Q3 2023 SmartCentres Real Estate Investment Trust Earnings Call
[music].
Okay.
Good day, ladies and gentlemen, welcome to the Smart sensors beat Q3, 2023 conference call. After the Speakers' remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press star.
One I would like to introduce Mr. Peter Flynn. Please go ahead Sir.
Thank you operator, and good morning, everyone and welcome to our third quarter 2023 results call.
I am Peter Slam Chief Financial Officer, I'm joined on today's call by Mitch Goldstar Smart centers executive chair and CEO and by really 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 any of the speakers make today.
Over to you.
Thanks.
Good morning, and welcome to everyone.
For the time.
Uh huh.
Wanted to get an early start to her in your days today.
As they say.
Time waits for no. One in 2023 continues to move full steam ahead.
Amid a challenging market with economic headwinds that being said one thing.
Can continue you can continue counting on.
Is the stability and cash generation of our portfolio it.
It was built.
For headwinds and heavy weather.
At 100, Walmart strong smart centers value oriented portfolio continues to demonstrate why.
There is no substitute for well located dominant centers built.
In the midst of residential communities.
Existing and new retailers continue to demand more space building on the momentum the first half of the first half of this year with the portfolio achieving 98, 5%.
By the end of the quarter.
Okay.
Extensions.
Extension rates are up two 3%.
Same property NOI for the three months ended.
Quarter higher.
At near 2% comp.
Compared to the same period in 2022 <unk>.
Collections will remain above 99%.
As the man.
From retailers for smart centers.
His strong with improved in store offerings experience as well as their omnichannel platforms.
And our retailers are well capitalized for modernization and expansion.
In fact, we are signing deals for Newbuild retailers.
Maturity will speak to shortly.
Oh in Montreal premium outlets remains fully leased.
With 12 month Rolling sales continuing to set records moving 2023 EBITDA to record levels.
We're all price luxury brands continued to be in high demand and in fashion, if you will with consumers being bused in from longer distances.
The advantage of the great mix of designer brands Trotter.
Toronto premium outlets.
Now in the top three best sales performance in Canada and traffic continues to grow.
Bill this is stable and growing cash flow cash generating platform. We continue to develop on the significant and very mixed use permission already in place.
Currently under construction, we are condos or apartments, industrial self storage townhouses and retirement in the GTA, Ottawa and Montreal areas.
In the quarter groundbreaking commence.
On phase one of our work project comprising 320 sold out units.
Right here.
And the BMC.
We also commenced construction of over 300000 square feet of self storage in 200000 square feet of retail with details listed.
DNA.
On land use permissions this quarter alone.
Successfully achieved residential resulting for 4.5 million square feet.
Ontario, Quebec combined.
Bringing our year to date total to over seven 7 million square feet.
We will continue to stay focused on obtaining these permissions, which is no small task.
Seamlessly getting ready to launch future residential phases when appropriate.
Appropriate markets and only with full funding in place.
Okay.
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 already exceeding.
Our 2022.
Permissions.
And we have no indications of slowing down.
Yeah.
Given that development is our long term vision and strategy we are committed.
Unlocking the tremendous value embedded in the land, we already own which as a reminder, since you guys.
I'm highly populated communities in nearly every major market in Canada.
Well you can read the details of many of our development plans for the portfolio our MD&A sure.
A few quick highlights.
Curt which are which are currently underway.
Construction.
The fourth and five trends in Sydney.
The condo towers at Smart BMC comprised 45 to 50 stores respectively.
Shipping up.
274 units closing in the quarter generating $6 $9 million in profits, which Peter will speak to more in a moment.
Yes.
True also within smart BMC. The millwork are 36 story apartment building is nearing completion with 67% although available finished units already leased.
We expect the last remaining punch match.
127 of unfinished units to be completed by year end and.
And demand.
And demand.
It remains strong given the housing supply and current interest rate environment.
Our apartments in Mascouche superb Montreal, which opened in Q3 2022 continues to show improved leasing and stands at 83% leased for.
Our second tower.
In the center of the well was completed in Q3 of this year.
Open July 1st and is already 82% occupied.
With the first power at 99% occupancy.
Construction of our first industrial Newbuild.
229000 square foot 40 foot clear building on.
16 acres of a 38 acre site on highway seven in Pickering was completed in the quarter.
Half the space, having been turned over to tenants and the leasing interest on the remaining.
Space.
Remained strong.
Yeah.
Construction six construction of a new senior's residential and apartment buildings totaling 402 units in Ottawa, Laurentian, which was temporarily delayed has now resumed when the revised completion expected in early 2025 seven.
Having completed earthworks site servicing last quarter and with our two partners construction is moving along quickly on our 174 unit bond northwest Townhouse project closings planned for the second half of 2024.
Pete.
For our self storage portfolio, we announced last quarter that we achieved a milestone of 1 million square feet built space with our partner smart stuff.
During the court during this quarter, we commenced construction of two additional facilities in Toronto in Stony Creek for a combined 300000 square feet.
And then lastly, we are continuing discussions with potential buyers.
<unk> partners and selected assets within the portfolio, which will assist in funding development that.
Debt reduction and diversification.
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 the risk future cash flow streams.
You can see.
This current construction activity.
As our expense is in our expanded disclosure in the MD&A.
As well as the list of the additional projects scheduled to commence construction in the next two years well, it's the only just.
Resumed a limited number of projects and delayed a few others pulling.
Owing to current market conditions, our efforts and obtaining additional residential land use commissions continues in the normal course.
Which enhances value.
Alright.
We will as always remain diligently occurring any risk hurdles before moving forward with any project, which I will remind you lives.
The underutilized lands, we already own.
On the financial side, Peter will provide a full update in a minute, but let me emphasize.
A couple of pertinent items, maintaining a conservative balance sheet remains a significant priority for us along with maintaining our significant unencumbered pool of assets, which now stands at over $8 billion.
Our debt levels.
That has reduced slightly to 43% liquidity remains in excess of $800 million and we will continue to enhance this portfolio with the same degree of care and attention to detail as always and with the tremendous support we continue to receive from our lenders.
<unk>, who we greatly appreciate it.
On a final I know many.
Thanks, and appreciation to our great team of associates partners contractors and of course, our tenants.
Your commitment and dedication that can helping us deliver on this long term vision.
And with that I will turn the call over to Rudy.
Okay.
Okay.
Thanks Mitch.
And good morning, everyone.
Yeah.
The third quarter continues to build momentum with strong interest from some new entrants as well as from our existing family of retailers.
And the entire banners pharmacies.
<unk> Bank dollar stores like our U S. R L.
And full line grocery.
All remaining very active one thing to secure a vacant space in our high traffic Wal Mart anchored centers.
And given our proximity to residential communities, we're getting a number of new Discounters Entertainment gaming logistics.
In light industrial users willing to join in our mix of tenants at full market rent and I might add but solid security in place.
Demand for Newbuild retail is on the rise again with some significant grocers Tds brands Michael.
Michael Golf Tower and banks.
And not only in major markets.
We have signed are you signing deals and Alistair Greg Rich Carlton last name.
Understood.
<unk>.
And these all collectively will add in excess of 300000 square feet of new build retail.
In addition, as inflation deflation began to subside consumers have come to learn that they can continue to depend on the quality and pricing of the value oriented retailers that make up the smart centers families our stores.
For smart centers this strategy and declared our portfolio continues to deliver on plan.
With a sector, leading 98, 5% occupancy over 99% collection as Mitch mentioned.
86% up 2023 renewals already completed by the end of the quarter near 2% same property NOI growth and over.
As I mentioned 300000 square feet of new leasing with the pandemic.
Hopefully behind us for the most part.
Retailers have learned some great lessons and selecting high traffic locations for adding stores.
Considering the size of the stores re merchandising their mix.
Proximity to complementary retailer.
And convenience for their customers.
All of which we've been building and say about smart centers for 30 years.
The strongest retailers continue to evolve and reinvest.
Walmart Canadian tire winners.
All around it's a major grocers are already investing heavily in their store network and simultaneously growing their footprint.
For smart centers, our tenant relationships are vital to us and so we adapt and serve the changing real estate needs of our retailers.
As a reminder, virtually all of the smart centers locations across the country, including a full grocery easy and accessible at grade parking.
And prices that consumers know they can afford it.
With that said a few highlights and emerging trends.
Increased demand from services type retailers are becoming difficult to accommodate when we are 100% leased and so many markets. So we'd love to add parcels per day care, that's doors personal care beauty supply spas and hair salons.
Combined with entertainment such as indoor Golf gaming rocket four facilities, you can see a one stop shop for families who value their time.
Our premium in Toronto, and Montreal outlet, which are 100% leased continued to exceed our expectation expectations and dominate their markets with continued improvement in reported sales.
Which are now exceeding $200 per square foot.
Growth in our concept continues with demand for the U S concepts.
Such as Chick Fil, a chipotle driving higher rents in many markets. We are simply out of space, but our national platform allows us to build stores in some markets, while we build new stores and other markets developing bigger relationships quickly I remember if you're entering Canada you want.
The landlord, who can offer scale on a coast to coast platform.
This platform.
100, Walmart strong 60, plus P. J X banners over 70 Canadian tire banners 50, plus full line grocers over $60 65, 65, plus pet stores and over 100 banks and financial institutions and I can go on.
It provides the confidence that tenants have with us.
We deliver what we say and we do it consistently across this country.
All in all the third quarter's operating results clearly delivered on every metric occupancy.
Occupancy.
Roy growth cash collections renewals and an improving array of tenants serving the daily needs of each community.
Culminating for us and a stable and growing cash flows.
With that I will turn it over to Peter.
Thanks Rudy.
The financial results for the third quarter once again reflect the strong performance in our core retail business and the continued contribution from our mixed use development portfolio through the ongoing closings at the transit city for entrance with Citi five condo towers and the von Metropolitan Center.
For the three months ended September 32023, <unk> per fully diluted diluted units was 55.
An increase of 12% from the comparable quarter last year and unchanged from last quarter.
These results include $6 9 million or <unk> <unk> per unit of profits from the closing of 274 condominium units Transit city foreign five.
Higher rental income was driven by increases in base rent, primarily due to contractual rent step ups plus further lease up and an increase in percentage rents and rents from self storage and apartment properties, all partially offset by higher interest expense.
Our <unk> also includes a non cash unrealized loss of three cents per unit from a total return swap as a result, <unk> with adjustments, which excludes both the condo profits and the Trs loss was 54 cents per fully diluted unit for the quarter.
Net operating income for the quarter increased by $2 $9 million or two 3% from the same quarter last year include.
Including our equity accounted investments NOI increased by $12 8 million.
Or nine 8% largely due to condo closing profits higher rental renewal rates, new leasing activity and continued strong performance at our Montreal and Toronto premium outlets centers.
Same property NOI, including equity accounted investments increased by $2 $6 million or one 9% compared to the same period last year.
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 with 98, 5% at the end of Q3, an increase of 30 basis points from the prior year and 40 basis points I'm, sorry, 30 basis points from the prior quarter and 40 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.
Pay out ratio to <unk> for the three months ended September 32023 was 96, 1% an improvement from 101, 6% for the same period a year earlier.
As I mentioned during the quarter, we closed on the sale of 274 condominium units and our transit city four and five developments for gross proceeds at the reach 25% share of $36 $5 million and net profit of $7 $4 million the.
Year to date, we have booked net profits on these two condo towers of $22 7 million.
On gross revenue of $122 8 million all at our share resulting in margin of 18, 5%.
Yeah.
Adjusted debt to adjusted EBITDA was $9 seven times in Q3.
Representing continued modest improvement from 10, three times at year end and nine nine times last quarter.
The improvement was as a result of both growth and EBITDA and the repayment of approximately $118 million of debt during the quarter, including repayments under equity accounted investments.
Our debt to aggregate assets ratio was 43% at the end of the quarter, a 20 basis point improvement from Q2.
We expect to continue to repay debt over the coming quarters, particularly with the profits from condominium.
And shortly townhouse closings.
However, as construction proceeds on some of our larger development projects short term term borrowings will begin to grow.
Our unencumbered asset pool increased to $9 1 billion in Q3 from $8 8 billion last quarter.
Our unsecured debt of $4 2 billion was virtually unchanged from the prior quarter and represents approximately 82% of our total debt of $5 1 billion.
During the quarter, we recognized a fair value gain on our investment properties portfolio of $42 $7 million, including properties under development.
This adjustment is the net of several factors moving in opposite directions for certain properties, primarily non Walmart anchored shopping centers in smaller markets, we increased our cap rate assumptions by 15 basis points.
These changes however were more than offset by the improvement in valuations driven by rising rental rates and increased leasing activity, particularly at our Toronto premium outlet property.
We also increased the fair value of our self storage projects as a result of third party appraisals that we received to support our portfolio financing of five such properties that we completed just subsequent to the quarter end.
From a liquidity perspective, we are very comfortable with our current liquidity position with more than $550 million of Undrawn liquidity as at September 30.
Including our share of equity accounted investments and cash on hand, but excluding any accordion features.
The weighted average term to maturity of our debt, including debt on equity accounted investments is $3 seven years, our weighted average interest rate was 413% an increase of 10 basis points from the prior quarter.
Our debt ladder remains conservatively structured where the most significant aggregate maturities are in 2025 and 2027, approximately 82% of our debt is at fixed interest rates.
Next I want to touch briefly on our development projects that are underway, we have updated the new disclosure that we began providing in our MD&A late last year focusing on those development projects that are either currently under construction or where site works have commenced.
As you can see on page 15 of our MD&A. There are currently 13 such projects up from 10 last quarter.
There were four additional projects that commenced this quarter and one project that came off the list upon completion.
The new ones are two self storage projects, one on Gilbert Avenue in Toronto, and the other in Stony Creek.
The Artois condominium project in the van Metropolitan Centre, and the Canadian Tire retail project on layered Avenue in Toronto.
The project that came off the list was the second phase of the purpose built residential rental project in Laval, comprising 211 units, where construction was completed in July of this year.
The <unk> share of the total capital cost of these projects is approximately $790 million with the estimated cost to complete standing at $386 million.
We expect several of them to be completed by the end of this year, including <unk>, four and five and the millwork rental apartment project and several more to be completed in 2024, such as the self storage projects and the first phase of the van townhouse development.
The recently started larger projects will take a little longer of course with the layered project expected to be ready for occupancy in early 2026, and an estimated completion date for art work in the first half of 2027.
Lastly, our self storage joint venture continues to perform well and ahead of our initial expectations.
Occupancy is strong at approximately 92, 3% for those facilities that have been opened for at least one year with gross rental revenue of approximately $5 $1 million year to date at the 50% share.
And with that we would be pleased to take your questions Mitch mall will moderate the Q&A so operator.
Over to you for the first question on the line. Please.
Yes, and just a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Again, Thats star one to ask a question.
And your first question comes from the line of Sam Damiani TD Colin Your line is open.
Thanks, and good morning, everyone and congratulations on the great results and are helpful presentation. This morning.
Just wanted to I guess clarify on the new retail deals that you were talking about obviously layered is now an active construction site, which is great.
But I just want to clarify Rudy what you said about 300000 square feet plus of new deals is that meant for new construction of retail or is that sort of just new new new tenants coming in I just wanted to clarify that.
Well, Sam we have over 300000 square feet of new construction that we are going to be building and in the quarter. If you look at the space being leased up in terms of vacant space and ensuring we have the.
Nearly 300 or slightly over 300 as well so it's both.
Coincidence that 300 include the layered or is that just sort of the other deals that you've more recently does not include it does not include layer.
Because layered there'd was signed prior to the quarter. So these are deals that are signed or to be signed shortly.
And so that would be in theory attitude. The construction active construction table in the coming months or quarter, Japanese and and to exactly and two are and we will add to our total portfolio square footage on completion, yes.
Absolutely and then I guess any any guidance on the yields that you're targeting or expecting on that incremental capital for the new retail excluding leer.
Certainly we do.
As I mentioned some of the tenants names that are coming we are we are all of them reviewed and approved all of the new pro forma is updated for new construction cost and interest rates and so on so as you can imagine all of them are accretive.
To the REIT.
So.
With big named tenants as you as I mentioned in terms of the <unk> banners grocery stores Michaels Gulf towns and so on.
And solid covenants I might add.
Okay. That's helpful and great to see I mean, it's obviously, a very strong retail leasing environment in Canada.
But are you seeing any any signs of vulnerability or weakness in.
In the industry and any any tenants you are starting to.
Put together a watch list that might be.
We're expecting to grow over the next little while.
Yes.
We do Sam as you know, we do have I missed when you want to add to this too we do have a watch list that we monitor.
A lot of tenants that were on that list.
We're unfortunately.
Addressed as part of the pandemic as you know.
For some of these tenants and they.
We intend to either went into <unk> closed down a lot of locations.
One last one that was remaining.
What David's bridal as you know.
And David's bridal came and went in and came out of the <unk> process and therefore locations with US all remain open at full rates. So they are back at it.
Well, we have restructured and as of right now we've dealt with sort of all of the.
The tenants that we had some concern silver by either recapitalizing them or creating flexibility in their leases. So as of today and are buying some wood to knock on.
We don't have we don't have that concern with the portfolio as it stands now.
Thank you very much I'll turn it back.
Thanks, Dan.
And again, if you would like to ask a question. Please press Star then the number one on your telephone keypad again, if you do have a question. Please press star one on your.
Your telephone keypad at this time.
Thank you. Our next question comes from the line of <unk> from RBC capital markets. Your line is open.
Thanks, maybe just coming back to the comments around dispositions you've been talking about this for a few quarters now.
Can you just comment maybe on the mix of properties that are in those discussions and at what point.
You think you might see some deals move forward and just curious if the current environment of higher rates is perhaps.
Maybe slowing the process down at all.
Yes.
Rich.
It's pretty.
It was pretty.
Alright, there for a while I mean, obviously.
Things are not clear in the market.
In terms of potential sales.
And I'll get through which ones are.
<unk> and <unk>.
The average life.
Okay.
Huh.
And.
Primarily in our retail I mean, we would.
Be open to.
Yes Sterling.
Specific assets.
On the right terms.
So there's a little bit it gives you a little bit of activity going on with respect to that.
The quickest and payers that easiest.
They would probably some of it.
<unk> gains would be that probably isn't too much.
Future development potential.
Sure.
Nevertheless.
You have to consider high so it would be shallow.
Very good.
We're creating reliable income.
Okay.
On the right terms, we would.
And then in terms of bringing.
Is selling pieces of debt against cities or.
Well, let's start with that one that's pretty that's pretty good.
You've been pretty quiet.
So we're trying to develop a buying quite a bit of a zone sage pay barrel.
Okay.
And you're going for.
Bringing in a partner and institutional partners for any of these 12 inches.
It is a little better profitability.
<unk> got a high probability and then and then bringing in programs for rental.
That was what we were most active you here, so you announced Coburg and quiet.
There is a little bit.
Of that interest in relation that interest back about back on.
And there is some developers in the country.
Good.
And playing for.
So like in Quebec.
We do have some discussions going on with potential partners.
Some of our rental buildings of course to be more.
Institutional investors that.
<unk> gotten a little bit quieter.
That's the summary.
Thanks Mitch.
Just maybe.
Coming back to the organic growth.
Stability in the business leasing spread picked up a bit.
They can see is obviously pretty tight in the portfolio and you're putting up some better overall organic growth that you have historically.
With that backdrop in our comments that were made around leasing in the pipelines.
Does it seem though.
At least maybe for the next maybe year or.
Perhaps longer that maybe the <unk> is in a better position to deliver some organic growth that is at about sort of exceeds long term levels of I think around 1% or so.
Yes.
So it feels that way when they occur.
Some of it is actually a little bit.
A little bit of a surprise we did anticipate.
Yes.
In.
Retail, but achieved them.
So I would say short answer is yes, I think you do see other type of bread and butter.
Regional centers.
Producing.
Contributing to higher than historic average internal growth rates.
I mean part of the daily use.
<unk> Chillers.
Good.
Get back to a long time, not just click made before the pandemic.
Trying to understand where e-commerce was going to go through a whole bunch of reasons.
E Commerce assures me, but.
But the visibility on it.
The split.
Cost.
Is becoming more.
Retailers more confident in terms of where the where that's where that's going.
How much control they have over at what they'd like to see so.
Those are some of the reasons I think tour.
<unk>.
That's five years or so.
That's helpful. Thanks, Nick just maybe one last one just with.
All of this.
Some of the I guess headlines around.
Developers and some financial issues.
Come up through this.
Steve move up in rates et cetera, and development cost can you maybe aside from the group's selection issue.
On one of your projects can you just comment on maybe the house.
Confidence analysis, some of your investment partners development partners and security position on any projects that are joining being developed.
I mean.
Okay.
I mean, we don't have a lot of partners.
Okay.
We had a.
A few partnerships reached Christian please publish absurd.
Overall, the first so that's what Perl that's.
Neil.
Well, that's a surety breached covenants, but okay.
I think on that.
Okay.
I think most of them are.
Good.
Our other partner, obviously smoked Scott I think the majority interest most alone.
So much though.
All of these data as far as public funds.
Once we're with them on and they do.
They have good returns quite accretive.
Four.
For us.
We know for them.
So the rest of what Theyre doing.
Similar to what Youre doing with now so I would say that they are there.
They are stronger than they were when we started partnering with them.
And remember they are the operator.
It's a beautiful machine so while I don't think we have too many concerns about I mean generally I would say, there's quite a have to be some casualties for sure.
Naturally there always are.
With respect to these situations.
With high levels of debt repayments I mean.
These circles sensitive ecosystem.
So I can't call it with Universal deal trying to plan for <unk> and <unk>.
The strong covenants long terms.
The low levels of debt.
Sure.
For times like this.
And those who didn't plan for this it's kind of too late so I'm sure there'll be.
Probably be a couple of <unk>.
Probably a couple of purchases on the side of the room.
Good.
Hello This is over.
That's helpful. Thanks, very much I'll turn it back.
Your next question comes from the line of Dean Wilkinson from CIBC. Your line is open.
Thanks morning.
Mitch I think we all we all wish we could be a shaky or covenant as you.
Peter.
Peter I just wanted to clarify did you say that the margin on those condo completions was 18, 5%.
Yes, I did okay.
Maybe question for Mitch how does that 18 and a half compare to your historical experience with development yields and do you think that theres, a little pressure going forward just given the high input costs construction labor all of those.
Components there.
Sure sure.
That was good.
Big building.
No.
Matt so with pricing either so.
Sure sure I mean youre spot on.
Returns will not be.
Rates are high language or below.
<unk>.
So.
That's what's going on.
Which.
There is other than people who get caught.
And other than the underlying need for housing.
Sure.
Hum.
Just one point of view in reality check point of view, it's probably not a bad thing youll, probably see construction prices.
And there'll be more sustainable what you will see some patients can dial in.
Hopefully you know land prices looking at all of them, but.
But.
Those who are.
Cards.
No.
This bill.
There'll be some growth for sure.
Alright, Thank you in the interim as we get these adjustments.
Pass through the system so to speak.
I think returns will be.
We squeezed as we should.
Makes sense guys.
Okay with that.
What I mean.
You cannot plan, especially when you're building a little bit takes 36 39 months.
You can't plan to put precise.
But the flip side is those same guys are probably some of the guys are going to get caught out so it's kind of all averages.
That's why I like to just.
Yes.
A quarter more long term.
With everything including our tenant.
So that makes some sense and such but.
18, plus there's a very clear.
Is that true.
Sure.
Yeah, even in these rate environments, I guess at the end of it land basis matters more than anything.
That's it I'll hand, it back thanks, guys.
Thank you.
Your next question comes from the line of Lorne Kalmar from <unk> capital markets. Your line is open.
Thanks, Good morning, everybody.
Maybe just quickly on the rent growth sort of in the nine months really jumped versus I guess, what you guys had in the six months ended June 30th.
I was just wondering if you could give a little bit of color because it seems like it was a pretty sizeable jump quarter over quarter.
Sure.
Yes.
Yes.
We are still.
But we are still benefiting if you will from tenants wanting to leave the enclosed mall. So you see our occupancy is up.
And we have tenants who.
Prior to the pandemic would have left us to go into an enclosed mall and now some of those same tenants are asking to come back in and with our low operating costs. What we're finding is.
The existing tenants here and new tenants are asking for any of the vacant space Thats available in our portfolio. So you have you have two things happening at the same time you have an increase in demand from existing tenants you have an increase in.
The.
New tenants categories coming in and then the last part I would think Thats, making up this surge is the fact that most tenants want to come in in the third quarter before fourth quarter Christmas sales seasonal sales kick in so.
They can.
Sort of.
Headstart in the market.
Don't want to come in in the first quarter of the year when everybody is already spent.
Spence there their wallets so.
But very welcome for those reasons that I just mentioned.
I can't imagine you'd be complain too much about something like that.
Is that sort of a good.
Because I'm just even looking like even after.
Back in 2022 to three for the nine months it wasn't as materially higher like is this sort of a mid single digit rent growth the range kind of a.
The go forward expectation for the portfolio.
I would say that would be a combination of factors sorry, Mitch go ahead.
Okay sorry.
Go ahead.
Oh, Yeah, I was going to say again, it's a function of a couple of things one is coming off the sort of pandemic years, when we were.
Slower growth in 2000, 22021, 2022, if you will we're leveraging off of a lower base. So a little bit of that will be will be down.
And.
Obviously, we're hoping that it continues it can continue.
Those bumps will not continue forever, obviously, but but we're coming off a little bit of a lower base and we're coming up we're coming off of lease up in our portfolio. So as we lease up we will obviously never exceed 100%. So at some point, we will slow down because we're being careful about covenants and we're being careful about market rents and so on so so.
Be a little bit of that.
Is it.
As temporary but I would say for the most part of that.
As you can see.
Mitch site.
So I would just add that no I don't think we'll be able to keep that up for <unk>.
Sure.
Sure. Thank you <unk> Hello.
So I could go on for years.
<unk>.
I can't quite a little bit of legs.
If you look at what we're negotiating right now, it's really very very fundamental stuff.
But just for I think for the purposes of your question I mean, you know.
Between one three years.
Fair enough I guess, all good things must come to an end but.
But I guess, it's good to see even in the context of I guess kind of the concerns that retailers are still able to.
<unk>. These these types of.
These types of rental rates that must be encouraging for you guys.
Absolutely.
I mean.
Sure.
We don't like it to be honest.
They can for sure.
We are at this moment.
I don't want to get into it.
You guys get it so.
Other cost of construction is still high and retailers know it.
Interest rates are high so, it's maybe a little bit of that.
We are just killed.
Minded value oriented.
Network.
But.
So nobody can ignore.
Construction costs.
And interest rates are they do they do add a little bit to rental rates.
At the moment deals that are done in this environment.
But I will say that.
Sure, even though I don't think we'll keep these rates. So we will keep them up for a while for sure I think it's going to be very I think what we're doing now is green.
Also redoubling.
Centrally so we didn't get into it here, but when we.
The deals we're doing right now when you see what they will do two existing centers, which are already solid hits.
It's going to be.
Youre going to see strong so you're going to see.
Even stronger.
Smart sensor in terms of just.
Overall traffic.
Sales on site.
In the next few years and a lot of places so that the guests.
Things I cant traffic, but gets traffic and so what that may mean in terms of future growth and what opportunities that may bring.
I think so.
It's hard to explain.
Hard to predict but.
Just linear straight line, yes, you can't go on forever at these rates.
Okay, and then just last one for me so I can do.
The condo side of things.
You guys, obviously did pretty well in the first phase of the art work, but there are there has been.
I'm curious I will let you know as anybody on the call analysts news of some issues with the slowing sales of new condos.
How has that been impacting your sort of.
Youre sort of plans at all and have you seen any of it or is it a concern for you after the projects that youre looking to bring to market.
And as usual we're not.
We're not going to commence.
The Colombia project debt.
Basically other than art work at the moment.
Which is sold out.
Understood we put on the market.
H.
Enterprise well get.
Tangible deposits I mean can you responding right now from scratch or considering going market somewhere else.
What we have considered we've delayed bill.
We're not going to do them, even though we are.
Ready to go sit tight approval, we have loading and subsequent approval in a few places, meaning we can grow into building permits go to market sell and build but we're.
Sure.
We're telling them.
It's not a bad thing.
So it would be if we can study them.
Yes.
20 stores up to three levels of understood.
But we don't anywhere and we don't for a reason.
But.
So yes, we're an impact certainly in presence and I hope, we're not the only ones because that's the way markets cool awesome.
It doesn't help housing in the short term there's mechanisms for that but.
But it certainly is overall good for cooling things off.
Okay, great. Thank you so much for all the color I'll turn it back.
Okay.
And your next question comes from the line of shallow Garg from <unk> investment Research. Your line is open.
Thank you and good morning. So my question is that on the fair value gains here to date.
It will be driven by NOI growth and stable cap rates and an agenda of the peers.
Through this year, so any color on what's helping to keep those capex stable.
Sure ill start and then maybe Rudy ill add a bit of color I think youre absolutely right. The shallow the biggest driver of the fair value gains was NOI growth. So it's not like we adjusted the cap rates for the vast majority of the portfolio remained stable.
We chose to do that after consultation with a couple of different third party appraisers that we use each quarter plus our own internal valuations group plus the valuations team and our auditors and so extensively reviewed in and so it was mostly driven by.
The increased leasing activity increased occupancy and higher.
NOI that you are seeing.
Yes.
You will note that Peter mentioned earlier also that we did increased cap rates. If you look at some of our peers, who were selling properties in the market. They are selling in closed malls or a weaker properties and weaker market our properties in small and even smaller markets and secondary markets or Wal Mart anchored and for the vast majority of them there are 100% leased.
Because there is so much demand for space in those centers. So when we looked at our properties in these smaller markets that were not Wal Mart anchored that's what Peter mentioned earlier, where we increased the cap rates.
By the 50 basis points to reflect what our appraisers are third party appraisers were telling us made more sense.
But the growth in our NOI and leasing.
And just appraisals that we did.
Complete during the quarter.
Led to that increase in our ifr's value yes.
Okay, that's really helpful, especially the color on open ended bonds. So another question I have is on the maintenance Capex, which is again up year over year. So I understand it's related to some.
We will book them.
Maybe.
And even so just wanted to get a sense of.
Exactly what's driving that and what they expect and 24024.
Yeah, I think Thats I think that is actually a good run rate.
For 2024 of our portfolio is probably the youngest in the industry.
From a design and from a build perspective, and we are certainly built in a way that it is very efficient very low cost maintenance very I'm going to call. It ESG friendly.
Low cost to consumers and our tenants as well so when you look at how these were built there isn't a significant amount of money because we don't have enclosed space to maintain.
And units to maintain or our tenants maintained their own space our tenants maintained their their HVAC systems and so on we look after the lots and the roof. So the run rate you saw for 2023, it's probably a good run rate going into future years.
Great. Thank you I think.
Thank you.
Yes.
No no I was going to say in mind, you I don't know what that number is but it represents probably less in 0.2 of 1% of our value of our portfolio because of how new this portfolio is so.
Just in terms of.
How we when we do our valuations and we build in capex into those valuations thats, what our appraisers are telling us as well.
Okay. That's helpful. Thank you I'll turn it back.
Again, if he would like to ask a question press starts and the number one on your telephone keypad.
Thank you and there are no further questions at this time I would like to turn the floor back over to Mexico tie Mitch.
Yes. Thank you so much and thank you all for participating in our Q3 analyst call.
Of course, please feel free to reach out to any of US. If you have any further questions in the meantime have a.
J J. Thank you.
Thank you ladies and gentlemen, this concludes the smart centers to meet Q3 2023 conference call. Thank you for your participation and have a nice day.
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