SmartCentres Real Estate Investment Trust

Good day, ladies and gentlemen. Welcome to the Smart Center's REIT Q2 2021 conference call. I would like to introduce Mr. Goldhar. Please go ahead.

Thank you. Good afternoon. Thank you for joining us. I am Mitchell Goldhar, Executive Chairman of Smart Centers, and will be chairing this call. Joining me on the call today are Peter Sweeney, Chief Financial Officer, Rudy Gobin, EVP, Portfolio Management and Investments, and Mauro Pambianchi, Chief Development Officer. Peter Ford will not be joining us on the call today. He extends his regrets as he continues his leave. Our commentary will refer mostly to the outlook and mixed use development initiative section of our MD&A, which are posted on our website. I refer you specifically to the cautionary language on pages three and four of the MD&A materials, which also applies to comments any of the speakers make this afternoon. Our results this quarter speak for themselves and demonstrate again what we have been saying since 2015 when we combined the public and private companies strategically to affect these changes. Let me summarize this quarter in the following way. Our intensive mixed-use pipeline is into its second year contributing to FFO, and we expect this to be permanent for all intents and purposes. Our entrepreneurial mindset and culture and core competencies continue to drive profitability in land development through intensifying and repositioning our assets. Our open format portfolio is an excellent starting point from which both us and our retailers can easily change, and we are. tenant interest accelerated through the quarter. This is off of our lease occupancy of 97.3%. Therefore, we expect to see improvement, continued improvement in cash flows going forward. Pages 21 to 23 of the MDMA highlights in excess of 55 million square feet, the updated net incremental density to be built with our partner's share of on lands within our owned centers. In our flagship smart CMC, we closed on 70% of the transit city three condos, 439 units, in the quarter, generating $12.9 million in FFO, or seven cents, with the balance to be closed in the third quarter. Two additional towers, TC4 and 5, 45 and 50 stories respectively, 1,026 units combined, are sold out, are under construction with 20% deposits in place from the purchasers. The purpose-built residential rental tower, 451 units, which we call the Millway, is under construction. And we are near completion for the launch of the next phase of high-rise condominium in Smart BMC, named Artwalk, with over 600 units. We commenced construction this quarter on a 174-unit rental apartment building along with 228-unit seniors' residence at our Laurentian Place property in Ottawa. And we also commenced construction this quarter on two purpose-built residential towers in Mascouche, Quebec, a suburb of Montreal, with our JV partner, Cogere, with the trust retaining an 80% ownership interest. We have also commenced the redevelopment of a portion of our 73 acre Cambridge project for residential condos and rental and other complimentary uses. This project sits on our books with a $92 million IFRS value based on a retail rents existing in our 700,000 square foot retail center. Whereas with the recent rezoning We are now approved to develop over 12 million square feet of mixed use on these lands. Keep in mind, we do all this while simultaneously maintaining our conservative balance sheet with ample liquidity. We will only move forward with capital intensive construction initiatives as market conditions warrant. Sufficient pre-sales have occurred in the case of condos. and only when financing is fully available and in place. Additionally, on the capital recycling front, we now have nearly $200 million in conditional deals in process so far this year at an average of low five cap rates. The assets are non-core, and the proceeds will help fund our extensive development pipeline. The last... 18 months has been an interesting real life test of what we have been saying about our portfolio. That is, it is a strong and strategic one with a lot of embedded value. Now, we'd like to turn it over to Rudy Golding.

Thank you, Mitch, and good afternoon, everyone. Throughout the quarter, we saw tenants preparing to reopen, along with a renewed demand for space from tenants previously waiting on the sidelines, but now ready to lock up new locations. The acceleration was both small and large tenants asking to be co-located with Walmart Anchor sites, having just experienced the alternative, and especially those coming from enclosed malls. Interests ranged ranges from a fast food resurgence to pet stores, medical offices, and even financial institutions. We've received mid-box requests from dollar stores, outdoor sports and recreation, houseware stores, and a surge in demand for larger spaces as well, like the TJX, furniture stores, fitness, even home improvements, and full-line grocery stores. You know, and while 100% of the REITs properties include grocers as an anchor or shadow anchor, and 60% of the REITs tenant base is comprised of essential services, our essential services percentage increases to 70% in markets outside the greater Vectum area, where our occupancy rates are at or near 100%. In these smaller markets, our shopping centres are often the essential service hub of the area, and are in all cases anchored by a Walmart store. The shopping basket size and frequency of these markets continue to increase as segments of the population relocate from the downtown core. This not only strengthens our shopping centers, but further enhances the opportunities to intensify on our existing lands in these markets. Our tenants continue to work with us to adapt by expanding their e-commerce, product lines, delivery model, pickup, and space utilization, all while striving to maintain customer loyalty and sales. And we are there to support them every step of the way. As we have highlighted previously, Walmart plans to spend $3.5 billion over the next five years to make the online and in-store shopping center experience simpler, faster, and more convenient. This continued commitment to its retail operations in Canada speaks to the ongoing strength of Walmart and its growing ability to drive traffic to our centers. As you know, virtually all of our revenues from shopping centers are from open air centers, providing a safe and comfortable environment for customers to practice physical distancing while shopping for their everyday needs. For Q2, We completed nearly 260,000 square feet of new leasing, improving our leased occupancy to 97.3%. With regard to our premium outlets, both are now open and are at full occupancy. While sales were impacted during the period when they were operating only with curbside pickup, since reopening, we are seeing traffic counts that are already approaching the pre-pandemic levels of 2019. and sales have shown great resiliency, with higher conversion rates than in the past. With the pent-up demand and accumulated savings being reported, and the recent reopening of the U.S.-Canada border, we hope for and expect a strong fall and Christmas shopping season. By June 30th, we completed nearly 3 million square feet of renewals, nearly 73% of 2021's maturities. And finally, while small independent retailers make up only 6% of our contracted rents, they are an important component of the Canadian economy and our portfolio, deserving of our focus and assistance throughout this period. As Mitch said previously, we are built for heavy weather. Our high-quality portfolio will continue to adapt, intensifying with residential and other real estate asset classes, strengthening with an expanding tenant base, improving customer traffic, and a leading occupancy rate, and of course, reliable and growing cash flows. And now I will turn it over to Peter Sweeney. Thank you, Rudy, and good afternoon, everyone. We have continued to focus on further fortifying the strength of our balance sheet, even during these most uncertain times. In this regard, we note the following highlights for the second quarter of 2021 as compared to the comparable quarter in 2020. Number one, in keeping with our strategy to repay maturing mortgages and to grow our unencumbered pool of assets, unsecured debt in relation to total debt increased to 70% from 65%, and our unencumbered pool of assets continue to grow, increasing by approximately $293 million to $5.9 billion. And as we maintain our strategy to continue to repay these maturing mortgages, we expect these metrics to further improve in the future. Please note that this strategy permits us further agility when considering opportunities and alternatives for a portfolio of mixed-use developments. Number two, our BBB high credit rating from DBRS permits us to continue to attract debt capital at low interest rates for longer terms, and in keeping with our strategy to take advantage of lower interest rate environments and pursuant to our refinancing activity over the last 12 months, our weighted average interest rate for all debt continued to decrease and at the end of the quarter was 3.27%. This compared to 3.46% for the prior year. This 19 basis point reduction is expected to yield approximately $8.5 million in in savings in annual interest expense, while concurrently we have extended our weighted average term of debt to 5.3 years as compared to 4.8 years in the comparable prior year period. Also, variable rate debt in proportion to our total debt stack was approximately 3.9% at the end of the quarter. This continued focus on both increasing the weighted average term of our debt and fixing interest rates is deliberate and is yet another example of the risk mitigation strategy that we have employed to insulate the trust from interest rate volatility. And then lastly, number three, our interest coverage ratio net of capitalized interest was maintained at a very strong 3.8 times level This, in spite of the impact that COVID-19 has had on our operating results over the last 15 months and further confirms the foundational strength and stability of our core business. Also, our adjusted debt to adjusted EBITDA multiple was 8.2 times as compared to 8.8 times in the prior comparable period. Again, reflecting the business's strong and stable ability to fund its obligations with our continued commitment to our balance sheet. From a liquidity perspective, as we look to the immediate future and continue to manage through the current uncertain capital markets environment, in addition to the conservative debt metrics noted previously, Please also consider that when factoring in our new $150 million line of credit that was completed subsequent to the end of the quarter, together with the $250 million accordion feature associated with our existing undrawn $500 million operating line, our liquidity position exceeded $1.1 billion at the end of the quarter. this after reflecting the repayment of $323 million in maturing Series T debentures prior to the end of the quarter. Recall also that the next series of debentures in our portfolio does not mature until May of 2023. And notwithstanding the challenges associated with COVID over the last 18 months, our business has continued to demonstrate its ability to generate sufficient cash flow to fund our operating needs. Accordingly, we anticipate our requirement for additional funding over the next 20 months to be limited to construction financing associated with the projects in our development pipeline. However, we are continuously considering opportunities to early redeem debentures and mortgages when appropriate. And with that, I will turn it back over to Mitch.