Q2 2025 SmartCentres Real Estate Investment Trust Earnings Call
Speaker #9: I was looking out in the lost and found. That's how they get out of any lost and found. I've seen things that I was looking out in the lost and found.
Speaker #9: That's how they get out of any lost and found. I've seen things that I never knew that sound, but I'm not dead. There's a little bit more that has to be said.
Speaker #9: You play me now. I play you too. Let's just call it over. I was looking out in the lost and found. That's how they get out of any lost and found.
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Speaker #9: That's how they get out of any lost and found. I've seen things that I was looking for in the lost and found. That's how they get out of any lost and found.
Speaker #9: I've seen things that I got to hands one beating hard. And I'll be all right. I'm gonna be all right. Yeah, I got to hands one beating hard.
Speaker #9: And I'll be all right. I'm gonna be all right. I was looking out in the lost and found. That's how they get out of any lost and found.
Speaker #9: I was looking out in the lost and found. That's how they get out of any lost and found. I've seen things that I was looking out in the lost and found.
Speaker #9: That's how they get out of any lost and . I was looking out in the lost and found. That's how they get out of any lost found.
Speaker #9: I've seen things She's electric. She's in a family full of eccentrics. She don't think they'll never expect it. And I need more time. She's got a sister.
Speaker #9: And God only knows how I've missed her. And on the palm of her hand is a blister. And I need more time. And I want you to know I've got my mind made up now.
Speaker #9: But I need more time. And I want you to say, "Do you know what I'm saying?" But I need more 'cause I'll be you and you'll be me.
Speaker #9: 'Cause love's been lost for us to see. And love's been lost for us to do. She's electric. Could I be electric too? She's got a brother.
Speaker #9: We don't get on with one another, but I quite fancy her mother. I think that she likes me. She's got a cousin; in fact, she's got a better dozen.
Speaker #9: She's got one in the oven. But there's nothing to do with me. And I want you to know I've got my mind made up now.
Speaker #9: But I need more time. And I want you to say, "Do you know what I'm saying?" But I need more 'cause I'll be you and you'll be me.
Speaker #9: 'Cause love's been lost for us to see. 'Cause love's been lost for us to do. She's electric. Could I be electric too? Could I be electric too?
Speaker #9: Could I be electric too? Could I be electric too?
Speaker #3: I know she's dead and alright. But you can make it up next time. I know she knows it's not right. There ain't no use in lies.
Speaker #3: Well, maybe if she thinks I know something, maybe she thinks it's fine. Or maybe if she knows something I don't, I'm so, I'm so tired.
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Speaker #3: But oftentimes we're lazy. It seems to spend in my way. 'Cause no one knows not no one likes to be let down. I know she loves the sunrise.
Speaker #3: No longer sees it with her sleeping eyes, and I know that when she said she's gonna try, well, it might not work because of other ties. I know she usually had her mother ties, and I wouldn't wanna break her knot.
Speaker #3: I wouldn't wanna break her knot. Maybe she'll help me do one tie this until then, well, I'm gonna have to lie to her. It seems to me that maybe it pretty much always means no.
Speaker #3: So don't tell me. You might just let it go. And oftentimes we're lazy. It seems to spend in my way. 'Cause no one knows not no one likes to be let down.
Speaker #3: It seems to me that maybe it pretty much always means no. So don't.
Speaker #2: Please be informed that the SmartCentres REIT Q2 2025 conference call will begin shortly. As a reminder, you may queue up to ask a question at any time during the call by pressing star one to withdraw your question.
Speaker #2: Please press star two. Thank you. The conference is now being recorded.
Speaker #10: Good day, ladies and gentlemen. Welcome to the Smart Centers REIT Q2 2025 conference call. I would like introduce Mr. Peter Slan. Please go head.
Speaker #11: Good morning, everyone. And apologies for a slightly delayed start. We had a couple of technical difficulties on our end. But welcome to our second quarter 2025 results call.
Speaker #11: I'm Peter Slan, Chief Financial Officer. And I'm joined on today's call by Mitch Goldhar, Smart Centers Executive Chair and CEO, and by Rudy Gobin, our Executive Vice President of Portfolio Management and Investments.
Speaker #11: We will begin today's call with 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 #11: 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 MDNA.
Speaker #11: This also applies to comments that any of the speakers make this morning. Mitch, over to you.
Speaker #12: Thank you, Peter. Good morning and welcome everyone and so sorry for the delay. As you have seen from our disclosures, Q2 continues the trend started last year.
Speaker #12: That is, a quarter of solid performance across all sectors of the business. That is, retail, industrial, residential, storage, and office. Translating into higher occupancies, healthy same property NOI increase, respectable and sustainable lease extension rates, and a uction in payout ratio.
Speaker #12: All with a focus on high-quality covenants from national retailers in our preferred categories of general merchandise, grocery, pharma, home improvement, apparel, financial services, and quick-service restaurants.
Speaker #12: Extending our lead in the area of value and convenient retail. As I have said before, the seeds of this positioning and weatherproofing of the business were planted years ago, guided by our belief and first principle that providing value and convenience to all Canadians is good business.
Speaker #12: The second quarter performance reflects this in many different metrics such as same property NOI growth of 4.8% all in, or 7.7% excluding anchors. Positive leasing spreads of 6.1% all in, or 8.5% excluding anchors.
Speaker #12: 82% of 2025 lease maturities have already been extended. 98.6% occupancy for in-place and executed deals. A reduced payout ratio of 89.4%. Rent collections of over 99%.
Speaker #12: And during the quarter, Costco took possession of the premises at our 80-acre Winston Churchill on 401 Center, a formula occupied by Rona, and have commenced fixturing, with a planned opening later this year.
Speaker #12: This center is now anchored by Loblaws, Walmart, Winners, and Costco. Also worth noting, Walmart's fixturing is well underway on a schedule on schedule at our South Oakville Center located at Third Line and Rebecca.
Speaker #12: With a scheduled grand opening this fall in the old Zellers Target space, this is first Walmart opening in quite a few years. Value-oriented retail will not always invoke is always in demand.
Speaker #12: In addition to the metrics mentioned, this is further evidenced by our very active new build program, where negotiations for new space in existing Smart Centres are up.
Speaker #12: To expand our 37 million square foot portfolio with the latest in general merchandise, pharma, apparel, and other offerings. Further on the development spectrum, our projects now under construction, which I will describe in a moment, and also contributing to future value is our going land use permissions program across the platform, with the 59 million square feet at the REIT share already zoned we believe Smart Centers could possibly possess the largest pipeline of zoned real estate in the country.
Speaker #12: When the time comes, the ability to quickly execute on this valuable inventory will prove a competitive advantage. Active developments include the 340-unit Art Walk condo project in well underway and at grade.
Speaker #12: As previously reported, 93% of the units are pre-sold with substantial deposits. Our recently completed 458-unit Millway apartment is now 97.8% leased. We're performing ahead of budget.
Speaker #12: Construction of our Bond Northwest townhomes with our partner is progressing well, with nine more closings taking place in the quarter. Bringing the total to 98 units now closed.
Speaker #12: Construction continues in our 224,000 square foot Canadian tire flagship store in Leeside, which will be completed and fixtured for opening in Q2 2026. And three SmartStoff self-storage facilities opened in the quarter, two in Toronto, Eglinton, West, and Gilbert, and on Jane Street.
Speaker #12: On Jane Street and also one in Duval, in Montreal, bringing the total open facilities to 14. With three remaining under construction, altogether, this brings the gross square footage of the 17 projects to 2.3 million square feet at 100%.
Speaker #12: This portfolio continues to perform well, and we intend to continue its expansion. On the capital recycling side, we have waived deals on one-third of the planned $100 million of dispositions under negotiation.
Speaker #12: Closings for this particular part are scheduled for September. While the business continues to grow organically and through new income-producing developments, we carefully manage our debt and debt-related metrics.
Speaker #12: In this regard, we have improved our financial flexibility with approximately $1.2 billion in liquidity, 89% of our debt being fixed rate, and an unencumbered asset pool.
Speaker #12: Of $9.6 billion, which Peter will speak to in a moment. But before that, let me turn it over to Rudy for some more operational highlights.
Speaker #12: Rudy?
Speaker #13: Thanks, Mitch. And good morning, everyone. As Mitch mentioned, the second quarter was once again a standout in many areas, and related operating metrics. Tenant demand for space remained strong, with 148,000 square feet of lease up.
Speaker #13: Completed in the quarter, delivering high-quality income across all provinces, with a leading 98.6% occupancy at the quarter end. Same property NOI continued its strong momentum with 4.8% growth overall, and 7.7% excluding anchors.
Speaker #13: Compared to the same period in the prior year, with 5.3 million square feet of space maturing in 2025, by the quarter end, the REIT had already extended 82%, with rental spreads of 8.5% excluding anchors and 6.1% all in.
Speaker #13: As also mentioned, cash collections remained strong, exceeding 99% in the quarter. Costco, with a 20-year initial lease term, took possession of the ex-Rona space at the 650,000 square foot shopping center at Winston Churchill on the 401.
Speaker #13: With an opening schedule for the fall, also during the quarter, and also with a 20-year term, a grocer and entertainment user took possession of the Ex Low space at an Arvon center with a planned fall opening.
Speaker #13: As we have mentioned recently, the relaxation of grocery restrictions will not only continue to benefit large open format retail, but we believe will also accelerate the pace of tenant demand and customers to our centers maintaining strong cash flow and high occupancy.
Speaker #13: Generally, we have also been adding to the portfolio and upgrading uses with medical, daycare, entertainment, health and beauty, fitness, pet stores, and more. Our premium outlets continue to excel in driving traffic with improving tenant sales, leading to strong growth in EBITDA and valuation to the REIT.
Speaker #13: Tenant sales continue to improve with a Toronto premium outlets in the top three highest sales performers of all shopping centers in Canada. The SAC space only just disclaimed after the quarter end will be outfitted with a temporary user for up to a year, while we lock in and expand some luxury names into the space at significantly higher rent.
Speaker #13: On ESG, we are advancing several initiatives across the organization as part of our three-year plan, including trading for all staff, completing materiality assessments, further defining the net zero framework established last year, implementing utility tracking software, advancing a number of IT initiatives to enhance our governance, improving climate change awareness, and implementing related policies and procedures to address our assessments.
Speaker #13: During the quarter, we submitted our Gresby report, and shortly after the quarter end, we published our annual ESG report, which you can find on our website.
Speaker #13: Through ESG-specific targets, tie, being tied to compensation for all associates, we ensure ESG issues are integrated across the organization and retail platform. Overall, the REIT continues to grow, strengthening its cash flow and stability while reducing risks.
Speaker #13: Our strong and expanding relationships with dominant retailers also pave the way for the introduction of new brands, in our existing platform, enhancing the customer experience.
Speaker #13: We expect this momentum to continue throughout the year. Thank you. And I'll now turn it over to Peter.
Speaker #14: Thanks, Rudy. The financial results for the second quarter once again reflect a strong performance in our core retail business. For the three months ended June 30, 2025, net operating income increased by $10.2 million, or 7.3% from the same quarter last year, primarily due to lease-up and renewal activities.
Speaker #14: FFO per fully diluted unit was $0.58 in the quarter, compared to $0.50 in the comparable quarter last year. The increase was primarily due to higher NOI and changes in the fair value adjustment on our total return swap.
Speaker #14: Partially offset by a decrease in interest income as a result of the repayment of mortgages receivable and lower interest rates. During Q2, we also delivered and closed on nine additional townhomes in Arvon Northwest project.
Speaker #14: This has resulted in a cumulative margin of approximately 23% for the project to date. For the three months end of June 30, 2025, FFO with adjustments which excludes the townhome profits transactional gains and losses and the total return swap was 55 cents per unit, compared 51 cents for the same period in 2024.
Speaker #14: An increase of 7.8%. We again maintained our distributions during the quarter at an annualized rate of $1.85 per unit. The payout ratio to FFO with adjustments continues to show improvement at 89.4% for the quarter, or 93.3% for the rolling 12 months, end of June 30th.
Speaker #14: Adjusted debt to adjusted EBITDA was 9.6 times, for the 12-month period ending in Q2, which is unchanged from last quarter, and an improvement of 30 basis points compared to the same period last year.
Speaker #14: Primarily due to continued growth in EBITDA. Our debt to aggregate assets ratio was 44.2% at the end of the quarter, a 50 basis point increase compared to the same period last year.
Speaker #14: Compared to Q1, our unencumbered asset pool increased by approximately $50 million, to $9.6 billion, in Q2, mainly due to fair value increases on existing unencumbered assets.
Speaker #14: Unsecured debt including our share of equity accounted investments was 4.7 billion dollars at Q2, slightly higher than the prior quarter, and represents approximately 84% of our total debt of 5.5 billion dollars.
Speaker #14: Subsequent to the quarter end, DBRS reconfirmed our triple B mid rating, with a stable outlook. From a liquidity perspective, we remain comfortable with our current liquidity position.
Speaker #14: As of June 30, 2025, we have approximately $907 million of liquidity, which includes both cash on hand and undrawn credit facilities, but excludes any accordion features.
Speaker #14: This was boosted due to the closing of a new 100 million dollar revolving bilateral credit facility during the quarter, at an attractive cost of capital compared to our syndicated operating facility.
Speaker #14: The weighted average term to maturity of our debt, including debt on equity accounted estments, is 3.1 years. Our weighted average interest rate is 3.94%, virtually unchanged from the prior quarter.
Speaker #14: Our debt ladder remains conservatively structured, and we have ample liquidity to refinance the maturities for the remainder of the year. Approximately 90% of our debt is at fixed interest rates.
Speaker #14: Just before we open up the call to questions, I want to touch briefly on our development projects that are underway. As in previous quarters, we have updated our MDNA disclosure focusing on those development projects that are currently under construction.
Speaker #14: As you will see on page 17, there were seven projects under construction at the end of Q2, down three from last quarter, as Mitch described the three self-storage facilities that opened the quarter, two of them in Toronto, and one in Dorval, Quebec.
Speaker #14: The REIT share of total capital costs of these development projects is approximately $456 million, with our share of the estimated cost to complete standing at $255 million.
Speaker #14: And with that, we would be pleased to take your estions. So operator, we have the first question on the line, please?
Speaker #15: Certainly. As a reminder, if you'd like to ue up to ask a question, please dial star one on your phone's keypad. The first question is from Mario Saric from Scotia Capital.
Speaker #15: Please go head, Mario.
Speaker #16: Hi, good ning. thank you for taking my questions. I just have a couple them. first one, Mitch, I think on the last call, you noted kind of a 50% chance of closing up to 100 million of non-IPP sales this year.
Speaker #16: Can you maybe give an update on those figures? Any kind incremental broader market changes, in terms of appetite since then? Yeah. I an, I would say it's, above 50% for one of the one of the deals, one of the transactions.
Speaker #16: I would say it's maybe below 50% for one of the transactions at the moment, but I don't think it's entirely a reflection of the market.
Speaker #16: I think there's a market, improvement. Since we last spoke about this, notwithstanding the one that would be I think a little bit less likely, and, that's just due to the, you know, the, the, the particular purchaser that we contracted with, that particular asset while maybe not sold to maybe lower than 50% for this particular, buyer.
Speaker #16: I think it is well above 50% to a buyer as a project. So, giving you the specifics that the reported activity last quarter has, you know, we have more visibility on it.
Speaker #16: So I think, one will be probably a little bit, you know, delayed and the other is imminent. But the general capital recycling program, I think, has improved, you ow, the prospect of capital recycling the climate has improved.
Speaker #16: Slightly since we last spoke and quite a bit from 12 months ago. Got it. Okay. And then, when you think about recycling opportunities that may be imminent, how would you prioritize your capital allocation priorities?
Speaker #16: What looks most attractive in terms of redeploying the proceeds today? We'll just repeat it. Yeah. Okay. my second question is more on the, on the operational side.
Speaker #16: You know, there was a mixed employment report in Canada today. I appreciate SmartCentres as probably the last to see any weakness in its portfolio, given the consumer staple nature of your tenant base.
Speaker #16: with that said, I'm kind of ious, about which kind of tenant demand leading indicators you're focused on and what are those indicators telling you today?
Speaker #16: Yeah. I an, we are, not directly or proportionally affected by those types of, trends or data points. I an, our tenants, you know, who aren't, the no-frills, you know, Loblaws, winners, so on, I think thrive I think they thrive in all markets.
Speaker #16: I mean, there's an underlying very strong underlying, reliance on, you know, on, on, on value. And convenience. across the country. But when there's a perceived, you ow, tightening, you know, belt tightening, going on, then there probably, you know, is a little even a little bit more rush to, to value.
Speaker #16: So we do see an increase in leasing activity for new space from our core retailers. going on right now, I think, you know, we will report on more specifics about that in the coming quarters.
Speaker #16: But, we're anticipating, you know, doing a fair amount, if not quite bit, of, leasing for, for new spaces as well as, occupancy. So I think we're ultimately kind beneficial, you know, we're, 're sort of in the right place for those trends, the trends that you're referring to.
Speaker #16: Okay, my last question maybe for Peter. The cost recovery ratio was up 200 basis points to roughly about 94% based on our numbers.
Speaker #16: Given occupancy is now back north of 98%, are you potentially at a peak cost recovery ratio today, or is there more upside there? Mario, there is a little bit of seasonality to that, but I think our year-to-date number is a pretty good run rate.
Speaker #16: Okay. Yeah. So don't, don't just focus on the quarter, but look at the six months. Got it. Okay. Thank ou.
Speaker #15: Okay. thank you. The, as a reminder, if you'd like to queue up to ask a question, please dial star one on your phone's keypad.
Speaker #15: The next question is from Lauren Kalmar from Digital Bank Capital Markets. Please go head.
Speaker #17: Thanks. Good morning. maybe just going back to the discussion around the transaction market. I'm sorry if I missed it when I was queuing in for, the questions.
Speaker #17: But Mitch, what do you attribute the improvement over the last couple of quarters to?
Speaker #16: I would say, well, it's really let's look at the last 12 months. I would say there's less uncertainty, even though there's uncertainty.
Speaker #16: I think the world, the Canadian market, you know, the Canadian market, I think, is less concerned about consequences ultimately, whereas a year ago, I think, you know, people were thinking in more dramatic, if not even catastrophic terms.
Speaker #16: Maybe six months ago, you know, that continued on. In the last six months, I think, you know, capital is a little bit more comfortable.
Speaker #16: with, you know, the next, you know, the next 6 to 12 months. So we're getting, inquiries, you know, we feel we feel some convective energy in, you know, in the, in the, in the area that would result in capital recycling for us.
Speaker #16: It's ally a question of what we're willing to, ou know, to part with, I think. I think there's a market for, for our product.
Speaker #16: You know, particularly given what's ing on, particularly with the results of sales results of the food stores and the Walmarts, Costcos, and so on, you know, our assets are particularly attracted, I think, to capital.
Speaker #16: so I think it's a combination of, you know, the uncertainty that's not as, as, wobbly as it was before, and, and the, you ow, the strength of, of value-oriented assets.
Speaker #18: Sorry. And then, so just to be clear, because again, I missed it. So sorry if I'm making you repeat yourself. Are the dispositions you're looking at, they are of income-producing properties?
Speaker #16: Yes. one of them, yeah, you must have missed it. One of them is, pretty far along, you know, better than 50/50. It'll close. The other one, I'd say, has gone from 50/50 to below 50/50.
Speaker #16: And that one is, you know, an asset that's not complete, but will be an income-producing asset. So, but they're not our core, they're not our core assets.
Speaker #16: It's not a core Walmart anchor shopping center. We're not talking about that. These assets that are non-core, or for other reasons, but, that we're looking to sell.
Speaker #16: But, but not our core, you know, not our core assets. Okay. And then I guess, maybe following on that, how much, you know, value-wise in the portfolio do you believe that there is of these non-core, you ow, disposition targets?
Speaker #16: I mean, you know, these, these assets would probably, total, I guess, goodness, you know, 150 to 200 million. if they were all sold, ones that were actively in negotiations on.
Speaker #16: We'd like to, you know, we'd like to sell, you know, three to 400 million of assets. so, we just want to get these done and then we'll o, you know, we might actually not even wait for these to get done.
Speaker #16: the market's looking more interesting right now. So, we're not going to part with assets that are a little closer to our core without, you know, the right cap rates.
Speaker #16: So, we might, you know, we might start looking at some, capital recycling on, on, on the next, tranche , of, of assets, given the improvement in the, given the improvement in cap rates.
Speaker #16: And the interest out there. But we, we haven't really, we're nowhere on that. I mean, that's just something that might happen in the next few quarters.
Speaker #16: So you're looking at best-case scenario, you ow, 150 to 200 million, but, short-term, very short-term, you're looking at under 100 million. Okay. thanks for all the cover, Mitch.
Speaker #16: 'll turn it back.
Speaker #15: Okay. thank you. The next estion is from, Dean Wilkinson from CIBC World Markets. Please go ahead, an.
Speaker #19: Thanks. Morning, everybody. Maybe just a question around the balance sheet in general. And Mitch, you said things aren't as wobbly now. What would have to happen for you guys to say, "Look, there's enough opportunities here to maybe gear up a little, move it from this mid-40% range?" And just how are you thinking about the optimal capital structure here, just sort of, you know, debt relative to where your units are trading against NAV?
Speaker #16: Yeah. I mean, I think we're more comfortable with lowering the debt. We are feeling pretty stable. I mean, you know, you see our occupancy and rent collections; there's definitely positive trends.
Speaker #16: but, we, we want to lower debt. So, well, I don't ink, you're going to see us, looking to, you know, to get, you know, to leverage up, I, I, I don't think that's that's certainly not in our, in our plans and it's not in our DNA.
Speaker #16: So, I think we'll, we'll play it a little bit more conservatively. As it relates to debt.
Speaker #19: And then would, you have a target as to where you want to see that get down to?
Speaker #16: Well, zero. But, yeah, I an, we're, we're comfortable with where it is. But, you ow, you know, under, at or, you ow, below 40, you know, is, is, is pretty conservative.
Speaker #16: we've always been, sort of in the low, the last while we've ways been in the low 40s, I ink. so, you ow, we, we'd love , we, we, we get pretty excited if we could get down to 40 or little below 40.
Speaker #19: Okay. Perfect. that's all I had. Thanks, guys. Hand it back.
Speaker #15: Okay. thank you. As a reminder, if you'd like to queue up to ask a question, please dial star one on your phone's keypad. The next question is from Sam Damiani from TD Securities.
Speaker #15: Please go head, Sam.
Speaker #19: Thank you. And good morning, everyone. maybe this first question just on the same property NOI, Rudy, I didn't, didn't catch it if you did, but did you, did ou guys reiterate your outlook for a 3 to 5 percent, for, for this year on same property and, and still looking at the lower end of that range?
Speaker #20: No, sorry. You did not miss it. But we would reiterate that same outlook and that same range. We think we will probably, as a forecast or as a run rate for the rest of the year, be closer to the middle of that range.
Speaker #20: So, we had a great, great quarter, but on a run rate basis, look to the middle of that range as our guidance.
Speaker #16: Appreciate that. And, and switching over to the premium outlets and maybe specifically Toronto premium outlets, you know, the NOI growth there has been, been very strong in recent years.
Speaker #16: And you've got an opportunity with the former HBC store, the Sachs Office store. Is the NOI growth starting to slow a little bit there, or do you think the growth that you've seen in recent years is sustainable over the next few years?
Speaker #16: Yeah. I mean, I think the most, the, the outlet in, in both Toronto, the outlets in both Toronto and Montreal continued to, to, you know, amazingly, improve.
uh, more so than a regular shopping center. Such that obviously the sack space. I think everyone would probably agree hasn't seen the kind of sales growth that the many of the rest of the tenants have enjoyed. So there's a big reset potential there, and yeah. And, and the rent was, I would say substantially below, uh, Market. I mean, they just happen to have a lease that, uh, that was below the average rent in that place to start with and their sales, you know. But you know that that that turned into an opportunity. I would also add that Montreal is also there's things going on in in the Montreal outlet center and around our outlet center there that are going to make I think move the needle in Montreal as well. Um the outlet center in Montreal uh there just happens to be a lot of growth in the area in Mirabel and uh you know, we've got Surplus lands there.
So, we are anticipating that there will be things happening.
Uh, because you know, we're in negotiations. Uh, that'll you know,
Add some voltage over there as well so there's some potential NOI increase over there at Montreal.
Interesting. Yeah, there's been huge population. Growth up their last question for me is just on the distributions. Uh, the last bump was right before the pandemic and Peter, you know, you mentioned the improving pair ratio, you know, how are you guys feeling about, uh, reinstating annual distribution increases. Uh, today, perhaps versus, uh, 6, 12 months ago. Um, you know, what's needed to sort of make that decision, uh, you know, more real for, uh, for the board.
So, so 72 is not good enough then. Uh, um,
uh, we we, uh,
We think, um, I mean, I'll turn it over to Peter, but um,
I mean, we're very comfortable with the security of our distributable income.
Um, our recurring income, um, but, you know, that's a decision. Anyway, that's made basically, you know, between monthly and quarterly. Um, so, you know, we will obviously be considering it each time, but, uh, I don't think, I think that we confirmed or did we announce anything yet about, uh, you know? All right. Well, anyway, that decision has not been made, but, you know, um, I'll turn it over to Peter to, uh,
Add some I don't have much to add Sam. The pay ratio continues to improve. We're pleased to see that we certainly uh as it improves grow more confidence in the sustainability of the existing distribution and it leaves us, you know, more room. And ultimately, the board will have to make a decision on, um, on what to do with distributions but no changes currently contemplated.
Thank you all, and I'll turn it back.
Uh, thank you.
The next question is from Gov Mether from Green Street. Please go ahead.
Thank you, and, uh, good morning everyone. Um, just one question from me on, uh, South storage. Now, we're hearing that there are certain, uh, operators on the market that, you know, are new entrants that have come in, who are flashing rents very quickly just so they can shore up occupancy. Um, as you're delivering units, uh, more storage units to the market.
It is that somewhat changing how you're thinking about underwriting uh some of these assets and uh is is is there any change in for the pricing strategy at at your end?
yeah, I don't think um,
First of all, we are often the ones with the lowest.
Rental rates going into the market.
Um, we're very competitive in that regard.
I think, in fact, we're a bit of a disruptor when we open, um,
Around existing storage but big picture.
Canada is still substantially below the average.
Square footage per capita of storage.
Uh, than the U.S. for example.
so,
Yes, everyone's going to respond to market forces. There might be some, you know, some aggressive competition.
Uh, this is going on in any given market, but overall I think we are very, uh, cognizant and, uh, you know, um, we're watching very closely about overbuilding and storage.
And most of our locations are pretty tough markets to get into. If you look at our, um, you know, Gilberts or Dorval.
You know, DuPont, Victoria, Bernaby. I mean, there are just, you know, these are really, you know, land plays that we've been able to get approvals for.
Nobody's going to be—I mean, I doubt anyone's going to be building nearby or, you know, down the street anytime soon on the majority of our stuff. A lot of the other stuff.
A lot of the other stores locations are on our shopping centers, on our smart, centres, and that's just a choice that we've made. As we went into the storage business to give our storage, uh, Network an advantage. So we're already drawing, you know, massive amounts of traffic to our smart centres and then we're putting storage, you know, you know, on that site. That is a very strong competitive Advantage. So in those cases as well, you know, our competitors don't have, you know, our our opening and are not able to open down the street. So I think in both most all of our cases we're in well, positioned. And but nevertheless, we are watching closely to make sure that uh that we're not committing a Folly in terms of um, you know, storage and this storage uh industry here in Canada as it uh as it grows.
Thank you for the color. I'll turn it back to the operator.
Uh, thank you.
Uh, we have a follow-up question from Mario, Cerak from Scotia Capital. Please go ahead, Mario.
But there's no income.
so, the reason for that,
Is.
When we started this Capital Recycling Program, there was just a tiny little flickering glimpse of a market.
And there was just no interest in selling our core assets at those cap rates.
So these are the assets that made sense.
um,
Now, you'll see in the foreseeable future there seems to be a little bit more energy. You know, cap rate compression, and we might start to...
Entertain the sale of properties where there is actual income, but, uh, we're not sellers at any price, although we're motivated.
To recycle capital. Uh, we're waiting for the cap rates; those were the only assets.
That made sense at the time.
given market conditions, so
Um, and I would not plug in $150 million anytime soon. Um,
You know, this is going to be a step-by-step process. Um, but when it happens, when the market does come around.
Uh, we'll have lots of options, and the numbers will be significant.
But for now, I would plug in in the short term, you know, well under $100 million, and then hopefully in the not too distant future, you know?
closer to $100 million and then, uh,
Yep, when we turn the corner in the new year, maybe.
You know, maybe, uh, the balance of...
the 1 to 200 million.
So, if I understand you correctly, on the first little bit, essentially a cap rate of 0, and then as we add properties to it down the road over the next year or two, then the cap rate comes up a little bit. But that's initially how to think about it.
Um, I guess I'm not sure I understood that, but, um,
But everybody here is noting, I I didn't quite understand it, but I'm going to just I'm just going to go along with that but definitely like in the short term uh buildings that are being sold, effectively there's no income associated with them but over time as as cap rates uh for the buildings that you may look to sell as they come down and that having them on them like over time, the Blended cap rate on your phone will inherently go up because there's no income on the yeah. Yeah. Okay. Yeah. Yeah yeah. Yeah. But you know the the assets were selling uh our 1, you know, a vacant building. It's it's uh it's being bought by somebody who wants to use it, but we have no income on it.
But uh the other 1, I don't want to say too much about it. It's it's you know, it's kind of you know, we don't want to be announcing it but but uh, there's no income on it. Um, at the moment we could
Keep it and, you know, generate income on it. We decided to sell it for reasons earlier stated. If the deal doesn't go through and we think it makes more sense to just, you know, complete it and, you know, generate the income, then we might do that. We're really waiting for the market to get a little bit better. It seems.
Be moving in the right direction.
And when it does, you know, we will seize the moment and, uh, we'll be looking to do more than what we're kind of just kicking around and playing footsie on right now. It's just the only things we feel makes sense to sell at the numbers that we've been able to achieve. But that day will come, and we will act on it. I hope that will be, if this trend continues, I hope that'll start to happen sometime in the next six months.
Okay, all clear. Thanks Mitch.
All right. Uh, thank you. There are no further questions in the queue.
Great.
Well, uh, thank you all for participating in our Q2 call. Please feel free to reach out to any of us if you have any further questions. In the meantime, have a great rest of your day and have a great weekend. Thank you.
Ladies and gentlemen, this concludes the SmartCentres Real Estate Investment Trust Q2 2025 conference call.
Thank you for your participation and have a nice day.