it over to Rudy go Ben for an operational update.
Thanks, Nick.
Afternoon, everyone.
Operationally throughout this third quarter, we saw greater customer traffic throughout the portfolio.
Two at or near pre pandemic levels.
This drove a significant amount of leasing interest and signed deals in the quarter.
Tenants in nearly every category, we're back wanting more space and wanting to secure available locations within our high traffic centers.
And with virtually 100% of the reach properties, having a full line grocery a near 70% <unk>.
Including a Walmart supercenter.
A wide variety of tenants, we're adding new locations in our centers, where they weren't previously represented.
Including as Mitch said earlier dollar stores winters home sense health and beauty, the Canadian tire banners that stores full line, especially the grocery stores.
[noise] liquor and beer as well as distribution and logistics a mix that is very consistent throughout our portfolio and all driving more traffic and improving tenant mix in each center.
Yeah.
For some key operational highlights.
We closed the quarter with an improved occupancy of 98, 1% with committed deals a full 50 basis points increase over the prior quarter. This.
This tremendous improvement was widespread across all provinces and demonstrates the resiliency of the portfolio.
Most of the space previously vacated by tenants during the pandemic has now been released and we are at our pre pandemic occupancy.
Yes.
At quarters end, we have already renewed or near completed $4 3 million square feet of the 2022 lease maturities, representing 86% of the maturities for the year and at a three 3% renewal rate excluding anchors.
Over 200000 square feet of leases were executed for build space during the quarter and I would add at market rents and with better covenants than the previous tenancies.
Another sign that physical retail is greatly improving what's reflected in the lack of any bad debt provisions being booked in the quarter and no tenant filings for financial restructuring.
Okay.
You entrants to the market are continuing in a number of categories.
Including health and beauty specialty grocery furniture sporting wearing <unk>.
All with strong interest in our open format centers.
We continue to work with our tenants, helping them to adapt to their changing space needs, giving them the flexibility they need while strengthening our partnership with them.
As Mitch said from a rent collection perspective, we are at 99%.
And expecting improvement in the coming quarters.
Our collections and rental levels are driving improvements in NOI for the third quarter. We had same property NOI of three 1%, excluding anchors driven predominantly by higher traffic and an expanding customer base for our tenants.
Regarding our premium outlets in Toronto, and Montreal, both continued to improve with higher than expected customer traffic driving sales back to their pre pandemic levels with both centers had 100% occupancy the pent up shopping demand and accumulated disposable savings we are expecting a very strong performance from the out.
Yet this year.
From all perspectives 2022 is recovering very well and Q4 is expected to be no different.
Physical retail and especially our value oriented uninfluenced centers continue to be in high demand and communities across the country.
Our value focused tenants are adapting customer traffic is improving occupancy and cash flows are back to near pre pandemic levels and most importantly, all of this is happening concurrently with our extensive mixed use development initiatives already identified and in the pipeline.
And now I will turn it over to Peter Sweeney.
Thanks, very much Rudy and good afternoon, everyone.
The financial results for the third quarter reflect solid performance in our core business.
For the three months ended September 30th at 2022.
<unk> per unit with adjustments and excluding various anomalous items was 54 cents per unit unchanged from the comparable quarter last year.
Note that these results include the noncash impact of a three cent loss for marking to market. The total return swap for the quarter.
Higher rental income was largely offset by higher G&A costs and higher interest expense was largely offset by higher interest income during the quarter.
Please note also that for the quarter, we have presented F. O per unit information net of the impact of anomalous items, including year over year changes in number one expected credit losses of approximately one cent.
Two condo and townhome profits from last year's Transit city, three closings being approximately four cents per unit three.
Three the loss during the quarter from the total return swap being approximately three cents per unit.
And lastly, number four the dilutive impact associated with units issued pursuant to the acquisition of the BMC West lands being approximately one cent per unit.
Net rental income for the quarter increased by $3 $6 million or two 9% from the same quarter last year.
Same property NOI increased by $3 $9 million or three 1%.
In the quarter or two 3%, excluding the impact of expected credit losses.
Also as Rudy had mentioned leasing activity continued to improve during the quarter, which is expected to assist NOI going forward as these new and renewed leases commence our occupancy level, including committed leases was 98, 1% at the end of the quarter, representing a 50.
<unk> basis point improvement from the second quarter, which is an extraordinary achievement.
Recall also that our board did not adjust distribution levels over the past two and a half years. Therefore, our annual distribution level of $1 85 per unit has been maintained.
Our payout ratios relating to cash flows from operating activities on a rolling 12 month basis for the period and September of 2022 was a very respectable 86, 6% an improvement from 96, 8% for the same period ending in 2021.
Yeah.
Total assets exceeded 11 $8 billion at the end of the quarter as compared to $11 3 billion at year end and on a proportionate non-GAAP basis total assets assets exceeded $12 $2 billion as compared to 11 $5 billion.
At year end.
For the quarter I FRS fair value adjustments in our investment properties portfolio resulted in net losses of approximately $92 $5 million.
Principally reflecting an increase in our capitalization rate assumption of a 10 basis point increase for most retail properties in the portfolio with a few modest exceptions.
This adjustment reflects our inherent conservatism rather than any observed market transactions.
During the quarter, we added 941990 additional notional units to our total return swap.
At a weighted average price of $27.42 per unit.
Accordingly at the end of the quarter, the Trs had approximately $4 4 million notional units.
At an average price of $28 and 16.
Resulting in mark to market non cash losses of $4 $9 million.
As we've noted on previous calls this Trs initiative was implemented last year as an alternative to an NCI b and it has approximately two and a half years remaining.
Before it is expected to be wound up.
We believe that over this remaining term. This initiative will continue to provide opportunities for earnings growth, while avoiding any longer term financing that is typically associated with an N C. I V program.
With respect to our continued focus on further strengthening our balance sheet. We note. The following number one our debt to aggregate assets ratio has improved to 43, 7% from 44, 5% a year earlier.
Number two.
In keeping with our strategy to repay maturing mortgages and to grow our unencumbered pool of assets, which at the end of the quarter exceeded eight $4 billion.
Unsecured debt in relation to total debt increased to 77% from 70% last year.
This strategy permits us further agility, when considering future financing opportunities and alternatives for our portfolio of mixed use developments.
<unk> three with rising interest rates, our weighted average interest rate for all debt increased during the quarter to $3 six 7% as compared to three 3% in the second quarter.
We remain confident that we have structured our debt ladder conservatively to permit staged and manageable maturities to occur over the next several years.
Number four our weighted average term to maturity for all debt is approximately 4.2 years number five as at September 30th approximately 83% of the reeds current outstanding debt is fixed rate debt, which provides tremendous stability during periods.
Of interest rate volatility.
As noted previously we have two series of debentures maturing in May of 2023 in August of 2024, and the amounts of $200 million and $100 million respectively.
Accordingly, we're continuing to monitor debt capital markets for interest rate movement, and we have tremendous flexibility when considering refinancing alternatives for maturing debt.
Our longer average term to maturity on our historic bias towards fixed interest rates have insulated the REIT for more significant volatility in interest rates.
As we are witnessing in the current market environment.
And then lastly number six we continue to be comfortable with our liquidity position. Currently we are focused on completing several new construction financing facilities to support several development projects that are rapidly moving ahead that Peter slan will speak to momentarily.
Our balance sheet remains strong.
With stood the pandemic well and we believe that we are extremely well positioned to fund the various growth oriented development projects that are currently in our pipeline.
And before I asked my successor, our incoming CFO Peter slammed to provide some comments on the <unk> outlook I would like to say how much I've enjoyed these past eight years and to thank you our unit holders the analyst community as well as Mitch and my colleagues here at Smart centers for your continued.
Support and confidence over these past eight years and I'm confident that you will provide peter with the same level of support and confidence.
As he takes over from me and with that I'll now pass it over to Peter Slant Peter.
Thanks, very much Peter.
I'm tremendously excited about joining smart centers and participating in the next phase of our growth.
The outlook for our business is strong.
I view smart centers as two related businesses, the Wal Mart anchored portfolio of retail shopping centers and a robust development business.
Both businesses are set to perform well over the coming years.
On the retail side, our portfolio continues to perform well with strong leasing activity.
We expect most metrics to return to pre COVID-19 levels over the coming quarters as you heard from Rudy.
Continued strength of Walmart's business model is unparalleled and aligns well with Canadian consumer demand, resulting in strong performance across all economic cycles.
The development business is particularly exciting to me is the newest member of the management team.
We have over 3 million feet of mixed use development projects that are currently under construction and expected to be completed and drive growth in <unk> over the course of 2023 and 2024.
All of our projects are currently proceeding on time and on budget.
As Mitch noted earlier some of the notable projects include 395000 square feet of self storage space across three properties more than a thousand condominium units and a further 174 townhomes more than 900 residential rental units on three separate projects.
413, senior housing units and a 241000 square foot industrial projects.
Not only are these projects expected to drive earnings growth. We also expect them to allow us to recycle some capital into other projects in our pipeline and facilitate prudent management of our capital and liquidity needs.
In addition, we are currently working on several project financing initiatives, including the industrial sides of Pickering, the Canadian tire cited lease side, the Artois condominium and rental development at Smart BMC.
The Vaughan northwest retirement home projects.
Once again I want to thank my new colleagues for a warm welcome over these past three weeks and I'm excited to be part of the team here at smart centers and with that I'm going to turn it back over to Mitch to moderate the Q&A.
Okay.
So as you can tell from our collective remarks.
Our core portfolio remains strong.
And for <unk>.
Continues to grow.
Our tenants and our priority.
Simplification program remain our priority.
We also continue to focus.
On our specialty projects.
Such as.
Storage.
Seniors.
Senior housing.
With that I will now.
I'll turn it over to the operator and addressing your questions.
Thank you.
Of course, and just to remind everyone to queue up for a question. Please press star one now.
And the first question comes from Mario Sorry from Scotia Capital. Please go ahead Mario.
Hi, guys good afternoon.
Hmm.
Maybe we'll start on the operational side Rudy.
Terms of the.
In terms of a quote unquote occupancy game, that's pretty impressive at 40 basis points on an in place or about 40000 square feet.
How would you characterize the 140000 that'd be demand between new tenants to smartphones versus expansion.
<unk> tenants.
Well. This is Martin I was just taking more locations.
Yeah, I think it's.
Most of it Mario is our existing tenancies expanding into centers, where some vacancy that became available as a result of tenants who had left throughout the pandemic as you know and are the likes of the some of the national tenants that I referred to earlier.
Like the winters home sense.
Pharmacy beer and wine dollar stores are you know they are that was the majority of it there are a few tenants who have signed on with us that are going to be part of the I'm going to call that part of the committed deal. So you will see them opening up they havent opened yet, but they will be opening up in the coming months. So it is.
A blend of the two but most of it is our existing sort of in house tenants from our tenant mix.
Got it Okay and then your comment on the strong expected performance from the outlook in Q4 can you remind us of the typical seasonality involved there. So for example, the percentage of the total portfolio revenue that would come from the outlets in Q4 versus the average of Q1 to Q3.
Yeah.
Yeah.
Hi, Mario I mean, I don't think we differentiate that out in our financials so well.
But what I can tell you is our outlet portfolio is performing actually better than pre pandemic. So when we look at where we expect the NOI to be in 2020 to them. We can say to you that.
US and Simon are expecting a strong performance for those properties.
Compared to the pre pandemic numbers in fact slightly better and as we see sales already improving traffic is as you know crazy.
There are we are we are expecting a very good year.
So I'm not not so different than what it was in 2019, but certainly the best since then.
Yeah.
Okay, and then my last.
Question, just pertains to the G&A did tick up a bit in Q3.
Primarily on a lower amount of G&A that was capitalized in Q3 versus pretty much any quarter going back to <unk> to 'twenty one.
What's a good run rate for that going forward on a quarterly basis.
Yeah, I think a good run rate would be anywhere from maybe 600 to 700.
Per quarter, we had a catch up maybe you I think.
I don't know if it was disclosed properly, but its a catch up that represented the whole nine months in one quarter and it's all based on development activity right. So.
When development activity is.
Sort of mainstream deal will be less of that and when development activity is less there'll be a little bit more but I think on a run rate basis anywhere from that sort of six to 700, and then you should see some of that into Q4 as well.
Okay. So sort of when you say six to 700 Bucks. If we if we look at your Q1 or Q2 G&A was one 7 million net of capitalized allocation to Penguin and so on and so forth. So it got $7 million to $8 million million quarterly run rate is that a pretty good number going forward.
The 600000 to sorry, and in terms of the overall G&A.
All I'm, saying is that's been a trouble spot.
Yeah, Yeah, what I'm, saying is yes, it would be to add six to 700000 per quarter to each of those prior quarters as a as a G&A number yes. Okay.
Great. That's it for me. Thank you guys. Thanks.
Thanks, Matt.
Alright. Our next question comes from Jimi Mall from BMO capital markets. Please.
Please go ahead.
Thank you good afternoon.
Congratulations to Peter flatten and Peter Sweeney afford to Oh, I can I can't finish line I wanted to pivot to the development I think in past calls you had guided to about $300 million spend for 2023 and I'm wondering if you could provide an outlook for 2024.
Correct.
Jenny, it's Peter Sweeney and thank you.
Maybe this will be my last comment I think we've guided in the past that for 2023, we thought that 250 million was the expected amount of spend development spend for that year and I think given where we are today and what we know to be moving forward today et cetera that you should expect.
The same amount of development spend or a similar amount at least for 2024 as well.
Okay, great. Thank you.
And then when we think about the capitalization of interest.
It moved up throughout the year and I presume a lot of that is from smart BMC west.
But net net when you think of some of the car the completion and the spend that we just talked about Directionally should we expect capitalized interest to remain flat or maybe move up a bit moderately.
I think if you if you if you wanted to analyze the journey of the right way to do it would be to take the Q3 capitalized amounts and extrapolate that across an annualized or a 12 month period only because as we know interest rates have moved up.
Over the over the three months ending September .
And a big part of that you're absolutely right, a big part of the capitalized amounts pertained to.
<unk> BMC west and the debt associated with that property specifically and.
And then on the other properties that are part of the portfolio. They either have property specific debt some of which may be variable, which is subject obviously to rising interest rates and some of the debt is assessed at capitalized amount based on our weighted average interest rate, which as I mentioned in my script.
It increased obviously as well so I think if you take the amount capitalized in Q3 and you extrapolate that over a 12 month period, you you're not going to be that far off for the next 24 months.
Great. That's helpful. And then lastly, with regards to the Pickering industrial development I'm not sure if I missed it but did you ever disclose what the cost of the phase one development is.
No provided a yield in the leasing but any sense on Kyle.
No we havent specifically.
Right.
Okay, well that'd be something that's forthcoming in future quarters.
[noise], possibly.
We have provided the yield so.
It is a.
You know I'd say build to suit contract.
But.
Yeah.
I guess, we we we might in time I guess provide.
The cost associated with that project, but there's nothing.
Oh, nothing remarkable in terms of that cost it just we.
We havent, who sometimes do not.
Give you.
Exact.
<unk>.
Details because in this case it is a build to suit for a specific tenant so just out of respect for.
For the tenant and.
And there are specific spend on this.
On this project.
<unk> got some finished office, it's got some unique things in the warehouse.
It is a bit of a competitive issue.
Terry.
There's reasons for our proprietary and competitive.
Competitive competitive market reasons for not disclosing every every one of those details.
Okay. That's that's fair.
Is it more or less in line with what we'd expect the market cost it either.
Liar, either way no, but it is a unique building I mean, it's a 40 foot clear turnover, if we emphasize that which in the industrials as you know highly desirable.
From a tenant point of view.
But higher than.
Average industrial space.
And which increases the cubic area.
And.
That's something that's unique but other than the.
Costs that might be associated with going with a higher power.
Right.
It's not an outlier.
Okay.
Thank you very much I'll turn it back.
Thanks.
Alright, and next we have a question from Sam Damiani from TD Securities. Please go ahead.
Thanks, and good afternoon, everyone.
With the further diversification of smart centers activities I was just wondering between all the different income property types, obviously retail self storage departments industrial senior housing, which two or three of them are most attractive given the market dynamics today and unexpected for the next year or two.
Oh, that's great I love that question.
You know if you go in terms of.
Short term I mean, just like you know answering.
Answering your second I mean.
Storage is a real satisfying you know.
For them because.
It's easy to.
Two zone and approved it's not.
Not.
Parking intensive.
In fact, it's cheap.
<unk> is the surface parking.
Low parking.
Demand.
And its not expensive construction and it's quick construction is kind.
Kind of over performing in terms of.
Lisa.
Hmm.
You know I don't want to distract from the much bigger.
Ultimately you know kind of or.
Move the needle potent.
Program being the residential.
But.
Yeah.
Ignoring the overall size of the.
Of the program storage has been really quite a an over achiever.
So that was a real stand out versus the other other type property types.
I mean, it's just because of the reasons I said I mean, it's so easy to get it get it built I mean the process is so quick in every respect.
It was not a lot of objections to a storage facility. It doesn't take the same analysis municipal level and then constructing as construction is efficient.
So and it just happens to be.
Good locations and there is pent up demand. So it just happens to be that we're I think we're something like 90% leased we're ahead of schedule. So.
Yeah.
For all kinds of reasons, but it is a it is.
<unk> program, and we're very committed to it.
Actually we think we'll do quite a bit more of it.
But the.
The big needle mover the medium long term.
Transformational.
Firms are residential for sure which are performing great. I mean look our condo program has been extremely lucrative and so will the residential.
Ultimately.
The multi res.
But they take a lot longer.
The approval processes as mergers. So you know, it's just as I say it's.
The storage is being just kind of a bit of a bidder.
A bit of a wonder trial.
I guess just on to on the condo side I'm sure.
The city four and five the profit margins. There that you are expecting to book I guess next year are pretty much intact.
But going forward well.
How do you think about the market today to build similar product and achieve similar profit margins given cost inflation in the market dynamics that you see today.
Yeah, I mean, we sold out.
Mark you know different market. We also saw the cheaper.
We locked into.
We locked into low control lower construction cost so could very good margin there.
Frankly park place.
<unk> been artwork.
Actually more profitable than PC, four and five.
Subject to.
The.
Construction prices like you know that we have.
<unk> satisfy yourselves with no interest rates of course.
If you took some sort of.
You took construction prices of a year ago.
Artwork, it's more profitable than.
T C.
Four and five.
And of course with <unk>.
Outwork, we own 50% of REIT.
Versus 25%, which.
As a really important detail in terms of.
In terms of bottom line.
But I don't see at the moment.
You sort of mentioned this.
At the beginning of your question I don't I don't think we're really exposed to four and five which I think most of the buyers there are very committed to closing so.
I think they are pretty safe as you.
As you had said.
Okay. Thank you and just last one for me I guess there was a subsequent event with some mortgages receivable being paid off yet has that been completed and can you disclose which which properties they were secured off.
I don't you know what Sam I think we gave a number there's there was approximately $140 million.
Mm 140 knows over in excess of $140 million of Mezz loans outstanding at the end.
At the end of Q2.
And as we said subsequent to quarter end, a substantial amount of those and that those amounts outstanding were repaid I didn't bring the details on them.
But certainly as we get to Q4, you'll be able to see that in the disclosure as to which of those mezz loans have been repaid.
Yeah.
Makes sense, Okay, I'll turn it back thank you.
Okay.
Alright. Our next question comes from Pammy Byrne from RBC capital markets. Please go ahead.
I think so.
Maybe just building off of a the last question from Sam just.
Peter do you know what the rate on those loans repaid wise.
Yeah.
Or even the sort of the average.
It's based pommy I mean, if you look at our disclosure it's pay it's based off a be a race and it varied subject to be as in prime moving so I think it's in our disclosure.
And each of you were close to seven we were just under seven year around seven.
Recently.
But yes.
Yes.
Sure.
You can't find it in our disclosure upon me, let me know and I'll point you in the direction to it both the financial statement notes as well as the MD&A.
Got it maybe.
Maybe just switching gears in coming back to the occupancy discussion.
And certainly suggest some some good strength there.
What are your thoughts on how much further upside in occupancy do you think you can pick up and over what timeframe do you see that may be playing out.
I mean, there's certainly there's been some.
Pent up demand there has been a lot of retailers, having a chance to think about.
What they want to look like.
The last two three years, they've been planning that so.
Yeah, I don't want to be I want to manage expectations because you know.
So everything is a constantly evolving and changing but there seems to be from very you know from this for a lot of the strong stronger retailers this country.
You know some some.
Some interest in.
And and expanding and four new units.
So.
I mean, it's hard to say, but it does seem to have some legs for sure. So it's not just filling vacancies.
But it's new space.
Owned plans.
And then some new retailers as we said.
Some some some retailers the word.
In our portfolio.
I've reached out some of them are existing concepts that are regional and want to expand.
And some are.
New concepts from existing national.
Players, who want to try new concepts.
You know a fairly significant space like these concepts are corporate.
Core plate.
And value you know they want they want big space they want good parking.
They want.
Good rant, but those are those are players are interested in some of our vacancies, which is which was great. That's new over the last.
Couple of years.
Yeah, and the other thing too that I mentioned earlier and I mentioned, it last quarter to the covenant quality that Mitch referred to is much better in the incoming tenants versus the outgoing tenants during the pandemic as you can imagine the sort of the weaker retailers, whose maybe you didn't have a good ecommerce platform didn't have good click and.
It wasn't in the essential.
Services are essential products suffered more than the others.
Those would not without strong balance sheets and liquidity. So now the ones that are showing up we're very we're being very particular and also trying to manage the mix of tenants. You know, we don't want three or four of the same type of tenants in a in a in a shopping center you go to you go to one of our shopping centers you will see one dollar store in a shopping center you will not see two or three or four.
So we're very mindful of covenant quality, we're very mindful of.
The tenant mix in deciding.
Who should be in and that will drive you know what.
That will drive the leasing.
More so than anything else.
I would add on the leasing note as well, which we didn't mentioned that theres. Some some preliminary interest from some office tenants.
Sure.
For some of our properties.
So stay tuned on that but.
There are some there are some.
Strong covenants interesting.
So the suite office space, which is something we.
We re factor in.
Into our.
Our.
Growth numbers.
Sorry, Mitch or are you referring to.
Office interest in office space, our D&C or just some of the.
Some of the existing retail centers.
I'm talking about new build to suit office building space building office space for a specific user.
It's kind of weird.
I'm feeling office space, we actually for all intents and purposes have zero.
Let me think yeah, I think we pretty much have zero vacancy in our office portfolio.
Now do you want to Nitpick I guess, we have a lease signed for a vacancy of about 4000 feet.
But it's the side, but it hasnt commenced but for all intents and purposes I'm talking about interest in having an office building built for specific.
Office user right.
Okay.
Got it and then just on the as you kind of approach our Q1, it's still.
Until a few months away, but typically we do get some seasonal weakness are you anticipating anything there in terms of any potential closures.
And then secondly.
If you could remind me if there's any exposure to two bed bath and beyond and if there's any I didn't see any Canadian closures, but just any thoughts if there's anything that may show up in your portfolio.
Yeah, I mean first part I would say.
One of the one of the few good things about Covid is it did it did separately.
You know the the week from the.
Stronger and so.
We really don't have that.
Sort of feature happening, we don't feel at this year.
We're going to have that.
Whatever percentage happens has happened historically.
Always been relatively small with our portfolio, but I.
I don't think we have any of that because you're actually but we do have exposure to bed bath and beyond but not much I think we only have.
Two bed Bath and beyond and we are in good locations.
In Cambridge and in Halifax.
And we have very strong interest in their space in both cases, so actually.
I mean, we don't know what's going to happen with them hopefully they will.
So.
We will continue.
Continue to do business is the current form but.
But actually we already have interest in those spaces.
So okay.
Okay.
Last one for me just any update on progress since our pre sales at park place I think you you released a portion of the first phase if I recall.
And then just lastly, you mentioned some comments you commented on sort of interesting no wage whilst I'm curious if you have any pre leasing updates there.
I mean with the park place.
Yes, we continue to.
Sell there.
Hum.
I think we're probably I don't want to Miss quartz would.
Put a sort of aspects of this.
I think we're sort of in the $1 50 to 170 units was there.
And as you know outwork US is sold out in terms of the units that we put on the market.
And the only units we didn't put on the market, where the very lower floors and they are very higher floors for strategic reasons to do with just giving us flexibility.
The design.
Some design matters.
And the mill way you know if you look closely if you'd come up you'll see there's the podiums. So we're focusing that leasing directing our focus to the podiums right now the podiums of the.
<unk> four and five are actually midway.
And then the podium over to Norway is also go away so.
I would say, we're probably 50%.
No.
Leased.
You will on the two podiums of four and five which is where we're directing we do have leasing.
The podium in the mill way.
But we're now directing things there so and that's look at it's still got a crane on it it's still a construction site.
You know the the anatomy of the.
Leasing profile of a rental building is usually when there is a.
When theres completion and there is a.
Two of the building and you can go into a model suite or two.
By the way we are we are currently.
Currently decking.
But we're just not there quite yet and yet we are leasing is strong. It is right beside this February it's a brand new building there is huge rental demand, so and theres not theres nothing.
In the in the area like it so.
If it makes sense that.
The interest is as strong for preliminary way.
And a good rate and by the way I will say its slightly better rates than we had pro forma.
Okay, and then just sorry, just to your comment on the $1 50 to 170 units at Barclays is that units sold and what was the number of units released for phase one.
Yeah, I mean, it's sold correct.
With with deposits and passed decision dates that's what I'm quoting you.
And number of units released.
Well that would probably be I'm, guessing plus or minus 50%.
I would say.
I can't remember the exact number three being shown here 300, yes, its approximately maybe a little bit more than 50% of the units that are released and by the way we continue to do sales events and you.
You know build relationship with the with the brokerage community or with smart living it's really important.
We're.
For new players.
But we're not mercenary developers so we're very very much into building the brand.
With the brokerage community pending the user community and that is really being appreciated in this sort of.
More challenging time, the brokers love it that we are reaching out to them and having them up and showing them our portfolio of developments in China.
And that's something we feel that we've caught up very much too.
The the condo developers that are more being in the market longer with us. So we've been using this time in addition to selling to building those relationships.
Thanks, very much that's helpful I will turn it back.
Pardon me, it's Peter Swinney listen just for your benefit are the reference to the M. D N a as on page 69.
And the financial statements. It's page one O eight are on those mezz loans. If you were looking okay.
Thank you.
Alright.
Next question comes from John Rodriguez from.
I E capital markets. Please go ahead.
Thanks, everyone.
So a couple of questions. So one you've been selling a you know a few land parcels here and there a london them about still though you know you obviously have a huge pipeline with more access land than probably ever build on and I've spent a great deal of time thinking about exactly what you build but now you have a rough idea.
Yeah.
You wouldn't build I E how much excess land you'd like or you expect them to monetize.
Oh, you mean in the next year or.
Yeah, or even five years ever.
Or what's your thought about.
Yeah.
Sure.
Comment that we've got more land than we can build on.
It seems as though maybe like that right now which is a great thing.
Considering none of it is reflected in there.
And our unit price.
But.
No.
It will be monetized in a variety of ways Im sure Im assuming you are implying some of it we will sell outright over the years some of it will JV and some of it will build condos on so it will build condos on with partners Thats monetizing I guess you know the multi res you could say is monetizing as well, which we'll do.
Ourselves and.
And partnerships.
I mean, we've got a.
We've got a long term development plan I mean it'll be.
It will take us.
It'll take us 10.
Yes.
10, 15 years to develop out all of our lands squeeze. So if you say 15, if we just don't have the pedal to the metal, which we likely will not.
Yeah.
We'll manage that each phase.
No.
Prudently as we go but I would say, we will probably end up building out in the next everything out in the next 15 years, including BMC.
Okay. Thanks <unk>.
And just wanted to touch on your comments about you know taking the cap rate up 10 10 beeps.
All shopping centers.
Is there a differentiation between how you see cap rate movements and you know the primary well if the vacuum markets first primary market other primary markets and secondary markets.
Or is it just you know it's it's a it's it's.
It's been popular in the last I don't know 10.
10 years to differentiate between small and large markets, but in our case.
We are Walmart anchored very often with our Canadian tire or a.
Home depot or certainly sometimes.
Lots of could even have a food store.
If you're in a what's called a small market I mean that is a very dominant thing there's no. There's no. There's no target and there is no Kmart I mean, theres a theres no zellers.
I mean, the Walmart in those markets is.
Is the go to along with a lot of the other staple so.
We do very well in those markets, we have very good market share.
We have a large role to play in those markets.
I've mentioned before it has led to having good relations in those communities in terms of <unk>.
So.
In terms of what those are worth.
I guess, there's not a lot of trees, but we see them as being were not looking to two to dispose of that part of our portfolio.
Having said that we have had inquiries from third parties to acquire portfolios.
Portfolios within our portfolio of.
Smaller market Wal Mart anchored centers and we've had inquiries.
Others to acquire a mixed portfolio within our portfolio of Wal Mart anchored centers, even up to now.
Completely.
The third party.
While it is not we're not marketing that but we haven't gotten to a point of establishing what that cap rate would be but we certainly value of them.
Well.
Running you know away from those.
Regardless of what the.
<unk>.
To lay person might think about or try to.
Sort of.
Try to generalize.
Small market big market cap rates, I mean, theres more redevelopment potential big market that's for sure.
But in terms of the retail and the health of those centers.
Virtually 100, I mean, we have 99% or close to 100% occupancy in our smaller market centers.
Oh and Peter screening.
Listen you have it's Peter Swinney listen keep in mind as well two things first of all our portfolio of shopping centers in other other income producing assets is valued by third party appraisers and has been now.
Or I guess, approximately 10 or 11 years since I for US first step came around and so we defer to those appraisers to give us their sage and professional perspective on value.
And.
There's obviously going to be some variance in a cap rate.
I used to value, our smaller market center versus perhaps a larger market, but at the same time.
As Mitch mentioned these assets are all.
Dominated by a Walmart in these various markets and so.
Walmart will continue to attract traffic to these centers, obviously and therefore continue to persuade other tenants to be around Walmart to participate in those higher traffic counts and obviously you know that buoyancy creates.
Some lift in value relative to maybe a lesser or lower level of operating performance by a neighborhood shopping center in a smaller market.
So just keep that in mind and I guess, the second item is that.
As Mitch mentioned these shopping centers provide regardless of their market rigor provide all sorts of incentive to an opportunity to intensify and improve over time, but with with almost no exception.
The REIT has continued to value these centers in these shopping centers.
At their income in place levels and capping that income at what our appraisers tell us as an appropriate level. So always keep that in mind, when you're thinking about how we valued assets historically.
Yeah, Okay, Yeah, no I yeah.
I like all myself or just trying to figure out what cap rates are doing you know obviously being a few steps away from transacting direct real estate ourselves. So I was just looking for color I appreciate it and yeah, Congrats to Peter and Peter mentioned must be a big fan of Peter.
[laughter], Yeah, we tried to make it easy for everyone I mean.
I'm, just really only were searching for.
<unk> named Peter.
And ideally.
I'm, sorry, just to save to.
To save on certain things.
Some internal costs overheads.
[laughter].
All right next question comes from Tao Levy from National National Bank Financial. Please go ahead.
Hi, good afternoon, everyone.
Okay.
I'm just wondering you've made reference a couple of times to sort of traffic being up at Walt you know your Wal Mart anchored centers can you quantify that.
Okay.
Tyler Trudi.
Yeah, that's the feedback by the way, we're getting from our tenants some of our tenants are a smaller tenants.
Report sales. So we have that and then the obviously larger tenants we get that feedback from them. So we just know that through their feedback.
And you know just.
Just looking at the parking lot and our tenants who by the way are asking for pickup spots in click and collect spots.
Way more than.
Way more than what it would've been at the start of the pandemic, where it's becoming a lot more commonplace now so.
Look at it just looking at the parking lots. We can you can also see that too. Okay. Yeah. I was just trying to establish whether I didn't know whether it was like Oh.
You guys have all of the tenants count counter traffic okay.
I'll have customer counts counters.
Doors, which I don't know, whether it is known that or not but.
So that's.
That's where the best of the best evidence is and.
From from our major tenants and a couple of other tenants that we have.
Close relations with them.
They are telling us that their customer counts are up and it's obviously part of the evidence period and then there are of course they are interest in.
Newell's and expansions and new stores is also kind of.
Support complements the Cogs of course that as well.
Hey.
And then just earlier in your preamble you had sort of made reference to me.
Higher interest rates being a benefit.
So the portfolio I'm wondering if you can just expand on that.
Yeah, I mean, obviously with higher interest rates.
It's.
It's having all kinds of knock on effects.
First of all even.
With respect to.
Recruitment.
And retention.
<unk>.
When.
Money was free.
And stocks were flying.
So it had a lot of the Exxon people's value of their of their given their jobs.
Im not.
I'm not saying, we're where we were.
10 years ago, but there is a movement towards.
Towards.
More interest in our postings for jobs.
You know for example.
It also has seems to have slowly it seems to be having the effect of companies being looked at.
From the point of view of their of their earnings like we're getting back to assets are being valued as opposed to narratives.
It was like you know for where money was free and it didn't matter what the earnings of our company was.
The the general public we're jumping on the bandwagon celebrity companies.
Sure.
Ignoring the earnings.
Or or price to earnings multiples it seems like there's a <unk>.
Movement towards valuing companies again on their actual.
Assets there are potential growth.
The quality of their their management.
Their network versus a narrative in the story.
So a lot of that is related back to rates, increasing and those are all good things I think for all of us.
And then of course, the price of real estate should appropriately.
It will be affected and come down, but we're really in the market to buy we've got plenty to develop but still.
That may come to us.
So we think that those are all things that are far away.
The cost.
Of our <unk>.
Variable.
Here at Smart Smart centers.
And what are you looking for to green lighting, new residential stuff.
Do you see much change in the mix between condos versus apartments going forward or.
I think.
Maybe you wonder whether like the condo buying market will be as deep as it has been over the last five years and then there's such strong demand for rental like.
That's sort of influencing how you are looking at some of those waves are going to redevelop some of your stake.
Uh huh.
The condo will be the condo, we're not at the moment, we're not thinking of just buying sales.
Like some condo developers and some statistics that you may read about we're still.
We're going to keep it real that is.
We're now planning on <unk>.
Requiring deposits that we think are meaningful.
And that will determine whether its go no go and so really the market will decide whether we go or don't go.
We think it's a value we think it's very been good bang for our Buck to get approvals and maybe even go to market and see.
But we do want to have a healthy mix of condos in there.
But yes, we know that the rental market is very deep.
And <unk>.
In the absence of.
Theyre being a condo market, our deep one theres, a deep rental market, but we weren't we were going to be very very.
<unk>.
And just.
Tapping that deep residential red rebel tourism markets simply because we're going to want to manage our debt levels. So.
And just so you understand also.
We do get.
Maybe more we meet slope, a little bit more towards multi res in some cases, because some of the institutional capital out there once multi rez and so to the extent they want to partner with us and buy in at a market at a price that's interesting to us it may accelerate some multi res.
But as I said, we'll be at.
At all times, keeping the big picture in mind.
Being.
What it does to our overall debt levels. So.
Yes, I think we're going to just keep forging ahead with both and the marketable determined.
First and foremost thing how much condo can really go forward safely and secondly of course.
The highest tier on the hierarchy is oh.
It was just to manage our debt levels.
That actually leads nicely into my next question you guys have spoken in prior quarters about maybe trying to establish some sort of a.
Financial partnership with some institutional capital.
Given the market upheaval I could perfectly understand that maybe some of that gets some of that gets deferred are reevaluated right. Now can you give us an update on where you stand with yeah. I mean, that's exactly being on I mean.
We actually had a bunch of deals about to be done.
And then you know.
Right.
Moving up rapidly.
Rapidly so.
The interest is still there this was never like a heavy pressure.
Kind of negotiations.
He was so long it was a strategy to build long term relationships.
Really we have had and have.
Talk about had we had a lot of interest.
In partnering on a bunch of our multi res.
But in the interest is still there, but because of rate changes of course.
That rightly changes the their pro forma.
And.
The interest is still there I mean, the way we're treating each other is just we're like you know.
It's sweet and see what goes on and we keep the relationship healthy and strong.
They are long term thinking as well, but for now I mean.
We don't see any of that closing imminently like you said, but I do see that very much being.
In our.
And if you know the future.
Sure.
And in the months or years ahead that will.
We'll certainly be a part of our <unk> program.
Okay and.
Just on the provincial announced that at least here in Ontario regarding the you know the new housing plan can you.
Just provide your thoughts on.
How you think of it.
You know helps and what you know does it change anything sort of about how you approach certain types of projects going forward.
I mean, nothing we're forging ahead with everything that we were doing a year ago and two years ago, because we're going to obviously the big go no go is at.
Basically construction, that's where that's where really really counts in terms of you know.
Financially.
<unk>.
These changes are good smart sensors.
In some cases accelerated approval process in other cases.
Clarify and actually make it.
A little bit.
Less costly to develop.
So it was getting a little bit of out of hand, what was being.
Lead on developers to provide for getting approval so.
Province took a bunch of things away and also clarified something so it's just good for what we're doing it's not going to result in us, saying, okay, well now let's develop this property to that property.
You don't just accelerated and makes it probably a little bit better financially, but we were already looking at things.
Like everything.
Moving on most everything that makes sense in terms of getting approvals, but it is a big deal just generally speaking as an entre in.
Those changes in legislation or our are huge.
So everyone understands.
How intimately familiar this province is.
With municipal and regional politics, and historically that has not necessarily been.
You know the.
The strength of.
Potential government, even though in planning terms they are big brother, but this is really nitty gritty.
At a big big message to the municipalities.
Okay.
And then just lastly, I'm wondering.
You know as you guys have said before you were one of the one of the few are.
One of the retailers, who did not adjust your distributions sort of going through COVID-19.
You do have big plans ahead of the cost of debt has changed and I wonder like you.
You know not that I'm trying to suggest that a distribution adjustment is needed, but certainly the calculus of retaining your internal cash flow is a little bit different than where it has been.
And I'm wondering it seems like you're sort of leaning more towards hey, we'll we'll rely on capital recycling or excess landfills kind of fun things going forward is that how.
We should sort of be thinking about things for the foreseeable future or do you think other steps other stuffs might be worth taking just given that the numbers have all changed in the last little bit.
Yeah, well you know we don't we don't feel we have to do anything right. So.
R. R R.
I don't know what our company is valued at.
Actually you know cause according to market, where neither the sum of our parts nor the synergies of our network.
So I don't know what we are in that respect.
But that notwithstanding we certainly arent anything more than our recurring income.
So the market.
At the moment and four.
Basically at any time I mean.
So.
We will continue to be a value oriented you know.
No.
Owner of value oriented.
Wal Mart anchored shopping centers.
He's got a very strong.
Tenant base.
And of course.
One of the levers that have as an option as cutting distributions but.
We're.
We're very confident in our collections.
And we think that you know.
<unk>.
We think that distributions are.
R R.
Were very important to our shareholders.
And.
You know.
Things would have to be different.
I think I mean, it's obviously up to the board, but our history has been that.
We'd probably do everything else.
<unk> prudent before we would do that.
But obviously, yes.
Theres always scenarios, but I don't foresee those scenarios, but but you never know.
And we're comfortable.
Just.
Playing it safe with.
Development initiatives.
And making sure our shopping centers operated at the absolute maximum.
And we do have growth in our retail as well again kind of a tailwind so.
I'd say distributions are probably last on the list.
That's great thanks, very much Donna.
Alright, and the last question that we have in the queue comes from Dean Wilkinson from CIBC World markets. Please go ahead.
Thanks.
On your condo pre sales if you were to get back a handful of more larger than that on failure to close what would the pricing differential between when you put them in the presale and if you've got them back trying to get sort of how much in the money could you be if things went sideways on yet.
Yeah.
That's not what we want to because as I say everything we're doing here.
Is about long term, we want to build a company with a great reputation smart living.
So the last thing in the World, we want to do is take back.
Takeback.
Takeback condos.
No you are correct.
If that was to happen we would be in the money.
So.
After.
Every possible effort to ensure everybody closes on the sold over 45.
Which are the ones under construction of course.
We would be in the money they were sold out I think.
Four and five were sold at an average of eight us.
68, or something I can't remember.
You too much too much too much detail like we'd be so and the money we sold.
Yeah, we've got 20% deposits. So you know.
20% of E C.
Whatever you know 870 865.
He's got 20% of that and then you got.
Park place, we're selling it.
Close to 1200.
And our work with sold out of 11.
$11 75.
So.
We'd be well in the money, even if you were to.
Kind of want to blow it out in lower.
Lower from from from market, that's what but I don't think just so you know we probably I mean, we would also.
We would also look at renting if we got those back I mean, it's possible we would you know.
We could we could.
Could also we've got scenarios, where we would we would rent some of those units if we got them back.
Okay. So there's a lot of slack and all these things do sort of a question that's really quite a lot of flexibility I should take the opportunity to say we are not exposed to this is I don't want to get like famous last words here, but.
We really have we do not have exposure anywhere.
Two.
The.
Two the sudden weakness or a weakening of the condo market.
<unk>.
And all of our developments are funded.
That were that have commenced.
We're locked into construction prices.
Vitter actually yesterday as construction prices on everything that was under construction or anything we're exposed to variable interest rates. So it will be.
But between our rental and our condo construction programs, they have financing and yesterday's construction prices and anything else. We just havent started artwork Parcplace Labelle miscues.
Kincardine.
Carlton place Allison.
1900, Eglinton west side.
Pickering I mean, all of these and there's many more.
Are most of which I just named are approved we are you know.
You're slicing and dicing, all the variations of commencing those and working with various contractors to make sure that those will be.
Hum.
Profitable.
Alright, that's it thanks Mitch.
Thank you.
And that was the last question. We currently have in the queue.
Okay.
Okay well.
<unk>.
Thank you for participating in our Q3.
Analyst call.
Once again I would like to.
Yes.
Peter Sweeney.
Or.
Who is.
Fantastic dedicated loyal eight years and welcome Peter slab.
Our as our new CFO .
And to all of you we look forward to.
Meeting you again.
Next quarter have a good day.
This concludes the smart sensors are read Q3, 2022 conference call. Thank you for your participation and have a nice day.