Q2 2023 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, and welcome to the smart centers or repo Q2, 2023 conference call I would like to introduce Mr. Peter Slanting. Please go ahead.
Thank you and good afternoon, and welcome to our second quarter 2023 results call I'm, Peter <unk>, Chief Financial Officer, and I'm joined on today's call by Mitch Gold her smart centers Executive Chair and Chief Executive Officer, and by Rudy Gobin, Our executive Vice President of portfolio management and investments.
We will begin today's call with some comments from Mitch Rudy will then cover some operational items and I will review our financial results. We will then be pleased to take your questions.
Just before I turn the call over to Mitch I would like to refer you specifically to the cautionary language about forward looking information, which can be found at the front of our MD&A materials. This.
Also applies to comments that any of the speakers make this afternoon.
<unk> over to you.
Yes.
Yes.
Yeah.
Thank you Peter.
But as Mark says, we have three basic pillars.
We are an owner and operator of Walmart Canadian tire Costco.
Depot Loblaw is another grocery anchored.
Shopping centers are strategically located across the country.
True.
We are the owner of multi res storage industrial and seniors holds.
Three.
We are.
<unk> real estate owners with 30 years of development expertise.
Expertise we apply.
Development of condos.
Seniors office retail storage.
Our strategically owned real estate.
Already.
Yeah.
In.
The first category.
Existing and new retailers continue to be interested in more space.
Building on the momentum of last year in Q1, achieving a strong 98, 2% occupancy.
Level across our portfolio.
Of the quarter.
Renewal rates are up three 4% same property NOI for the three months ended June 32023 increased by three 2% compared to the same period in 2020 to.
Collections of approximately 90%.
Retailers are back stronger than ever.
Our improved omnichannel platform, and well capitalized and are well capitalized for constant change and innovation necessary to succeed in retail.
In fact, we are now seeing renewed interest.
For Newbuild groceries grocers and other southern acres mid box retailers grew at 20% to 40000 square foot range.
Maturity, we will speak to shortly.
Toronto and Montreal premium outlets remain fully leased with 12 months rolling sales continuing to set new records.
<unk> 2023, EBITA to record levels.
Well priced luxury brands continue to be in high demand with customers being bused in from longer distances take advantage of the great mix of designer names try.
Auto premium is quickly becoming one of the top three sales performers in Canada.
With regard.
TB.
Second and third categories.
Our non retail income and our mixed use development portfolios continue to grow and deliver strong results.
Currently under construction, we have apartments condos industrial self storage Townhomes and retirement in the GTA, Ottawa and Montreal areas and all scheduled for completion in the next 18 months or so as you can see in our MD&A.
Here are a few highlights.
Construction of the fourth and fifth Transit Transit City towers at Smart BMC, comprising 40, 550 stories, respectively is on track and nearing full completion 452 units closed in the quarter generating $10 $6 million of profits, which Peter will speak to more.
In a moment.
Also within the smart BMC. The millwork are 36 story apartment building has.
Sure.
Is completed and turned over a number of units in the podiums of all three towers.
Call that some of the rental units.
So transit city foreign Fi and almost all of those are already fully leased.
The release of the balance of the units will come over the next two quarters and demand is expected to remain strong.
Given the housing supply and current interest rates.
Our apartments in mascouche suburb of Montreal, which opened.
In Q3, 2022 is 77% leased with high ongoing interest.
<unk> first tower was 99% leased at the end of the quarter and the second tower is scheduled for completion in Q3 of this year with over 70% already pre leased.
Construction of our first industrial Newbuild to 229000 square foot 40 foot clear building on 16 acres of a 38 acre site on highway 417, Pickering was completed in the quarter with half of the space turned over to the tenants.
And leasing interest strong on the balance.
Construction of our new seniors residents apartment totaling 402 units at Ottawa Laurentian was temporarily delayed due to financial challenges of our JV partner on this project that being said during the quarter. We were successful in coming to an agreement with our partner.
For smart centers to take over development and construction management of this profitable projects until its completion date, which is now expected to be Q1 Q2 2025.
Having completed earthworks and site servicing with our two partners. We commenced construction of our 174 unit bond northwest townhouse project.
Shortly after the quarter end.
With the recent opening of.
Of our eight self storage facility of 138000 square foot project at Brent and <unk>.
King's point just.
North of Brampton downtown.
<unk> reached a milestone of 1 million square feet of gross floor area.
Purchase self storage.
Two storage facilities are under construction and market and Whitby and two more will commence construction in the next quarter, we intend to continue executing on this strategy.
Returns continue to meet its Steve.
Our expectation.
Additionally.
We.
To build on a stable and growing cash generation generating platform and continue to develop on.
This significant and very mixed use permission parties in place.
On land use permission so far this year, we achieved residential rezoning zinc four projects totaling nearly.
4 million.
Additional square feet.
Three in Ontario, and wanting to Quebec.
We can continue to stay focused on getting further permissions, while simultaneously getting ready to launch our next phase in the BMC consisting of two condo towers.
And potentially a small office building.
Okay.
Based on demand.
Recall that in 2022, we achieved over six 1 million square feet of new mixed use permissions in urban locations with high demand for housing.
So 2023 is off to a great start.
Given that development.
Our long term vision and strategy we are committed.
On unlocking the tremendous value deeply embedded in the land we already own.
Which as a reminder sits in the midst of highly populated communities nearly every major market across Canada.
From a capital recycling and risk management perspective, we are continuing discussions with potential partners and buyers of selected assets within the portfolio, which will assist in funding development debt reduction and diversification.
While only a small part of the portfolio, we see this as an ongoing capital recycling program.
Which will not only strengthen our balance sheet, but de risked future cash flow streams.
Okay.
On the financial side, Peter will provide.
A full update in a minute, but let me just emphasize a few of the more personally and elements.
Maintaining our conservative balance sheet remains a significant priority for us.
Along with maintaining our significant unencumbered pool of assets, which now sits at $8.8 billion.
A respectable debt level remains at 43, 2% even with.
The 300 million dollar unsecured debentures issued in the quarter, demonstrating our significant liquidity and a strong support from our lenders.
Yes.
Okay.
As we have said before Ed Smart centers, we take the long view.
Not just what we do but it's what we don't do.
For 30 years, we have been building better more affordable communities across Canada through enhancing.
Enhancing access to convenient affordable retail options.
From the beginning that meant creating lasting value for the towns and cities in which we operate for our tenants our neighbors.
For our unit holders.
<unk> always doing the right thing in each community.
In the coming weeks, we will be issuing our ESG report and you will get a firsthand look at the great number of initiatives that are being woven into the fabric of our organization.
And how we oversee our business interact with our tenants and engage our associates and communities.
Our three year action plan is now posted on our website and I invite you to visit it and see ESG principles applied throughout.
They help shape, our approach to building design energy utilization and social interaction with tenants and their customers.
These principles apply to our core mission to facilitate cost savings and convenience to communities all with the goal of helping Canadians live better lives.
On a final note I would like to once again offer my thanks, and appreciation to our great team of associates partners and contractors for their commitment and dedication to delivering on our long term vision.
And with that I will pass the call over to Rudy.
Thanks, Vince and good afternoon, everyone.
The.
Quarter continues to build momentum with strong interest from new entrants and many of our national retailers, we shape the open format retail landscape.
T J X.
Canadian tire banners.
Blood Celebes dollar ammo banks liquor pet stores and a long list of <unk>, all very active in picking up vacant space in our high traffic Wal Mart anchored centers.
And given the residential all around us.
Also getting the.
Experienced discounters entertainment gaming logistics, and some light industrial users with showrooms, preferring to be in a smart centers location and paying market rent rather than being an industrial or design center.
As Mitch mentioned demand for Newbuild retailers on the rise with grocers and mid box retailers.
And not only in major markets, we have signed deals or near signing deals for places such as Carlton Allison Grace Bridge, <unk> or leans in London.
As inflation begins to ease and consumers, having significant options and where they live demand for physical retail, especially open format and value oriented retail continues to be in demand.
Worth reminding everyone again is that for smart centers. The strategy is clear and the results speak for themselves in Q2, our occupancy at $98 two near 99% collections.
The three 2% same property NOI in the renewal spreads of three 4% that Mitch mentioned earlier.
So while the pandemic gave retailers good reason to pause.
Rethink and reshape their strategy their path is now clearer than ever get physically close to your customers offer great value make it convenient and proximity and access so that customers have.
One place to do all of their shopping for their daily needs.
The strongest retailers are continuing to evolve and reinvest with Walmart Canadian tire winters home sense dollar Rama and all major grocers reinvesting heavily in their store network and simultaneously growing their footprint.
For smart centers. This means doing what we've always done adapting to the needs of our tenants and their customers and maintaining our strong relationships every day.
As a reminder, virtually all of the smart centers locations across the country includes a full grocery easy and accessible at grade parking and.
And prices that consumers know they can trust and afford.
With that said.
Here are a few operational highlights in addition to the larger dominant retailers a number of smaller sized tenants are wanting space across the country for personal care beauty supplies spas hair salons and daycares.
When combined with entertainment such as indoor Golf gaming rocket sports facilities, we see a well rounded shopping center easily being converted to city centers as part of the utilization of our excess land for residential and other mixed uses land, we already own within our shopping centers.
Our first pre lease industrial nubile tenant took occupancy in the quarter and given the modern design location and current discussions we expect the balance of the space to be leased shortly.
Our premium outlet center, Ottawa, and Montreal continue to exceed our expectations and dominate their markets tenant sales in Toronto are above $200 per square foot and have exceeded all prior years.
All in all the second quarter's operational results clearly delivered on every metric and we fully expect a continuation of the same for the balance of the year.
With that I will turn it over to Peter.
Thank you Rudy.
The financial results for the second quarter reflects strong performance in our core retail business with a solid contribution from our mixed use development portfolio through the continued condo closings at the transit to the <unk> project and the initial closings a transit city five for.
For the three months ended June 30th 2023, <unk> per fully diluted unit was <unk> 55.
An increase of 12% from the comparable quarter last year.
These results include $10 6 million or.
Our <unk> per unit of profits from the closing of 452 condominium suites at transit city four and five.
Higher rental income was driven by increases in base rent, primarily due to contractual rental step ups plus further lease ups and an increase in percentage rents and rents from self storage and apartment properties, all partially offset by higher interest expense.
Net rental income for the quarter increased by $4 6 million or three 7% from the same quarter last year.
Including our equity accounted investments however, net rental income increased by $17 1 million or.
Or 13, 1% largely due to contractual lease step ups, new leasing activities and continued strong performance at our Montreal and Toronto premium outlet centers.
Same property NOI, including equity accounted investments increased by $4 2 million or three 2% compared to the same period in 2022.
Leasing activity remained strong during the quarter, which is expected to drive continued modest growth in NOI over the balance of the year.
Our occupancy level, including committed leases was 98, 2% at the end of the quarter, an increase of 20 basis points from the prior quarter and 60 basis points from a year earlier.
In terms of distributions, we maintained our distributions during the quarter at an annualized rate of $1 85 per unit.
Payout ratio to <unk> for the three months ended June 32023 was 93, 8% an improvement from 101, 2% for the same period a year earlier.
Total assets, including our proportionate share of equity accounted investments were $12 2 billion at.
At the end of Q2, a modest increase from the prior quarter.
During the quarter <unk> fair value adjustments in our investment properly property portfolio, including equity accounted investments resulted in modest net gains of approximately $34 2 million.
Principally reflecting additional leasing activity.
We did not make any portfolio wide changes in our capitalization rate assumptions this quarter.
During the quarter, we closed on the sale of 452 condominium units and our transit city for in Transit City five developments for gross proceeds at the reached 25% share of $61 4 million.
And net profit of $11 3 million.
The remaining 380 units.
Kansas City, four and five are expected to close over the balance of the year primarily in Q3.
Adjusted debt to adjusted EBITDA was nine nine times in Q2, representing continued modest improvement from 10 three times at year end and 10 times at Q1.
The improvement was a result of both growth in EBITDA and the repayment of approximately $345 million of debt during the quarter, including repayments under equity accounted investments.
Our debt to aggregate assets ratio was 43, 2% at the end of the quarter unchanged from Q1.
We expect to continue to repay debt over the coming quarters, particularly with the profits from condominium closings. However.
However, as construction commences on some of our larger mixed use development projects short term borrowings will begin to grow.
Our unencumbered asset pool stood at $8 $8 billion at the end of Q2, a modest increase from Q1.
Our unsecured debt of $4 $2 billion was virtually unchanged from the prior quarter and represented approximately 80% of our total debt of $5 3 billion.
Yes.
From a from a liquidity perspective during the quarter, we issued $300 million of series that debentures with a five year term and a coupon of 535%.
We also repaid the $200 million of series I debentures upon their maturity and extended the term on a $170 million bilateral facility.
We are very comfortable with our current liquidity position with more than $586 million of Undrawn liquidity.
At June 32023, including our share of equity accounted investments and cash on hand, but excluding any accordion features.
Yes.
The weighted average term to maturity of our debt, including debt on equity accounted investments is four one years up from three nine years last quarter.
Our weighted average interest rate was 4.03% an increase of 14 basis points from the prior quarter.
Our debt ladder remains conservatively structured where the most significant aggregate maturities occur in 2025 and 2027.
Proximately, 83% of our debt is at fixed interest rates, which has been a significant benefit to us during this rising rate environment.
Finally, I want to touch briefly on our mixed use development projects that are underway.
Beginning in Q4 of last year, we added some new disclosure in our MD&A focusing on those development projects that are currently under construction.
There are currently 10 projects under construction unchanged from last quarter. The REIT share of the total capital cost of these projects is approximately $548 million with the.
<unk> cost to complete standing at a relatively modest $202 million.
We expect all of them to be completed by the end of 2024 with the exception of the seniors housing project in Ottawa, which Mitch mentioned, which will likely stretch into 2025 as we evaluate various options for a new partner.
In the coming quarters, we expect to see transit three four and five as well as the mill way come off this list and we will add other new projects, including the lease side retail projects and the Artois condominium project once construction commences on those developments.
This quarter, we also added new disclosure around our self storage joint venture.
As Mitch mentioned, we were excited to reach the milestone of 1 million square feet of self storage properties this quarter.
The eight properties are all performing well.
Occupancy is strong at approximately 93% for those facilities that have been open for at least one year with gross rental revenue of approximately 3.3 dollars $2 million year to date at our share.
And with that we would be pleased to take your questions.
Operator can we have the first question on the line. Please.
Sure.
Yes.
Operator.
Yes.
Yes.
So as a reminder.
Anybody would like to queue up you can press star one on your telephone keypad.
To withdraw your question you can press star two.
We'll just wait a few moments to see if anybody's queued up.
And again Thats Star one.
Queue up to ask a question.
Okay. We do have a few lines that are queuing up right now.
Just wait a few moments.
While we while we grant the names here.
Yes.
Yes.
So our first question.
We will come from.
Go ramp mathur of.
I a capital markets. Please go ahead Laura.
Thank you and good afternoon, everyone.
No just back to your prepared remarks about this trend.
The national retail as I'm wondering from a tenant perspective are there any is there any part of the tenant base that.
It is not as strong.
And if required.
Some assistance going forward.
Yes.
I guess.
First of all I'll, just say theres always in retail even if you take the strongest.
Yours are.
Retail.
You will always be some retail casualties.
So with that in mind.
We don't actually.
Visit.
Any visibility.
On something.
Like that happening within our portfolio at the moment.
I think part of the reason it might be a little bit anomalistic tomorrow at the moment is that.
Some of that type of thing happened during COVID-19 and accelerated some of.
The weaknesses, there might have taken a longer too.
No.
Show up.
So the whole Darwinian constant.
Process that goes on in retail was somewhat.
Mute mutated.
I think right at the moment.
Of course famous last words, but.
We don't see or anticipate any significant.
Bankruptcy filing.
With our retailers in our portfolio.
Okay, Great and then I guess, it's not lethal into my next question.
Then that youre not seeing any material non renewals coming up either through the rest of the year.
We will always have a little bit of that I mean, it's not just.
You know like related to anything.
Kind of chronic but yes, there are always going to be some summary of some some retailers that are not going to renew in certain locations.
That can just be that they are borderline or not doing great.
Part of our country partner certain certain provisions in the region of the country serve retailers.
May not peak selling in or.
There's a lot of reasons why that can happen, but we don't see any.
Like again, and we don't see any pattern there of <unk>.
Awesome.
Sale non renewal by any.
Hum.
One retailer that is in our portfolio.
Okay, great and just switching gears.
On the payout we've seen the improvement to the 92% level I'm just wondering if there's a target in mind that.
Focusing on our.
Sorry, I'm sorry.
What was the question.
Sorry, just on your <unk>.
Payout ratio.
The improvement just wondering if there's a target range that youre thinking about.
No there's not a there's not a target that we've communicated publicly.
Okay. Thanks, Brian . Thank you for the color gentlemen, I'll turn it back.
Okay. Thank you.
Our next question comes from.
Sam Damiani.
TD Securities. Please go ahead.
Thank you good afternoon, everyone.
First question is just on the miscellaneous revenue in the quarter, which she took another.
Notable step higher just wondering how you think about that line item going forward is there an opportunity to convert some of that revenue into into base rent.
A more stable revenue.
Revenue streams or.
Do you see meaningful further upside as tenant sales growth just how you think about that line item going forward.
It seems like it's reliable I mean, it's the parking.
Most of adhere to BMC.
And.
And in percentage rents at our outlet centers and they are both.
There's.
Both very strong steady and both in terms of.
Traffic.
Yes.
Okay next question is on.
Artwork.
Mentioned as a potential construction start in the latter half of this year just wondering.
How I guess, the presale of the overall phase one.
Is going I know you've pre sold I think fully pre sold the first release of units, but just wondering how many units are in the first phase in total.
What stage youre going to be at when you start construction.
Yeah. So.
We have about 90 units left in that first building that we withheld.
Primarily because we won and flexibility on design.
Uh huh.
And we're not anticipating.
Any headwinds for moving those units.
The Asterix next to that is there might be some.
Variation in that number Sam because.
Sweet mix wise, we might there's a higher higher units the the top of the building.
And the.
And the lower floors, we just did that for.
Four.
For flexibility I'm being told that we have less than 90 to sell but.
It just depends on our final sweet mix and certain other design decisions, but.
I mean, you could say based on.
The original design, we would have.
Maybe just as few as 60 units left.
Yes.
And in that tower, and then there is the lower tower.
Sort of a mid rise building actually.
Which will go to market on.
Shortly.
And.
And we're not anticipating again like we weren't anticipating.
Any headwinds or challenges in moving those units.
And that was the building we were originally going to.
Do as a rental building or.
Where we switched it.
And then there has been a little office building. So we've we're going to start construction, but we're going to go.
Actually step by step.
But we do want to get started there.
It's been awhile since we sold the release and so that will start imminently, but.
We'll be keeping an eye on all of those.
Data points.
As we get further and further along the construction before we commit each.
Each step of the way.
Okay. Thank you that's very helpful and just to be clear are you are you pre selling our walk and park place now at the same time is that is that we understand.
Getting that correctly.
Yes.
There.
Yes, there are two different projects to different types of projects.
Two different locations, we have 100 acres it's.
The law of large property.
Park places quite a bit away from artwork.
Very different features.
So we are selling both yes same time.
That are better than our competitor.
Absolutely.
Last question from me you know one of the things we saw several things on the the walking tour of the BMC there a couple months ago.
But one thing I recall being mentioned was Oh, an office tower potential.
Potential that could be fully pre leased by a single tenant if I'm not mistaken is there any is there any I don't know if I got that accurately or is there any update on the prospects for.
Our pre pre let office tower build.
Yes, so there is progress I mean I'd say.
If it was a.
I don't know what we would have ranked it.
When we did that.
First mature.
Investment day.
Maybe it would have been on the probability scale, maybe it would be five five or a six I'd say it's.
I saw you on sort of a 6657.
So it's moving forward.
Not 100% not 100% accurate what you were saying there.
It's not necessarily going to be 100% pre leased.
Because we might build a little bit extra.
But we also might move into it ourselves.
So some of these things are.
Part of the.
The process that we're in right now, but we do have.
Do have a couple of very real.
Companies interested in being tenants.
It would be around them that building would.
The building would would get developed and then there's us we'd be the third third pre pre leased space.
Okay, great Great update thank you and I'll turn it back.
Yes.
Okay. Thank you again as a reminder, if anybody else would like to queue up you can press star one on your telephone keypad and start to to remove yourself from the queue.
At the moment, we have two other questions.
Next one comes from Lorne Kalmar of TCR to any capital markets. Please go ahead.
Thank you.
Maybe just quickly following up on Sam's question about the office tower can you give us maybe an idea of what type of tenant would be looking to take the space.
Absolutely not.
Yeah.
Alright.
Yes.
Which gears then.
Just maybe going back to the capital recycling I think last quarter. We spoke you said sort of targeting 200 to 400 million this year, but possibly.
You mentioned some.
Some momentum can you maybe give us an idea of what type of project or what type of sites or.
Properties you'd be looking to to disposal.
Yes, I mean like you would notice that we only talked about one potential development.
We've got 10 under construction, but they are all they are locked and loaded those but in terms of new.
We mentioned artwork, but we didn't talk about.
Thing else at the moment like starting Pickering are starting.
<unk> hundred are starting Westside West side, I mean, we've got a lot of zoned property out there that are.
Candidates for capital raising exercises so.
It would be something like that I mean, there's a whole bunch of other ones I'm not mentioning that are have entitlements that we could sell to a third party <unk>.
And raise capital we'd leave obviously leave something on the table by doing that but that's fine.
So we're in discussions on that and.
We see those are.
Those are relatively liquid I mean theres always.
There's always interest in good.
No.
Density good condom condo locations with entitlements. So those are the ones and we also have this ongoing interest from potential.
Institutional partners, who want to be a partner with us on some of our.
Development those are primarily institutions interested in multi res so a little bit harder to make work right now from a capital raising point of view, we're moving the needle point of view, but still from a long term point of view.
I'd say.
You could probably anticipate that we're going to have a couple of.
Partners in multi res, but it'll probably be there for many for multiple projects in multiple phases over a long period of time, but.
Bit tougher to move the needle with those.
Fair enough and since we last spoke has has buyer interest changed either for the better for the worse.
On the on the sales side or on the.
The Bible.
Yes, it's sort of a.
Interesting question I mean.
It's almost like every day is like you could.
Give you an answer on.
Thursday I can tell you that actually it seems like it's quite strong right now, but you know tomorrow may have a different feeling it is a bit of a weird market overall I think there's this installation.
There is an attitude towards <unk>.
Strong steady interest in in buying condos.
In our locations, but there is this little under the surface.
Sort of.
You know maybe tentativeness that comes and goes but you know you can induce it.
By offering certain things.
Because the market is really quite deep. It's there. So it's really just finding kind of the sweet spot.
Between deposit structure and pricing of course amenity.
Amenities and things like that so I'd say the market is still quite strong and deep, but there is this little little bit of euphoria.
Euphoria, that's for sure but.
It's still there it's.
I would say it's.
Steady and somewhat cautiously optimistic there.
Okay, and then maybe just last one you spoken now a couple of times about starting to build some new retail which is.
Something we haven't really seen a lot of.
Assuming it beyond already owned land, what do you estimate that.
Cost per square foot would be and what kind of rents would you need to make that work.
Well I can tell you that.
The.
Pillars during the last X number of years.
Kind of through the pandemic and to now have become quite.
<unk>.
A shoot or whatnot to pricing and.
And so theyre not.
A step behind that can sometimes be a step behind in terms of their rental expectations versus developers cost realities.
Our definitely pretty up to date and so.
Whether we build for <unk>.
141, 50, 160, you know.
Foot plus plus.
It depends on where it is can even be higher depending on how much landlords workers.
But the tenants we're dealing with in our typical our typical.
Tenant in our portfolio.
There are quite strong the retailers, they're long term minded and.
They're kind of they're the rents makes sense I mean, we would not be we would not be.
Entering into those contracts, we would not be building those buildings if they if they didn't were not doing a deal at one ranch and then going out to the market and finally the deal.
Really pencil, where we're doing in stock step in.
All the retail we're doing from scratch that we're referring to.
As you know is really quite interesting economically accretive in <unk>.
Quite positive economically.
Okay, great. Thank you so much for all the color I'll turn it back.
Yes.
Thank you our next question comes from.
<unk> <unk> of National Bank financial Please go ahead.
Hi, good afternoon.
Good afternoon.
Wanted to start just asking rents at the mill way can you talk about where you.
Went out initially at and how Youre seeing.
<unk> progress over time as Youre leasing up the building.
We were sort of thinking originally we would be $3 25, I think I'm going by memory, but it's been a while but we're seeing $3 60 to $4 I would say.
Pending on the unit.
Okay perfect.
We had expected.
And I apologize I missed I missed the first few minutes.
The conference call up on another call.
Any any change in.
Zoning for Westside mall.
This quarter.
Not specifically about Westside.
<unk> is making progress I mean.
Applications within the city of Toronto are a little bit slower.
When you go just through the process no Tim said, Oh no whatnot.
And so we are making good progress there we don't get into the Nitty gritty of the land use.
Instruments and picked a technical terms, but it's designated designated for a couple of million square feet.
And I guess, I would say and maybe even sort of emphasize that even when it takes a little longer these areas like west side I mean, those areas are changing without us doing anything.
Just keep getting better.
By virtue of the things that are happening around us including of course the crosstown.
<unk>.
<unk>.
Never ending.
A turtle.
<unk> project.
There, we've all come to deliberate and go transit.
Goodbye. They just look so it's not terrible and thats when real estate good when real estate works. They have good locations and it gets better with what's going on around us and that would be true with a lot of our location. So.
Yes.
Final zoning approval there.
Is not.
Done, but there are other things along the way between the designation of zoning that are done and we're not worried about it at all.
It's just the winter then.
That property that locations in absolute.
An absolute homerun for further.
Okay.
Just on the retail tenant side.
Thank you Scott you still have eight Lowe's and Rona last.
Can you just talk about what Youre hearing with respect to how the new management team is taking a dealing with their footprint and do you happen to know how many stores do you have in Quebec versus the rest of Canada.
Well.
I'll start with the first.
For a while.
If you'd asked this question three months ago, I think we would say we're not sure exactly because I'm not in a bad way.
No im not implying anything bad but.
I think that the.
The two entities are obviously, we're working through lots of things so.
We have good relations with both.
So, but right now, it's sort of becoming more and more clear.
Sure, it's becoming a little more clear.
With respect to how this is going to shape up.
More probably next quarter I would say, but suffice to say that we're fine like we're pleased.
With how things are going to win.
How we think things are going to end up with with us as it relates to Lowe's and Rona.
So.
I'm, sorry, I can't be it can't be more specific at this time with respect to how many do we have in our portfolio in Quebec.
I'll check that out and get.
And I know you might have stumped us release temporarily I wish I could probably.
I just wanted to tier one and not all that I can recall.
I can recall I think it mostly would have to lift one for sure.
Okay. So most of it would probably be in Ontario, though would be the bottom.
And I know you've got a couple of times, we've got Regina.
So yes no.
It's mostly Ontario.
Okay.
<unk>.
The total return swaps.
It's accurate is a pretty big.
Drag on your <unk> progression.
Is there any thought to unwinding Matt.
Is there you know like.
I believe it was a four year term originally or something like that that it's been in place Lake is the intention to keep that going if maybe you can just talk about what was the original idea going in to this with the total return swap and now that we're kind of in this position how are you looking at it.
I'm going to turn it to Peter but I would just say the original was.
Choices de facto.
Our confidence in our.
And our company.
Investing in a sense in our own company.
Obviously, we are.
Were sort of alone on that one.
And so our unit prices.
No.
Almost and explain a bleed.
Down in discounted so of course, that's the reason why the returns what looks the way. It is for Peter go ahead Tom.
<unk>, it's essentially it's a synthetic share buyback.
There is theres about $5 1 million units that were Notionally purchased under the swap. They were purchased at an average price of about 27 50 and of course the stock today is trading around $25. So there's this mark to market adjustment, that's what you're seeing going through the <unk> line.
This quarter and Thats simply a reflection as Mitch suggest a reflection of.
The stock is not where we think it should be and we think it's very cheap and so that's why we.
Undertook this synthetic buyback in the first place.
With that having been said it does have a maturity date in December of 2024, our expectation, though is that we're not going to realize on that mark to market. It's a noncash item of course.
That that you see in the <unk> item, it's unrealized noncash.
And should we get to the maturity date and the stock is.
Is where it is today then we will in all likelihood extend that out and we've we've had discussions with.
The counterparty on the swap and we don't expect that to be an issue at all so we don't expect to ever realize on that mark to market adjustment.
And.
And we do think that it is.
And an inexpensive stock.
Okay.
And I guess my last question is just maybe if you can give a broader sense of the chatter with your retail tenants right now like we just had Canadian tire report today there.
They are pulling their annual targets for the year, the stock's down 5%, you know theres sort of signaling.
Times are getting a little bit tighter for the consumer.
What's sort of the latest kind of chatter you're hearing from some of your larger your larger retailers right now.
I mean.
The only thing better for us.
Then.
Good times.
Our bad times.
So.
We are the go to.
When you know.
People are tightening.
Tightening their belt so.
<unk>.
Yes, I mean there'll be lots of analysis on what people are cutting back on and what they are spending on by the end of the day.
We will probably see increased traffic at our place and how it gets distributed exact between the retailers may vary but.
I mean, we're a company you know.
Populated with the largest valley.
Value already discounters, you know Canadian tire part of as part of that but yes, I mean, they've had an unbelievable run you know, especially during some of this COVID-19 the ones that were.
We're open.
And so coming off some pretty big numbers, and maybe there's a bit of an oversteer on what happened today with Canadian tire, they're unbelievably sound company and each one of their categories. So Joe might be a little bit of a one of those things, we see sometimes I wouldn't bet against entire.
They're very very much a part of it yes, there'll probably be a little bit of cutting back on some.
Discretionary things and maybe some certain high margin items, but.
But we're very poised to.
No.
Therefore.
The increased traffic and.
Spending conscientiousness, we don't hear anybody like Canadian tire with with their <unk>.
Details today we.
Don't see Canadian tire pausing on the number of deals that we're doing with them. There are also very much long term minded.
Beyond this particular moment in time.
So.
We don't really think I know nobody is out there taking 10, okay youre walking in here, saying, we want these Penn we want firsthand I mean, we're doing a deal by deal, but it's adding up I don't think thats.
No.
I don't think thats going to change the deals we're doing are being around for for whatever three to 12 months and they're very thoughtful they've everybody's considered the world.
That we're going into when they've made these decisions. So I don't think it's going to if you're asking ultimately how is it going to affect us I don't think we're going to see any kind of claw.
Closures are.
As I said earlier and I don't think it's going to stop the deals that we've talked about that we're doing.
I anticipate to be honest that we will continue to do new deals with the likes of Canadian tire over the next year.
Next next year or two.
Yes, My my intention was not to suggest that there was some issue with Canadian tire or anything or is this more to understand like what you were hearing about consumers.
Consumers consumer sentiment.
Sort of more lately.
Given that this is this is the kind of thing some of these some of these larger retailers are talking about and I. Just didn't know if you'd had any good commentary from other tenants that you're working with to you just around what yes, yes.
Consumer.
There is a little bit of you know concern about consumers cutting back on certain discretionary items, where not that discretionary like so it's smart centers, but yes.
On a single anything out, but we're 98, 2% occupied with very strong and even stronger tenant mix like hasn't covenants than ever.
You know so.
But there is a little bit, yes, I mean, theres some theres some.
People concerned about higher markets and stuff and.
You know some of them had any shops and so on.
But.
Yes, there is but it's sort of I don't think its.
I've heard worse in my career. This is there is a little bit of chatter about about tweaking merchandising mixes around some changing.
Consumer behavior around some of the recessionary discussion and higher interest rates and stuff like that which is pretty much common sense, but these are the retailers or retailers are the ones that are already there.
They're they're designed for this I mean, they're made for where they're the go twos when people start thinking that way so.
I think we're in pretty good position for it but I think you're right I think you will see some cutting back.
We're not going to be the major our retailers are going to be the major ones I think youre going to see some cutting back in.
And some of the other.
The higher margin <unk>.
Sepsis.
Maybe I don't want a singular entity.
You can figure it out.
Okay. Thanks, very much I appreciate it.
Yes.
Thank you at the moment, we do have two more questions in the queue.
And the next one comes from Mario Sorry, Rich.
The Scotia capital. Please go ahead.
Thank you and good afternoon.
Mitch just on the back of your last comment in terms of merchandising mix not that once there is a huge ability to.
Shifting around given your high occupancy, but on the margin.
If you were able to kind of add here maybe.
They're like how would you like to see the merchandising mix shifts.
Mike centers overtime, if at all.
Our own portfolio mix.
Sure.
I mean, I'm pretty I think we're pretty happy with it.
I mean.
So good question.
<unk>.
I guess.
Kind of organic rate were in the probably the busy you know we're in the we're in the most successful locations in the healthiest markets and we are at grade we can accommodate.
Almost any interest like can we get a call for something it's pretty hard to imagine that we're not going to figure out how to accommodate you. So we are kind of the organic expression of the market and pretty quickly because we can build pretty quickly. So.
We are really just a function of the.
The retailers don't create.
Retail concepts that people do.
And so they're just responding to what people want and we're probably the quickest responders to them.
But if I had a magic wand I mean, you know.
What where do we love to add.
Yes, it would have to single out some stuff I probably.
Im all about things that people need.
So I guess wherever we've got a little bit more you know.
Discretionary purchases and maybe a little bit little bit more.
Les necessities, I'd, probably love to replace those with.
With necessities.
But we don't have a lot of that so I don't know I would say, we can never have too. Many walmart can never have too many shoppers, an lob losses and home depots and Canadian tires, and so I guess, if we could have more of those.
And kind of remember, we're also getting into the city centers sort of thanks to our retail.
<unk> format is changing a little bit so it's kind of cool because we're now addressing what does that look like and who is that compatible with.
So no that's going to be interesting, but I don't want to turn your.
It takes us to make this call any longer but.
That's a subject for another day, but otherwise I think we're pretty generally pretty pretty pleased with our our tenant mix.
Okay, and then my mom.
Last one.
It just comes back to capital recycling and if you were able to execute on that 200 to 400 million.
In terms of.
Partial stake businesses and some of the developments.
That's you're referring to.
How would you rank the relative attractiveness.
The redeployment of those proceeds today between putting it into your development pipeline paying down debt and we have the trs structure in place but.
Maybe repurchasing units outside of that in terms of reducing the unit count and driving the premium growth higher that way.
Just curious in terms of on a risk adjusted basis, where you see the best place to put your money today.
Lowering debt.
It's just.
Everything is lowering debt because it does matter, where he's always debt. So we bring in 200 million.
No.
If you put it towards development in de facto it's just lowering debt. So we apply it to the highest interest rate debt that we have that we can pay off.
If we had more capital than we needed for lowering debt purposes.
Well, we would love to have that situation.
But we we might apply it to our units in one way directly in this way we're doing it now or maybe some other way, but we're not in that situation.
At the moment, so I wouldn't factor that into your into your four into your calculations, but.
That's I mean, that's because it would be the answer I think.
Okay, great. Thank you.
Thank you.
Okay.
Okay. Thank you and our last question in the queue comes from Jenny MA of BMO capital markets. Please go ahead.
Thanks, Good afternoon.
Good afternoon.
On a continuation of the topic of yours.
Youre sitting in the high teens in terms of floating rate debt.
You've been carrying for a few quarters hopefully we're at the end of June interest rate hike.
But how do you think about we're sitting at right now are you comfortable leaving it in the high teens.
It may settle out or is this a number that you want to break out.
Jenny it's Peter So I think it is appropriate for us to have a mix and so right now youre right were at 17% floating 83% is fixed and so I think there is some value to the optionality of having some.
Some floating rate debt also remember.
We're a big development business and so we do use floating rate debt for construction financing.
And that's just because of the nature of that financing, it's typically sort of 12 to 36 months terms on it and so it tends to be floating rate facilities and so we think it's appropriate to be a majority fixed but maintain some optionality through a floating rate piece, okay Shirley.
We're leaving our close to where it is.
Yes, okay great.
With regards to industrial development.
Andy and Jeff have been very quickly.
Hearing a lot about increase in construction costs.
What would you be looking forward to launch phase two.
All of the Pickering development would you need to have a tenant.
Pre leased in place or would you be comfortable.
Back.
Would you what would need to happen.
Two comments.
I mean, we'd have to lease up or the.
The other half of the building that we just finished many of the other half is finished.
And thank you very much for stating how fast that building went up.
Yes.
We're quite proud of that.
Yes.
So.
And we will not start well.
I'm not sure I'll say unless absolutely, but it's unlikely we will start.
Spec building on the.
The balance of Atlanta.
We do have interest from some companies to build them accustomed building, there and Thats, what we anticipate.
Will happen with the surplus land, but we certainly don't have any plans at the moment.
Or appetite right at the moment to spec building.
They're great land, Arizona going to get better so we hope to land a tenant and build a building for them.
Okay.
Where rents are now and then higher costs do you think you could build to a similar yield as you got phase one.
No because mainly because just like.
Mike.
There is a little bit of an edge coming off rates, a little bit yeah rates rental rates, a little bit and interest rates.
Construction prices may have sort of stopped increasing.
I don't even know if I can say that they're decreasing because you'd have to go out right now and do it and find out but they might have stopped increasing.
So no I don't know I don't think it would be but I wouldn't factor that in because I think by the time, we do one it will probably be a site for Merck as the market is changing quite quite rapidly. So I would anticipate by the time, we do a deal.
Prices on construction will probably come down a little bit.
And we're not going to do it if it isn't as strong company in.
They're going to want it and we're not going to do it if field isn't decent but.
There's a couple of things right at this moment answering your question that that.
That would take it down a little bit from the yield we got on this one.
Okay.
And then lastly.
Self storage assets you have I know, it's a very small part of the portfolio right now.
One of the upsides I guess all of it is the ability to raise rents at a sandwich.
Or a high level clip what have you seen from some of the.
They're self source all their meeting.
So search facilities have are we getting ahead of ourselves.
It seems like you've been able Alicia mechanics in place and have you been able to maybe I think you said, yes.
No first of all we don't manage them right.
So we're not directly.
Quoting rents to tenant to perspective tenants, but ours are pretty pretty new Jenny I mean, we're not.
<unk> necessarily increasing rents appreciably on the ones that we built that we did get better rents than we thought than we originally pro forma on the ones that we have done so in a sense I guess, we got our timing was pretty good. The operator are they're really quite good they specialize in storage and.
They have found ways to come up with different types of offerings that in a sense you know raise the rent because they give certain other services there.
Great.
Innovative in that respect so there are some new offerings that they are offering.
The market and the market there the market is responding so probably getting a little bit of an uptick there, but I think we're pretty happy with the rents were getting and maybe in a year or two we'll see if we get any.
Any meaningful bumps from our very healthy initial rents that we're experiencing so far.
Okay.
And the revenue that youre getting from self storage in that in the miscellaneous revenue buckets.
Income statement.
Oh no no no it's not it's not a bit in the net rental income at that insignificant I mean, we will know our miscellaneous income is actually becoming quite quite significant but but no instance in there it's part of our main.
Okay.
Okay got you okay, great. Thank you very much.
Okay.
Yes.
And that was the last question in the queue.
Alright, Thank you well thank you for participating.
In our Q2 analyst call please reach out to.
To any of us for further any further questions and have a great day.
Okay.
Yes.
Ladies and gentlemen, this concludes the smart centers right Q2, 2023 conference call. Thank you for your participation and have a nice day.
Okay.