SmartCentres Real Estate Investment Trust

Good day, everyone, and welcome to the Smart Center's REIT Q3 2022 conference call. As a reminder, if you would like to queue up to ask a question, please press star 1. I would like to introduce Mitchell Goldhar. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on our Q3 conference call. I am Mitchell Goldhar, Executive Chairman and CEO, and I am joined by Rudy Gobind, EVP Portfolio Management and Investments, Peter Slann, our new Chief Financial Officer, joining us with a wealth experience spanning nearly 30 years and over 20 of those with Scotiabank. We welcome Peter to the SmartCenter's team and look forward to working with Peter in the future months and years. Peter Sweeney. who will be leaving us shortly, having served us well over the past eight years as Chief Financial Officer. Thank you, Peter, for your great contribution over this very active period. And on behalf of the analysts and investors community, we wish you all the best. And personally, I have very much enjoyed working with you, and I wish you all the best in your next chapter. The third quarter was both interesting and relevant. from the continued in-store customer resurgence in leasing momentum. Sorry, I'm going to, sorry, I'm going to back up here. sorry, I want to preface that by saying today I'll be speaking about the quarter's strong operational results, which is taking place virtually in every operational category, as well as our success in achieving some significant mixed-use entitlements. And I'll provide brief updates on the near completion of Transit City's four and five condos in the Millway. I refer you specifically to the cautionary language at the front of the MD&A materials, which also applies to comments any of the speakers make this afternoon. The third quarter was both interesting and relevant for the continued in-store customer resurgence and leasing momentum. at least in unenclosed value-oriented formats. The Canadian consumer has voted with their feet and their dollars again this quarter in the direction of physical retail. Not only are we experiencing higher demand for space in our value-oriented, unenclosed retail centers in their existing form, But we are also welcoming new retailers to our centers in nearly every segment, allowing us to expand beyond existing banners. Pushing our occupancy through 98% for the first time in three years, this momentum continues to build into the fourth quarter holiday shopping season. We continue to not only expand in our existing footprint, But demand for new retail construction is also growing in various segments, such as full-line grocery, pet stores, furniture, beer and wine, crafts, home decor, and QSR. And nearly all with strong e-commerce delivery and or pickup channels. From a portfolio perspective, we continue to work towards de-risking our tenant base, as reflected by our improved tenant covenant, liquidity, and recovered collections. Retailers have figured out how best to adapt their product offering, store sizes and in-store experiences, and distribution to fit the needs of Canadian consumers. Initial tenant collections have now reached 99% and continue to improve. with provisions for non-payment at or near zero. On the land use permission and developments front, we soldier on. Most recently, we have achieved nearly 750,000 square feet of mixed use rezonings in the latest quarter alone, bringing the total to 6 million square feet so far this year. Development is a long-term game, and we are committed to unlocking the tremendous value embedded in our lands, which I will remind you sits in the midst of highly populated communities in nearly every major market across Canada. We are what we are zoned. While we can read the details of many of the developments planned for our portfolio in our MD&A, here are a few highlights of what's currently underway. Construction of the fourth and fifth transit city towers at SmartVMC comprising 45 and 50 stories respectively are near completion and remain on budget and on schedule, anticipating first occupancies in 2023. Also within SmartVMC, the Millway, our 36-story apartment building, nearing completion, and commitments for space have already started, showing strong demand. Our apartments in Mascouche and Laval are near completion, and demand for rental suites in those markets is also reflecting a high level of interest. Construction continues on our new retirement residences and seniors' apartments, totaling 402 units at Ottawa Laurentian. In Vaughan Northwest, we recently commenced the construction of a townhouse subdivision with a partner. Construction of a 241,000 square foot industrial space has commenced on 16 acres of a 38-acre site in Pickering with half of the space pre-leased. Lastly, we are under construction of three additional self-storage facilities in Markham, Brampton, and Aurora, of which two will be completed before the end of our fourth quarter. In all, we have 70 projects scheduled to commence construction in the next two years, again demonstrating the significant opportunity that lies within our underutilized lands that are already owned. On the financial side, maintaining our conservative balance sheet remains a priority. with an unencumbered pool of assets of 8.4 billion, a 43.7% debt level and significant liquidity, which Peter Sweeney will speak to shortly. Lastly, today's environment of higher interest rates, higher inflation, war, U.S. political showdowns, it would be easy to say that we at Smart Centers are heeding the challenges, adapting to new risks, and otherwise playing it safe, navigating carefully and thoughtfully through the various minefields. And while that accurately reflects our approach, and it is the tidier script to follow, this linear narrative is not the whole story. For example, while higher interest rates may cost us in the short term at smart centers, we believe the benefits will outweigh the costs of higher interest rates. At smart centers, we are far too forward-thinking to be derailed or distracted by noisy headlines to take our eye off the long-term prize. ESG, for example, is and has always been woven into the fabric of our organization. It is embedded in everything we do and how we oversee our business, interact with our tenants, and engage our associates, engage with our communities, and, of course, impact our environment. Although ESG is getting renewed attention as of late, it has been part of our DNA since the beginnings. And when you assess our portfolio, you can see that ESG principles have been applied throughout. We are developing our metrics and refining our three-year plan and commitment, which will be posted in the coming days. So look out for that. On a final note, my thanks and appreciation for the exceptional work of our talented and dedicated associates who bring their enthusiasm and focus to our business and communities today. every day. Now, I will turn it over to Rudy Gobind for an operational update.

Thanks, Mitch. Good afternoon, everyone. Operationally, throughout this third quarter, we saw greater customer traffic throughout the portfolio to at or near pre-pandemic levels. This drove a significant amount of leasing interest and signed deals in the quarter. tenants in nearly every category were back, wanting more space and wanting to secure available locations within our high-traffic centres. And with virtually 100% of the REITs properties having a full-line grocery and near 70%, including a Walmart super centre, a wide variety of tenants were adding new locations in our centres where they weren't previously represented, including, as Mitch said earlier, dollar stores, Winner's Home Sense, Health and Beauty, the Canadian Tire Banners, pet stores, full line and specialty grocery stores, liquor and beer, as well as distribution and logistics. A mix that is very consistent throughout our portfolio and all driving more traffic and improving tenant mix in each centre. For some key operational highlights, we closed the quarter with an improved occupancy of 98.1% with committed deals, a full 50 basis points increase over the prior quarter. This tremendous improvement was widespread across all provinces and demonstrates the resiliency of the portfolio. Most of the space previously vacated by tenants during the pandemic has now been released, and we are at our pre-pandemic occupancy. At the quarter's end, we have Already renewed or near completed 4.3 million square feet of the 2022 lease maturities, representing near 86% of the maturities for the year, and at a 3.3% renewal rate, excluding anchors. Over 200,000 square feet of leases were executed for built space during the quarter, and I would add, at market rents and with better covenants than the previous tenancies. Another sign that physical retail is greatly improving was reflected in the lack of any bad debt provisions being booked in the quarter and no tenant filings for financial restructuring. New entrants to the market are continuing in a number of categories, including health and beauty, specialty grocery, furniture, sporting wear, and QSRs, all with strong interest in our open format centers. We continue to work with our tenants, helping them to adapt to their changing space needs, giving them the flexibility they need while strengthening our partnership with them. As Mitch said, from a rent collections perspective, we are at 99% and expecting improvement in the coming quarters. Higher collections and rental levels are driving improvements in NOI. For the third quarter, we had same property NOI of 3.1% excluding anchors, driven predominantly by higher traffic and an expanding customer base for our tenants. Regarding our premium outlets in Toronto and Montreal, both continue to improve with higher than expected customer traffic, driving sales back to their pre-pandemic levels. With both centres at 100% occupancy, the pent-up shopping demand and accumulated disposable savings, we are expecting a very strong performance from the outlets this year. From all perspectives, 2022 is recovering very well, and Q4 is expected to be no different. Physical retail, and especially our value-oriented, unenclosed centers continue to be in high demand in communities across the country. Our value-focused tenants are adapting. Customer traffic is improving. Occupancy and cash flows are back to near pre-pandemic levels, and most importantly, All of this is happening concurrently with our extensive mixed-use development initiatives already identified and in the pipeline. And now I will turn it over to Peter Sweeney.