Q3 2024 SmartCentres Real Estate Investment Trust Earnings Call
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The conference is now being recorded.
Speaker Change: Good day, ladies and gentlemen. Welcome to the SmartCentre's Read Q3.
2013-2024 conference call.
I would like to introduce
Peter Slan, please go ahead.
Speaker Change: Thanks very much, Operator, and good afternoon, everyone, and welcome to our third quarter 2024 results call. I'm Peter Slan, Chief Financial Officer, and I'm joined on today's call by Mitch Goldhar, SmartCenter's CEO and Executive Chair, and by Rudy Gobin, our Executive Vice President, Portfolio Management and Investments.
Speaker Change: We will begin today's call with some comments from Mitch, Rudy will then provide some operational highlights and I will review our financial results. We will then be pleased to take your questions.
Speaker Change: 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. This also applies to comments that any of the speakers make this afternoon. Mitch, over to you.
Thank you, Peter. Good afternoon and welcome everyone.
Mitch Goldhar: The momentum in Retail Fundamentals noted in previous quarters continued in Q3.
Mitch Goldhar: rental growth, cash collections, and same property NOI continued to drive solid metrics and higher occupancies which ended at 98.5 percent.
Demonstrating the Strength of Smart Centers Portfolio.
The strategic nature of our locations
Mitch Goldhar: also drove 187,000 square feet of executed deals on vacant space.
Mitch Goldhar: and 220,000 square feet of deals for new retail construction year to date.
Mitch Goldhar: Our tenant-partner relationships continue to deepen, with same-store expansions and new stores.
Mitch Goldhar: either underway or beginning construction shortly with names such as Canadian Tire, Winners, HomeSense, LCBO, Sobeys, Loblaws, Dollarama, Golf Town, Banks and more.
Mitch Goldhar: We are simultaneously enhancing the shopping center experience beyond the everyday essentials.
Mitch Goldhar: with health and beauty, entertainment, fitness, medical, pet stores, daycares, and more.
As we work closely with our tenants,
Mitch Goldhar: Every detail matters in providing a welcoming environment for customers, and therefore, it is not surprising we have already extended over 88% of our 5 million square feet of tenant maturities in 2024.
Also reflecting a strong quarter is the 6.1% or 8.9%
and my exclusive anchors.
Mitch Goldhar: exclusive anchor tenants, rental rate lifts achieved on these expansions, excuse me, extensions.
Mitch Goldhar: Rudy will provide some further details in a minute, but here are a few.
More operational highlights.
Speaker Change: Same property NOI excluding anchors for the three months ending September is up 8.2% and including anchors nearly 5%.
Speaker Change: Our opportunistic industrial development in Pickering on the 407 is now fully leased on long-term leases.
Speaker Change: Cash collections remain strong at over 99% again, a reflection of the quality of our income and strength of our tenants.
And we expect this momentum to carry on.
through the year and
Speaker Change: Built on this strong and stable cash generating platform, we continue to build and secure significant mixed-use permissions.
Speaker Change: with over 59 million square feet already zoned and as you know, on lands we have owned for many years.
Speaker Change: We, of course, will be strategic and financially prudent in executing any project, that is, when market conditions permit, and with appropriate financing in place.
Here are some specific highlights.
Speaker Change: Site works and excavations were completed and construction is advancing for our 36-story Art Walk project here in the VMC, comprising of 320 sold-out condominium units.
to our smart living brand, the Millway, our 458.
Speaker Change: The Unit Apartment Rental Project, which was complete late last year, was 93% leased at quarter end, above planned rental rates. We expect to be above 95% leased by year end.
Speaker Change: Construction of our Vaughan Northwest Townhomes with our partner is progressing well with 47 closings taking place this quarter.
Speaker Change: and nearly all pre-sold units expected to close on schedule by the end of this year or first quarter next.
in Leaside.
Speaker Change: Construction is well underway for a 224,000 square foot retail center comprising primarily of a pre-leased
Speaker Change: 200,000-square-foot flagship Canadian Tires car. Opening is on schedule for early 2026.
Speaker Change: Our self-storage portfolio comprising 10 operating projects, which now accounts for over 1.3 million square feet at 100%.
Speaker Change: with four currently under construction. Completion will begin, completion will bring the total to 1.9 million square feet.
Speaker Change: This strategic initiative portfolio continues to overperform, and we intend to carefully expand it.
Speaker Change: The next such expansion will be in Laval East adjacent to our operating shopping center and in Victoria BC just off the downtown core.
Speaker Change: Our development teams continue to work diligently across the country in large and small markets obtaining strategic residential permissions.
Speaker Change: Just recently, we were successful in two of our BC projects, achieving 2.7 million square feet of residential zoning in Penticton and Salmon Arm.
Speaker Change: These and our other 50 million square feet of residential zoning achieved allow us to launch or sell when market conditions align.
Speaker Change: and enhance our shopping centres along the way to complete our vision of evolving our shopping centres into dynamic communities.
Speaker Change: We are pleased to announce that our annual Environmental, Social, and Governance report has been released, reflecting the significant progress we have made in all areas of our business.
Speaker Change: As I've said previously, ESG is woven into the fabric of our organization. It's a part of how we oversee our business, interact with our tenants, and engage with our employees and communities.
Speaker Change: You can find our report on our website and please refer to the ESG section of our MD&A for more details.
Speaker Change: As you can see, we are very active in enhancing value in our retail operations, prudent in our governance and strategic with our significant mixed-use development pipeline.
Speaker Change: We also take care of maintaining our conservative balance sheet and improving liquidity, which we did previously when increasing our operating line by 250 million
Speaker Change: to $750 million, increasing our unencumbered asset pool to $9.4 billion and raising $350 million in the quarter, which Peter will speak to in a few moments.
Before that...
Speaker Change: Let me pass the call over to Rudy for some operational highlights. Rudy?
Thank you. Thank you.
Thanks Mitch and good afternoon everyone.
Speaker Change: The third quarter was a standout in virtually every meaningful operating metric.
Speaker Change: Tenant demand for more locations continues, delivering high quality income across all provinces and to a collective 98.5% occupancy.
Speaker Change: With a national platform, SmartCenters allows any tenant to easily double or triple down on locations being sought.
Speaker Change: It starts with one conversation and one lease template, whereby SmartCenters is able to accommodate, over time, 40 LCBOs, more than 50 TJX banners.
Speaker Change: over 60 Dollarama stores, over 70 Canadian Tire banners, 100 Walmart stores, and over 120 of the five largest banks in the country.
Speaker Change: It is in these deep-rooted relationships developed over decades that SMART centers provide the highest quality, high-traffic, value-oriented centers that align
landlord, tenants, and their Canadian consumer.
Speaker Change: The accelerating pace of new tenant demand also adds to the great existing tenant mix.
Speaker Change: to improving cash collections and even higher occupancy, as you've seen.
Speaker Change: As Mitch mentioned earlier, in responding to the needs of each community, SMART centers have been adding uses such as medical, daycare, entertainment, health and beauty, fitness, and pet stores and more, providing that convenient one-stop place to shop.
Speaker Change: With the strong demand for retail across the country, we've executed nearly 187,000 square feet of deals in the quarter, filling small and large vacancies.
Speaker Change: signed 220,000 square feet of deals for New Build Retail, year-to-date.
Speaker Change: And we have extended over 80% of our 5 million square feet of lease maturities in 2024 with rental lifts.
at 8.9% excluding anchors, 6.1% all in.
Speaker Change: Our headline grocers, Loblaws, Silbys and Metro with their banners number over 50 in our portfolio and more new construction is planned for these names.
Speaker Change: The level of activity not only drives sustainable growth in rents.
Speaker Change: but enhances our flexibility and improves our overall covenant and cash flow.
Speaker Change: Our premium outlets continue to excel in driving traffic and improving sales leading to strong growth in EBITDA and value to the REIT.
Speaker Change: Tenant Sales has our Toronto premium outlets in the top three highest performers in Canada and remains an outperformer in Simon's portfolio.
Speaker Change: Our Toronto and Montreal locations remain 100% leased, with rental lifts and EBITDA continuing to come in ahead of budget.
Speaker Change: These affordable luxury centers and world-class brands continue to dominate in their segment.
Speaker Change: Overall, the REIT is strengthening its covenant and value with strong rental lifts, NOI growth, cash collections,
Speaker Change: tenant retention while delivering a broader array of tenants to meet the evolving need of each community.
Speaker Change: We expect this momentum to continue into Q4 and well into 2025.
With that, I'd like to turn it over to Peter.
Thanks, Rudy.
Peter Slan: The financial results for the third quarter once again reflect the strong performance of our core retail business, with improved occupancy and continued contribution from our mixed-use development portfolio.
Peter Slan: For the three months ended September 30, 2024, net operating income increased by $5 million, or 3.4 percent, from the same quarter last year.
Peter Slan: largely due to an increase in base rent, partially offset by a decrease in condo and townhome closings relative to the same quarter last year.
Peter Slan: FFO per fully diluted unit was $0.71 compared to $0.55 in the comparable quarter a year earlier.
Peter Slan: The increase is primarily due to the fair value adjustment on our total return swap, resulting from an increase in the unit price, as well as from higher rental revenue partially offset by higher interest expense.
Peter Slan: During Q3, we also delivered and closed on 47 units of our Vaughan Northwest Townhomes project.
Peter Slan: FFO with adjustments, which excludes both the townhome profits and the TRS.
Peter Slan: was $0.53 per unit for the third quarter compared to $0.54 a year earlier. The decrease of $0.01 was primarily due to an increase in net interest expense, largely because we are no longer capitalizing interest on our Millway apartment project.
Peter Slan: We maintained our distributions during the quarter at an annualized rate of $1.85 per unit. The payout ratio to AFFO for the three months ended September 30, 2024 was 75.2% or 90% for the trailing 12 months.
Peter Slan: Adjusted debt to adjusted EBITDA was 9.8 times for the rolling 12-month period ending in Q3, which is a slight decrease from 9.9 times last quarter, primarily due to the reduction in TRS debt and the repayment of debt from the townhome closings.
Peter Slan: Our debt-to-aggregate assets ratio was 43.6% at the end of the quarter, a 10 basis point decrease compared to last quarter.
Peter Slan: Our unencumbered asset pool increased by approximately $60 million to $9.4 billion in Q3, as compared to last quarter.
Peter Slan: Unsecured debt, including our share of equity-accounted investments, was $4.4 billion, virtually unchanged from the prior quarter, and represents approximately 82% of our total debt of $5.4 billion.
Peter Slan: From a liquidity perspective, we remain comfortable with our current liquidity position. As of September 30th, we have approximately $863 million of liquidity, which includes both cash on hand and undrawn credit facilities, but it excludes any accordion features.
Peter Slan: During the quarter, as we mentioned on the Q2 call, we increased our liquidity through the issuance of $350 million of Series AA senior unsecured debentures.
Peter Slan: The proceeds from this offering were used to repay our Series O debentures upon their maturity and to repay higher interest floating rate debt on our operator.
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Peter Slan: The weighted average term to maturity of our debt, including debt on equity accounted investments, is 3.2 years. Our weighted average interest rate was 4.09%, a decrease of 16 basis points from the prior quarter.
Peter Slan: Our debt ladder remains conservatively structured, where the most significant aggregate maturities are in 2025 and 2027. Approximately 85% of our debt is at fixed interest rates.
Peter Slan: Just before we open the call up to questions, I want to touch briefly on our development projects that are underway. Once again, we have updated our MD&A disclosure focusing on those development projects that are currently under construction.
Peter Slan: As you can see on page 17, there were 8 projects under construction at the end of Q3, unchanged from last quarter.
Peter Slan: The self-storage facility in Stoney Creek is now open as of early Q4, with the other three self-storage projects scheduled to open in 2025. So that Stoney Creek project will come off the list next quarter.
Peter Slan: The REIT's total share of capital costs on these eight development projects is approximately $482 million, with the estimated cost to complete standing at $275 million.
Peter Slan: Finally, we also entered into a construction facility for the 224,000 square foot retail project anchored by Canadian Tire and Leaside that Mitch described earlier.
Peter Slan: That construction facility totals $135 million and it was undrawn at quarter end.
Peter Slan: And with that, we would be pleased to take your questions.
Speaker Change: Operator, can we have the first question on the line please?
Speaker Change: Certainly. As a reminder, if you'd like to queue up to ask a question, please dial star 1 on your phone's keypad. The first question is from Michael Markidis from BMO Capital Markets. Please go ahead.
Thank you, operator. Good afternoon, everybody. Congrats on that.
Speaker Change: and the zoning achievement in BC. Maybe just touching on that zoning achievement, Mitch, you made a comment about
Speaker Change: developing, and you've been very disciplined in terms of when market conditions align. Curious as to your thoughts about when conditions may align to ramp up development, whether it be via the putting into production residential development or actually selling some land.
See you next time. Bye.
Speaker Change: Yeah, I mean, I think it's better than it was last quarter.
Speaker Change: Last quarter is a little better than the quarter before, but I...
It's not there yet, I guess.
The direction is positive. It's hard to.
predict when you know the market conditions might
Speaker Change: Warrant considering, you know, going ahead with with any, you know, sizable deal, certainly.
You know, we might be a little more conservative than...
Speaker Change: then a private developer, condo developer might jump in before us so we might be able to
Speaker Change: We might see some potential sales of of this density Sooner than you know, maybe that we would we would commence but
If I had to guess, I mean...
second quarter you know next year could see potentially
Speaker Change: You know, some action, or if we're lucky, you know, maybe middle to the end of first quarter next year, hopefully. But as I say, you know, it's just the new election.
Speaker Change: There's going to be a lot of back things going on that are going to influence the variables in the market.
Speaker Change: Okay, so I mean, tough to predict obviously, but things are slowly getting moving in the right direction. Sounds good. Okay, you know, one of the things we've heard, fundamentals and retail are great. It's showing up in your operating stats and your same property and why growth this quarter.
Speaker Change: I'm just curious, you know the rental spreads that you're getting on the non-anchor space. On this leasing, one of the things we heard about is people pushing maybe for a little bit more in terms of the contractual increases throughout the term of the lease. Is that something that you guys have been executing and successful with?
Speaker Change: I'm not sure what you meant by that and can you can you say that another way?
Speaker Change: I guess just on the non-anchor leasing you're doing, are you able to push for higher increases throughout the duration of those leases, just given the strengthening fundamentals?
Speaker Change: I'll start and then Rudy you can weigh in but I mean we cannot increase rents obviously most of our rents are fixed
Rudy Gobin: And we really, you know, we don't negotiate or try to open negotiation on rent.
Rudy Gobin: that are fixed. When I say fixed, I mean they have built-in bumps but they're built-in bumps most of the time.
Rudy Gobin: But at the end of terms, which we're going to see more and more of because of the, you know, the...
Rudy Gobin: The, you know, it just so happens that the age of our
Rudy Gobin: Our retail, you know, and our leases is such that, you know, we're getting into extension terms more and more of our Leases will get into extension terms where a lot of them are at market
Rudy Gobin: And so we have historically been kind of the, or tried to be profitable at the lowest possible rent.
Rudy Gobin: and that's part of the formula of being aligned with the Canadian consumer, but at the same time making good returns. But they're actually now...
Rudy Gobin: Somewhat outdated, you know, so a lot of those leases that are coming up
Rudy Gobin: They're being extended, and we do have a high percentage of extensions because our locations are in good locations, and they're now infill locations in a lot of them.
Those rents are outdated and fair market rent.
Rudy Gobin: is not just what it used to be, you know, a couple of dollars, a couple of dollars.
Rudy Gobin: It's more than that now, so interestingly you're starting to see our portfolio start to turn over and us
Rudy Gobin: You know, we set our rents to the new market, the new market being in many, most all the markets across the country with a few exceptions. Rudy, do you want to add some color to that?
Rudy Gobin: Yeah, not sure how I could add more to that than you just said, but the only thing that's different is, you know, there's not a lot of new retail centers being built in the country and therefore
Rudy Gobin: The tenants that are demanding more space want to be in Walmart anchored centers because Walmart is such a great driver of traffic and they're doing so well.
Rudy Gobin: that it makes the demand for our space, and you see it in the occupancy.
so much better and like Mitch said
Speaker Change: We started off years and years ago in this value-oriented space, not trying to get the highest rent we can. It's still not the highest rent we're always seeking. We're trying to be reasonable, but the lifts are looking good because of the solid demand.
Speaker Change: and the improving and the improvement in what people view as what a great location and a great mix of tenants we have already so the infill the infill nature of it.
Speaker Change: Yeah, for sure. Okay, and if I understand you correctly then, I mean, I think we're all familiar with the, you know, the nature of the Walmart leases, but it sounds like you're alluding to there's maybe a non-anchor, what you don't consider to be necessarily anchor space that had fixed rate renewal options for, you know, maybe several renewal terms and those are starting to burn off.
Is that true?
Speaker Change: Yeah, I mean, it depends, but lots of those anchor tenant deals are going, anchor tenant deals go to market as well at some point, and they do move the needle, and we've got more and more of those coming up.
Speaker Change: Okay, great. Last one for me before I turn it back. Just, Peter, on the Millway, you noted the dilution from the Millway no longer being capitalized. Can you just remind us what type of debt is on that asset now that it's stabilized? Is there a takeout opportunity that could be accretive for you going forward?
Speaker Change: Absolutely, so you know we're working through some CMHC financing to take out the construction financing. That'll be, I would expect that'll be a Q1 2025 item.
That's great, thanks so much, I'll turn it back.
Speaker Change: I'll add to that as well that we are anticipating that to be a positive, you know, accretive refinancing.
Thank you.
Speaker Change: The next question is from Lauren Calmar from Desjardins Capital Markets. Please go ahead.
Speaker Change: Thanks, good afternoon everybody. I just want to circle back to something I believe Rudy mentioned, talking about building space for grocers. I was wondering if you give us a little bit more color on that program and if it hinges on the potential removal of exclusivity clauses from tenant leases or not?
I'll try and cover that one. In terms of...
Thank you. Bye.
Speaker Change: The grocery, you know, the shop, this food store program, it does have some, you know, it's got momentum with us. We're doing a number of
Speaker Change: food store deals that will be built from, you know, built from scratch, ground up, construction, and I'd say
Some of them have...
Speaker Change: the situation that you're referring to where somebody could potentially, somebody's approval might be required, somebody who might have a restriction. So I'll just answer that by saying,
Speaker Change: It does appear to, I mean, you know, there's movement both on the food store side and on the policy governmental side.
Speaker Change: You know, there's going to be, there's going to be more.
Speaker Change: competition in food and and you'll see that on our sites for sure and I just go back to the first program it's it's it's you know for us it's gonna move the needle the number of food store deals that we've got in negotiation right now
Speaker Change: Okay, and then would these be at centers that already have a Walmart with food or they would be non-anchored?
Speaker Change: Both. I mean, you know, there's negotiations going on, let's just say, in Orleans, you know. We don't have a food store there. We have a shopping center across the road from this center with food, but not on this property, you know.
Speaker Change: We have negotiations going on in some markets where yeah, there's there's a Walmart, but
You know the restriction issue, but but some do
Okay.
Speaker Change: And then, just quickly on the closings, it looks like you guys did pretty well this quarter.
Speaker Change: Obviously, there's been concerns around the closing side of things, rightly or wrongly. I'm just wondering if, you know, through the process so far, if you've seen an elevated rate of buyers not closing versus historical, or if it's kind of normal course.
Speaker Change: It's not normal course I would say There's no such normal course. There's no history of no closings in the last 10 years
Speaker Change: There used to be, I don't know how old you are, but I can assure you there was a period where it was not unusual for buyers not to close.
I think...
Speaker Change: We are entering an era, or whatnot, a period where you'll see buyers not closing, which is going to depend, whereas we have not seen that for a long time.
Speaker Change: Okay, and then maybe just one really quick one for Peter. Is there anything one time in nature expected in NOI for 4Q or we've got a pretty good run right here on a year-to-date basis?
Peter Slan: On a year-to-date basis, it's a pretty good run, right, we think. Perfect. Thank you so much.
All right, thank you.
Speaker Change: The next question is from Dean Wilkinson from CIBC World Markets. Please go ahead, Dean.
Dean Wilkinson: Thanks, afternoon guys. First one for Peter maybe, on the 1.7 billion of assets classified as PUD, how much debt would be against that number?
Peter Slan: Well, so we we don't we don't break out exactly, you know, what's What's on the PUD versus what's on the income producing portfolio Dean? And as you know, most of our most of our debt is unsecured and so it's you know
Peter Slan: really looks to the entire portfolio across both IPP and PUD. You know, when we acquired the VMC Westlands, we did incur some debt specifically on that. As you may recall, that was back in 2021.
but most of it is part of the unsecured portfolio.
Speaker Change: Got it. So where I'm going with it is, you know, I look at the stock price. I look at the balance sheet
Speaker Change: and a $25 and a six cap, it's effectively zeroing out the PUDs. So not only are you not getting credit for, you know, the zoning and the upside, you're probably not getting credit for, you know, work that you've already done.
Speaker Change: One, do you think that it's just completing these projects and then having them flip over to IPP that we'll see the realization of value? And then two, if that's the case,
Speaker Change: Would it have you maybe rethink how much of the balance sheet you're willing to put into that bucket if the market's not going to reflect that value?
I'm going to defer to Mitch on that.
Where do we begin? This is, I mean, yeah.
Speaker Change: It's almost like if you hadn't said that in the form of a question, that would be just its own stand-alone statement. So yeah, I mean, there's a lot of value in the company, that's the bottom line. We've been saying it for a long time, you know, it will eventually come out in the wash.
Speaker Change: You know, whether you look at it like you did, which is, you know, one right way to look at it, or you look at it other ways.
Speaker Change: There's a lot of value, and real estate people would recognize it if you looked at it.
Speaker Change: You know the PUD and you look at our stock price and you look at a cap rate. I mean, it's
Speaker Change: Rochelle Walensky, M.D.: For for, you know, for, you know, for, for, for density and for most of our part. So we know what to do with all that. We know what to do with the density. We know what to do as pud, so we're going to do it. Next slide.
And it'll come out in a while.
Speaker Change: Yeah, I agree. That's why you're there and I'm here. Thanks guys, I'll hand it back.
All right, thank you.
Speaker Change: The next question is from Gaurav Mathur from Green Street. Please go ahead.
Gaurav Mathur: Thank you and good afternoon everyone. Just given the debt maturities that are coming due in 2025, could you shed some light on where secured versus unsecured financing rates would be?
Thank you.
Speaker Change: Yeah, so we have two debentures, two unsecured debentures that mature in 2025, Gaurav. The first one is at the beginning of the year. It's relatively small. It's $160 million, if I recall correctly. And the second one is at the back end of the year, very late in the year, December, so over a year from now.
You know
Speaker Change: Spreads have been tightening, rates have been, we've seen three rate cuts over the last three or four months, and so rates have been improving.
Speaker Change: We certainly haven't made a decision today about whether we would refinance those.
Speaker Change: you know, at what term, if it's 3, 5, 7, 10 year terms?
Speaker Change: That's something that we look at kind of opportunistically based on the rates at the time of those maturities and what fits in well with our existing debt ladder.
Speaker Change: But rates have continued to improve, and I think most of the bank economists that we follow would suggest that there are future rate cuts to come between now and those upcoming maturities, and so, you know, we'd expect them to continue to improve, but...
Speaker Change: I can't tell you today what the rates are likely to be when those maturities actually happen.
Speaker Change: On the secured side, we have seen very strong demand from all of our lenders on retail product.
Speaker Change: There we tend to go a little bit longer. We tend to go in the in the seven to ten year terms.
Speaker Change: And, you know, we always, as you know, most of our portfolio is unsecured, but we always have, you know, small centers, particularly those where we have partners, where we continue to access the secure debt market.
Speaker Change: And, you know, as I say, there's been strong lender appetite for those and so we would expect attractive rates, but again, it'll be a determination at the time of those maturities as to, you know, where we are in the market and what rates look like at the time.
Speaker Change: Okay, perfect. And I guess just switching gears here to the, you know, dispositions. We've talked about it in the past where
Speaker Change: You've talked about disposing land with permission. Just wondering, as the rate environment goes lower, has that improved market conditions in any manner?
Speaker Change: Yep, yes it has, but yeah, it's still not there. We're not sellers at...
at prices that we think are just, you know...
Speaker Change: not justified, you know, there's an overcorrection, if you will, on pricing right now for buying, but at least there's a market now.
Speaker Change: It's improving. Hopefully we'll get there. We're not going to hold out for anything.
Speaker Change: You know, like the, the, you know, the peak, we certainly, you know, don't see that in the foreseeable future. But, but we're not there.
Speaker Change: yet, pricing-wise, for us to sell this density. So, but it'll come, and when it does...
Speaker Change: You know, the difference between now and six months or twelve months or whatever it may be, you know, will, you know, justifies waiting.
In my opinion.
Speaker Change: Okay, and then just as a follow-up, you know, in that time period, is there any part of the portfolio that, you know, attractive from a non-corporate perspective and could be potentially disposed off?
Speaker Change: Look, we have a network of shopping centers, like they don't operate, like you drive by one and two and you sort of, you know, maybe, but, you know, there is a, there is a world like that, you know, food and general merchandise and, you know, weekly needs and other basics.
Speaker Change: that is intricately weaved together that our network creates additional value as a result of our network.
Speaker Change: So, you know, we don't just look at selling a single asset as, you know, selling a single asset.
It's part of the...
Speaker Change: you know, the ecosystem that is our positioning in our space in this country. So, you know, that is also not, of course, reflected in our, in our.
Speaker Change: So, you know, it would have to be very compelling for us to sell one of our centers.
Speaker Change: But it could happen. It does happen sometimes. And you know, I'm being conservative in my reflection of the timing of selling off density. But that's real estate. I mean real estate, you know, is a long-term
Thank you.
Speaker Change: So, um, I do see and we do see, um, you know, capital raising happening, you know, we see it.
Speaker Change: You know, we see the light now, or I say a year ago, there wasn't really much light. We just don't know what form it's going to take, but we're open to it. We're considering things all the time. But we're not worried, because in the meantime, we have very strong tenants, very strong IPP.
Speaker Change: Thank you for the call, gentlemen. I will turn it back to the operator.
Speaker Change: Thank you. The next question is from Mario Sarek from Scotia Capital. Please go ahead, Mario.
Mario Sarek: Hi, good afternoon. Maybe just summarizing the disposition discussion so far, I think, which last quarter.
Mario Sarek: highlighted this position target of 250 to 350 million timing wise more likely in 25 and 24
Speaker Change: It sounds to me like that's still a fair assessment of your plans in terms of quantum and timing, and most of it would be residential land. Is that fair?
Speaker Change: Yep, I mean it's going to be land that's both, because probably be land that's both. It's the permissions on the retail land that we have.
Speaker Change: That's some of our most attractive residential land is actually within our shopping centers, but I would say that timings
Speaker Change: Still look when it happens when it moves it moves across the board So you know we'll be able to execute on hopefully that kind of
Speaker Change: order of magnitude. So, it could go from zero to a lot. You know, that's...
Speaker Change: That's real estate, so hopefully it will be in 2025-ish, 2025, 2026, that we'll be able to make, you know, move some land to the extent of, you know, those $250, $350 sort of things.
Speaker Change: And what would you say is the governor in terms of the quantum? Presumably pricing would be one. But what would incentivize you to instead of 250 to 350 million?
Speaker Change: go up much higher than that if pricing is pretty strong.
Speaker Change: I tell you, I'm just being conservative, you know, you guys, I mean, if the market was an appetite and we could do more, you know, we're not, we don't have to build all our residential, I mean.
Speaker Change: We've got, in a sense, kind of an infinite amount of density, right? I mean, if you think about it, if we sold...
5 million square feet, we'd still have 45 feet
Speaker Change: And we're good at, you know, that's our thing. We're, we're, you know, we're comfortable in the land use world. So we can generally speaking over time, create more our locations continue to get better. So, you know, it's a bit of a renewable resource.
Speaker Change: for us. So we're not going to hold back. It's not like, well, you know...
Speaker Change: Okay, nothing for ourselves to develop. We do want to end up with rental residential.
Speaker Change: We want that to be part of our shopping centers. It's good for our shopping centers. It renews our shopping centers. It renews our shopping center. It slowly but surely, you know, creates a community within your shopping center. It's part of how we see the future.
Speaker Change: So it's good for the retail and vice versa. So we want to end up with that and we get some of that when we sell and someone builds a condo.
Speaker Change: But I would say, you know, we're not going to be shy if the market's big. I mean not because
Speaker Change: of our debt metrics and our debt tibida necessarily, we want to bring that down and we're very focused on it. But we may just do it because it's...
Speaker Change: You know, it's going to make doing our rental residential program that much more accretive and attractive. So, it could be bigger, but I think the minimum, you know, that would sort of make a difference.
Speaker Change: With us, it would be 250, ideally 350, but could be more, for sure.
Thank you.
Speaker Change: And to your point on the residential, I personally see that first hand at Trafalgar and Dundas almost every day, so I can appreciate the relevance of it to the retail for sure. Just on residential... Yeah, and multiply that by 100 locations, and that's why...
Speaker Change: You know, it behooves us, our unit price, but it is what it is.
Speaker Change: So just on residential, Mitch, you've been in retail for a very long time, and one topic of conversation, not just for residential, but for retail in the past month that's come up has just been the federal government's.
Speaker Change: potential immigration policy change, which is aimed to effectively kill population growth in the country for the next two years. I'd be curious to hear what your thoughts are on the matter, like if the government does go through with it.
Speaker Change: Is there an impact of SmartCentre's portfolio or the broader retail landscape in general and coming back to the residential land market or residential in general, are there implications in terms of land values if population growth after a period of some pretty strong growth comes to a halt?
Speaker Change: No, I think, you know, land values were unjustified, land values meaning density values were unjustified. And they don't, I don't think they'll come back and I hope they don't come back and we should all hope they don't come back.
Um, so, um, I do think, you know,
Speaker Change: We're going to see trades at lower prices, which is fine, in our case, we're getting zero for it right now.
Speaker Change: And it doesn't cost us that much to do. We're not buying land, you know, we're just using our, you know, it's mostly, you know, consulting fees and intellectual capital. I mean, so, you know, it's quite creative to us.
Speaker Change: In terms of demand, I also think there's going to be, in a sense, more supply than demand across the country, crudely.
Speaker Change: But I think if you've got, you know, and always I think has been true, good locations, mass transit, you know, amenities, you know, changing.
Demographics, for whatever that may mean, people just moving around.
If you're in prosperous parts of...
Speaker Change: You know the country I think they'll be demand enough demand To absorb you know whatever percentage of our of our density We've got 50 million feet and we built you know easy math if we built on average a million square feet a year That's 50 years. I mean it's it's
Speaker Change: It's a concept, like, you know, I can't think in terms of...
Speaker Change: You know, 50 years from now, but it would move the needle, you know, I think at Transit City we built our share, a million and a half square feet, and you saw what it did. And I think we will build on average more than a million square feet a year of residential on average.
Speaker Change: And there might be some, you know, maybe mixing in there some selling of that density, I think.
Speaker Change: That wouldn't be a bad thing, you know, in terms of...
Speaker Change: You know just in terms of growth and earnings and whatnot for the company
say nothing of, you know, evolving our shopping centers.
Speaker Change: Maybe on the retail side, retail GLA per capita has been coming down quite a bit because of the population growth and virtually no new supply. Do you see, again, if the population growth stalls, do you see any impact?
Speaker Change: to your retail occupancy or is it simply that because there's no new supply coming in you expect your retail occupancy to be stable despite
Okay, we were, we were
Speaker Change: You know, we were high occupancy, we were probably 99% occupancy for 10 years going back 10 years ago. Long before we opened, you know, long before immigration policies changed, you know, to increase population size. And, you know, obviously because people don't shop, you know...
Speaker Change: And and its way down.
Speaker Change: Retail per capita from where it was 10 15 years ago, Nobody built retail over the last 10 15 years for all intensive purposes, and anyone who owned any decently located land that could potentially be retail built residential.
Speaker Change: And.
Speaker Change: And a lot of it well some of it was built on retail lands.
And of course, the retailers were growing they were worried about ecommerce and independent making countries kept growing we are way down in terms of retail per square foot.
Speaker Change: My Big Asterix, there's how much retail gets built on the ground floor high rise, which I don't know how much of that we can count but.
Speaker Change: Even if he killed that I I don't know I think I think retail per caps kind of stay the same or go down and it's way down which is good.
Speaker Change: And I think that who controls how much of that are very sound retailers.
Cause were driven by you know retail demand.
Speaker Change: And so I think the Wal marts, the loblaw somebody's costco's of the world are very sober.
Speaker Change: You know how much square footage they award.
Speaker Change: And of course their data as you know Dalian.
Speaker Change: They're watching population growth and whatnot. So I think we're in pretty good shape I don't want to be.
Speaker Change: Yeah.
Speaker Change: Too optimistic, but I think from a retail landlord.
Speaker Change: Our perspective I think we're.
Speaker Change: And good shape all of us and I think we're particularly because I think we're very well positioned for the.
Speaker Change: The economic reality of Canadians so.
Speaker Change: Yeah, I don't I don't want to be too optimistic but.
Speaker Change: I'm kind of cautiously optimistic.
So it's a good point on the occupancy.
Speaker Change: Population search so thank you for that.
Speaker Change: Yeah.
Speaker Change: Alright, thank you.
Speaker Change: The next question is from Matthew Korn from National Bank Financial. Please go ahead, Matt.
Matthew Korn: Good afternoon, guys just quickly on the blended leasing spreads and spreads exane anchor Ah.
Speaker Change: You tend to report the bulk of it in Q1, and I guess, we've kind of seen it hanging that six and 8% respectively.
Speaker Change: Range for this year can you give us a sense as to what 2025 looks like are you expecting to see an acceleration kind of on both of those metrics.
Speaker Change: The blend generally.
Speaker Change: Right.
Speaker Change: Yeah. The I do think that this momentum that has started and the demand we're seeing for not only filling space and you'll see our occupancy I think continuing to grow as Mitch mentioned, we were at 99 per cent for over a decade plus.
Speaker Change: Yeah, I think you'll see that I think those are driving rates up I think that is impacting certainly the lease extensions with tenants realizing what's happening in the market and you know a full center continues to want to be full with tenants standing in line waiting to come in and when.
Speaker Change: Their space to come in or upgrading the quality of that income in our case, where we can because there may be tenants, who arent doing as well so yeah, I I I see 'twenty 'twenty five as building on what we're looking at now and in Q3 and Q4 certainly.
Mitch Goldhar: Okay I appreciate that and then maybe quickly Mitch.
Speaker Change: We're coming off a pretty historic condo development boom and a lot of that capital notwithstanding all you'll see your comment on whether all of it closes, but presumably most of that will close a lot of that capital is coming back to developers. When you. When you discuss what kind of your peers on the development front have they given you a sense as to what theyre going to do with all of that capital when it comes back to them.
Speaker Change: And is there a position to kind of rebuild land banks and expand.
Speaker Change: Yes.
Speaker Change: I would say you.
Speaker Change: You know private developers are I used to be one I mean, the and an early in my career I I did get.
Speaker Change: You know I did.
Speaker Change: You know.
Speaker Change: Ill go through some some difficult years, because you know inevitably sort of her almost have to by definition extend yourself.
So.
Speaker Change: I I have a feeling a lot of the capital that's still coming to developers is.
Speaker Change: [laughter] who's going to go towards.
Speaker Change: You know.
Speaker Change: Commitments, they've already made elsewhere other dead, which was which was fine.
Speaker Change: And then of course at some point they'll start buying again.
You know I don't think there's too many private developers that they're seeing.
Speaker Change: Robert sitting there.
Speaker Change: With you know.
Speaker Change: No properties that they bought at the peak or near the peak and.
Speaker Change: No just waiting for it all to roll in I mean.
Speaker Change: Generally speaking that's the sort of corporate.
Speaker Change: Go out and buy another and by another so.
Speaker Change: I guess, they're going to.
Speaker Change: Have some cash at the end of the day and then.
You know of course, we all will start to buy again.
Speaker Change: And buy it you know maybe a little bit more cautiously my my my feeling is there just not from people that I know, they're just not quite in the mood to dealt with them right now you'd have to.
Speaker Change: So at a very low price and probably give them terms.
Speaker Change: But it might not be long before you'd already six months who knows.
Speaker Change: Back to buying it.
Speaker Change: More reasonable.
Speaker Change: Tobey back yeah.
Speaker Change: Okay, No that's fair I appreciate that context.
Yeah.
Speaker Change: Alright. Thank you. The next question is from <unk> from RBC capital markets. Please go ahead.
Speaker Change: Thanks, just a hopefully a couple of quick ones for me just on the and maybe building on the question around for for 2025 look I mean, you're obviously very well occupied the renewal spreads have been moving in the right direction.
Speaker Change: Is it reasonable to perhaps think that for next year, the organic growth trajectory could be in that 3% range or is that maybe a bit.
Speaker Change: Optimistic just given where occupancy already is.
Speaker Change: Mhm.
Speaker Change: I don't know Peter Mooney, you want to take a shot yeah. Tammy are you asking me about same property right correct Yep.
Speaker Change: Yeah, I mean, the I think the run rate is looking like we're looking at a run rate that should be in the 3% to 5% range. Obviously, the NOI has a lot of stuff built into it including you know recoveries step ups that Mitch mentioned earlier, where there's natural steps in the leasing them. This tenant demand you know per se.
All kinds of things recoveries are built into the NOI. So I think the 3% to 5% range.
Speaker Change: <unk> is probably a good run rate for us.
Speaker Change: Okay, Oh, certainly higher than what are the company's put up over the long term. So that's encouraging.
Speaker Change: In terms of them just aren't coming back to Q3, if I think back to last quarter. I think there was maybe even a bit of a drag from the timing of recoveries.
Speaker Change: With Q3 at all I guess close to 5% that you put up on same property NOI this quarter, which was there any sort of catch up and recoveries. Maybe just got came through in Q3, and then maybe that drops off where you don't see that catch up or maybe it drops off a little bit in Q4 or was Q3, a pretty clean quarter.
Speaker Change: I'd say, yes, yes, and yes to everything you just said.
[laughter]. We we are we are running everything with recoveries based on actuals and and so you might see a tiny bit of variability, but the run rate really looks good in terms of what you should be using them. So if you're if you're using that run rate I think you are.
Speaker Change: Fine, but yeah, there's going to be a little bit of seasonality to it because we were using actual costs to do or to do our recoveries. So the tiny bit of seasonality is there but for the year I think youre fine with a run rate.
Speaker Change: Okay.
Speaker Change: Last one I promise I'm, just coming back to the comments around you know how you structure leases with.
Speaker Change: From a renewal standpoint, aside from Walmart, which then which is flat.
Speaker Change: Or are you doing any deals where the renewal where the tenant has a renewal option at a fixed rate or a flat rate.
Speaker Change: Yes.
Speaker Change: Yes, absolutely.
Speaker Change: Yeah, Yeah, we have lots of them, but they're bumps.
Speaker Change:
Speaker Change: I mean, it's normal.
Speaker Change: But we have lots of adult lots that have like a normal well we deal with these weird we're focused on certain types of tenants.
Speaker Change: We give them fixed renewal, we get we give them extensions at fixed rates, which are bumps, but at some point.
Speaker Change: We can't say, we can't get comfortable after a certain number of extensions. So we go to market, we say fair market value.
Speaker Change: We have a lot of those coming up but we have a lot of one sort of that fixed rates and we have some where the lease is actually up it's over they have no extension. So obviously it goes to market. So we've got more and more of those because just the way. It is like our are our bread and butter non anchor tenant deals probably 10 years with you know what.
Two five year options. So if you think about it any deal we did like 20 years ago or something you know as like out of term.
Speaker Change: And then we have some larger acres that were maybe you know they were 10 or 15 years with with two or three or five year options. So some of those are 30 years or even 35 years are coming up and.
Speaker Change: And so.
Speaker Change: That's and relocations of change that potentially is that just normal bumps. So we've got a long run of that going I think for the foreseeable future together with a lot of our locations or are being are getting better not just because you know about us and what we're doing but because of what everybody's doing around it. So I think we're going to see some of that in.
Speaker Change: That's when real estate really starts to.
Speaker Change: The work you know kind of for you instead of you working for it and we got more and more of that coming up road, but they're all over the map. So it's just giving you a little bit more color.
Speaker Change: No. That's that's very helpful. Thanks, very much I'll turn it back.
Speaker Change: Okay.
Speaker Change: Alright, thank you.
Final question is from Sam Damiani from TD Securities. Please go ahead Sir.
Sam Damiani: Thank you and good afternoon, everyone I'll try and try and make this quick given the we're past the hour Mark.
Speaker Change: I just wanted to drill in a little bit deeper on these property NOI growth coming in at 5% This quarter, which I think as someone else noted was was kind of a high watermark outside the pandemic for smart centers.
Speaker Change: Does that start for the REIT include expansions or intensification or is that a same same store same space metric.
Speaker Change: There are a lot of it.
Yeah. There are a lot of the later Sam no intensification no. There's nothing in there other than same property same store so.
Speaker Change: Right out of there I think as you've seen the momentum that was building and it hit mostly in the quarter. Obviously in EMEA hit again next quarter is that the strong strong demand coming from food, who and coming from new bills.
Speaker Change: Asking us to build more more into the site.
Speaker Change: The rents that that's driving is driving the rents on the market.
Speaker Change: For the NOI. So it's not construction, that's driving it but the higher demand is driving higher rents on on on our negotiation and you've seen with the extensions you know, it's it's near double digits with with without anchors. So.
Speaker Change: That's that's coming out in and what we're seeing and of course. It also here in the third quarter it'll pick up things that are all the other parts, which as you know better recoveries.
Speaker Change: You know step up segment, you talked about earlier and so on so the percentage rent and and and all of that factoring into the same property.
Speaker Change: That's helpful. Thank you and your comments earlier were also helpful and I think one of the sort of factors you've mentioned what was recoveries, which for this quarter were you know a little bit higher than I think last quarter on.
Speaker Change: On a regular basis.
Speaker Change: So again, just trying to you know I guess reconcile you know the sort of mid to upper single digit leasing spreads the amount of space that you roll every year, you know occupancies basically you know, peaking.
You'll have easier comps I guess early next year, but.
Like it's just hard to you know mathematically you know back into a 5% or a 3% to 5% just given the operating metrics that we see so the question is what else is at play you mentioned recoveries. You know is it new leasing I don't think that that's a metric that you guys disclose like if a if a space.
You know when taken that was paying getting 12 Bucks, maybe a year ago and you re let it for 18 Bucks does that get into your operating metrics I don't think it does.
Speaker Change: Or was there COVID-19 relief, that's now coming off for the first time and that's a big tailwind for a couple of years kind of thing is what is what else what other factors might be at play.
Yeah, It certainly not new construction, but a little bit of the latter part of the Covid relief may be coming in but what's happened is as you know when we are intensifying our seismic we've leased near 300000 square feet of space, that's going to add to the base of our of our portfolio and again, that's driving other tenants to see what the rents are coming in for new build construction, which is.
Good market rents and like Mitch mentioned also earlier, we we arent, we arent a hard driving trying to get the maximum rent out of tenants like we're a value oriented space and we want value for our in our rents too so but when tenants are driving.
Speaker Change: Demand and competition for the same space. When there is no vacancy or very limited vacancy and they want to be in certain spaces. What it forces us to do is look at how we can improve the quality of that income where we can move some things around so there may be a little bit of shuffling around the decks in the portfolio. So I think you will see a little bit of that same property NOI growth continuing.
Speaker Change: For a bit as just as this momentum keeps building. So I don't think it'll be unusual at all to see us in that range.
Speaker Change: I guess just to start I guess wrap it up and you usually you sort of said 3% to 5% as is.
Speaker Change: Possible are sustainable through 2025, like what would what would change that.
Speaker Change: Beyond 2025 is there is there some kind of onetime or temporary tailwind.
Speaker Change: Tailwind, that's helping 2025 that might not repeat itself in future years or is it 3% to 5% you know.
Our long term sustainable peace, assuming a steady state situation.
Speaker Change: I don't want to make sure I have the same answer as Mitch on that one but my answer to that would be an image may want to.
Speaker Change: Chime in as well on this one you know that we have we have a lot of land still remaining in our existing shopping centers and shop Atlanta, we can still build retail on land that we can build them with intensification. So I think as we were not out buying new shopping centers.
Speaker Change: So we're at now and the end.
And the market generally isn't doing that so you can see that the the the rise in the quality of our income is really driving a lot of that and I think that is only going to be.
Speaker Change: We get more of the same.
As Jerry says they pushed to higher quality tenants in terms of you know 90% of near 90% of our tenants are national regional already so we can't we were trying to push that up and keep the tenant covenant quality as high as possible. So that will continue I mean, nothing will continue forever, but I think that will continue.
Speaker Change: For a bit so.
Speaker Change: You know as far as we can see based on the current demand we're seeing in the demand for new space meeting Newbuild space within the shopping center, continuing and improving the mix all of that when you add it together I'm still looks very positive yeah.
Speaker Change: Thank you very much that's helpful.
Speaker Change: No problem Sam.
Speaker Change: Alright.
Speaker Change: Alright. Thank you are there no further questions in the queue.
Speaker Change: Yeah.
Speaker Change: Okay, well, thank you fruit spirits as bidding in our Q3 analyst call. Please feel free of course to reach out to any of US. If you have any further questions.
Speaker Change: And have a great rest of your day. Thank you.
Thank you.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, this concludes the smart centers already reached the Q3 two to 324 conference call. Thank you for your participation and have a nice day.