SmartCentres Real Estate Investment Trust

Q4 2022 Earnings Conference Call

2/9/2023

spk07: Good day, everyone. Welcome to the Smart Center's REACH Q4 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 Peter Slan. Please go ahead.
spk02: Thank you, and good afternoon, and welcome to our fourth quarter and full year 2022 results call. I'm Peter Slan, Chief Financial Officer, and I'm joined on today's call by Mitch Goldhar, Smart Center's Executive Chair and CEO. and by Rudy Gobin, our Executive Vice President of Portfolio Management and Investments. We'll begin today's call with some comments from Mitch. Rudy will then cover some operational items, and I will review our financial results. We will then be pleased to take your questions. Just before I turn the call over to Mitch, I'd like to refer you specifically to the cautionary language about forward-looking information, which can be found at the front of our MD&A materials. This also applies to comments any of the speakers make this afternoon. Mitch, over to you. Thank you, Peter.
spk00: Good afternoon and welcome, everyone. I'll start with this quarter's strong operational results, which is taking place in near every category, as well as our success in achieving some significant mixed-use entitlements. This sets the stage for an even stronger 2023 with the completion of Transit City 4 and 5 condominiums and the Millway Apartments, all scheduled to occupy in the coming quarters. The fourth quarter capped off a year of resurgence, both in consumer traffic and retailers wanting more space. Not only are we seeing continued demand for space in most of our nearly 35 million square foot value-oriented portfolio, but we are also welcoming new retailers to our centers in many segments. allowing us to provide a more compelling and diverse offering to every community we serve across Canada. We are also seeing consistency in our industry-leading occupancy rate of 98%, which is back to pre-pandemic levels. We continue not only to expand in our existing footprint, but demand for new retail construction is also growing in various segments. which Rudy will speak to shortly. All in all, our tenants are adapting, and most 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 in our improving tenant covenant, liquidity, and collections. Retailers have, for the most part, figured out how to best adapt their product offering, store sizes, and distribution to fit the needs of Canadians. Thus, tenant collections are now an industry leading 99% and continue to improve, with provisions for non-payment of rent near zero. On the land use permission and development front, we continue to move the goal line forward, not giving way to these challenging times. For 2022, we achieved over 6.1 million square feet of new mixed use permissions in various urban locations with high demand for housing. Given that development is a long-term game, we are committed to unlocking the tremendous value embedded in our existing owned lands, which I will remind you sit in the midst of highly populated communities in nearly every major market across Canada. While you can read the details of many of our developments planned for the portfolio in our MD&A, here are a few highlights of what's currently underway. Construction of the fourth and fifth transit city condo towers at SmartVMC comprising 45 and 50 stories respectively are nearing completion and remain on budget and on schedule with first occupancies starting later this quarter. Also within SmartVMC, the Millway, our 36-story apartment building is also nearing completion. occupancy commenced just last week and we expect continued lease up throughout the year, which we are all very excited about. Our apartments in Mascouche and Laval, suburbs of Montreal, are near completion and demand for rental suites in those markets is also reflecting a high level of interest. Construction of a 240,000 square foot, 40 foot clear industrial space on 16 acres of a 38 acre site on the 407 in Pickering is in its final stages with half of the space already pre-leased and with turnover scheduled for next month. Construction continues on new seniors residence apartments totaling 402 units at Ottawa-Laurentian. As investors may be aware, our JV partner on this project, Group Selection, is currently facing some financial challenges. However, construction is continuing. Smart Centers continues to support this project, and we are confident in a path to substantial and successful completion. In Vaughan Northwest, with our partners, we recently commenced the construction of our townhouse subdivision, including 174 homes with site servicing now completed. Lastly, in addition to our seven self storage facilities already opened and high demand in other markets across the GTA, we are under construction on three additional storage facilities in Markham, Brampton and Whitby. You can see this current construction activity is all in our expanded disclosures in the MD&A, as well as the list of additional 48 projects scheduled to commence construction in the next two years, subject to always to satisfying our many internal risk hurdles, while again demonstrating the tremendous opportunity that lies within our underutilized lands that we already own. On the financial side, maintaining our conservative balance sheet remains a priority with an unencumbered pool of assets of $8.4 billion, a 43.6% debt level and significant liquidity, which Peter will speak to shortly. As I have mentioned previously, we are not bound to the commencement of any project and will await the proper economics timelines timelines, and funding before initiating any project. In today's market of higher interest rates, higher inflation, economic and political uncertainty, we may selectively determine it prudent to sit back and wait for a safer environment. However, sitting back is not in our DNA. Over the past 30 years, we have consistently navigated and pushed forward in many market conditions. building a dynamic and resilient portfolio, starting from 1994 with the opening of the first newly built Walmart in Canada at our Barrie South site. At Smart Centers, we are far too forward-thinking to be distracted by noisy headlines to take our eye off the long-term vision and objectives of building lasting value for communities across Canada, and hence value and growth for our unit holders. We will get you there in one piece. Environmental, social, and governance issues, for example, are and have always been woven into the fabric of our organization. They are embedded in everything we do, in how we oversee our business, interact with our tenants, and engage our associates and communities, and of course, impact on the environment. Although ESG is getting more attention as of late, it has always been part of our DNA since the beginning. And when you assess our portfolio, you can see that ESG principles have been applied throughout. In our approach to building and design, energy utilization, social interaction with tenants and their customers, especially evident during the pandemic, cost savings to communities, and of course, convenience, such that Canadian families are able to live a better life. That's not to say we can't do better. We are committed and energized to find new and innovative ways to share more ways, innovative ways, and do. more than our share of good in this important area. On a final note, I would like to offer my thanks and appreciation to our exceptional team of associates for their commitment and dedication to delivering on this long-term vision of improving the lives of the communities we serve every day. And with that, I will pass the call over to Rudy.
spk05: Thanks, Mitch. And good afternoon, everyone. Operationally, what started earlier in the year as a strong rebound in customer traffic and competing leasing interests for space in our centers carried all the way through the fourth quarter. With over 700,000 square feet of vacancy leasing completed in the year, 2022 ended with a strong performance all around and back to our pre-pandemic occupancy of 98%. Demand was driven by a wide category of retailers, including full-line grocers, pet and dollar stores, pharmacy, the TJX banners, of course, and health and beauty. Also in the non-urban markets, with consumers spending more on their homes, additional demand emanated from the furniture stores, home decor, appliance stores, daycare, and craft stores. Given that virtually 100% of our smart centers portfolio already have a full line grocery, and nearly 70% with a Walmart super center, it should not be a surprise that all of our centers are doing well, and in smaller markets especially so, as these centers are 100% leased and occupied. Now for a few operational highlights. Rent collections, as Mitch mentioned earlier, are now in excess of 99%, And along with the fact that we have settled and collected virtually 100% of our deferrals offered to tenants during and since the onset of the pandemic, the covenant quality of our portfolio is now even stronger than it has ever been. By year end, we renewed nearly 90% of all maturing tenancies, or 4.5 million square feet, again strengthening the portfolio with the best retailers in the country and at a 3.1% increase over maturing rents. In addition, as of today, we are already at 50% renewed of our 2023 maturities. Demand for new-build retail space, as Mitch mentioned earlier as well, is also growing in a number of categories, such as grocery, pharmacy, dollar stores, liquor stores, bank, and QSR. And we intend to meet these demands where it makes sense to do so, and where it does not interfere with our mixed-use development plan. Other signs that physical retail is quickly improving was reflected in the lack of any bad debt provisions being booked in the quarter, but rather, throughout the year, we reflected a recovery, and I might add, with no tenant restructurings or filings during the quarter. Regarding our premium outlets, It is difficult to believe that we will be celebrating our 10-year anniversary of Toronto premium outlets in August of this year. What a landmark and draw it has become. And Q4 ended with 100% occupancy and sales and percentage rent exceeding pre-pandemic levels in many categories. EBITDA is expected to be the best year yet in 2023. Montreal opened later. And in Q4, sales were also exceeding expectations. And for 2023, we're also projecting a similarly strong performance. As Misha said before, this resurgence in customer traffic and adaptiveness of our tenancies speaks to the resilience of this portfolio, which was built for heavy weather. From virtually every perspective, 2022 was a strong recovery and 2023 is shaping up to be more of the same. Physical retail and especially our value-oriented, unenclosed centres continue to be in high demand in communities across Canada. Tenants are continuing to adapt to the needs of their customers through best locations, store sizes and merchandise mix. Aligned with our tenants, smart centers will continue to deliver value to each community by meeting their individual needs through a comprehensive tenant mix, ease of access, and an optimal shopper-driven experience. And most importantly, all of this is happening concurrently with our extensive mixed-use developments already underway and in the pipeline. And with that, I will now turn it over to Peter Slantz.
spk02: Thank you, Rudy. The financial results for the fourth quarter reflected continued solid performance in our core business, with results that are now trending above pre-COVID levels by virtually every measure, including net operating income, payout ratio, and average rents per square foot. For the three months ended December 31, 2022, FFO per fully diluted unit with adjustments and excluding various anomalous items was $0.60, an increase of 7% from the comparable quarter last year. Please note that these results include the non-cash impact of a $6.2 million gain for marking to market the total return swap for the quarter. Higher rental income was more than offset by higher interest expense. However, an improvement in G&A expenses helped the bottom line during the quarter. As in prior quarters, we have also presented FFO information net of the impact of certain anomalous items, including the gain from the total return swap of $0.04 per unit, and the dilutive impact associated with units issued pursuant to the acquisition of the VMC Westlands of $0.02 per unit. Net rental income for the quarter increased by $2.2 million, or 1.7% from the same quarter last year. Including our equity accounted investments, however, net rental income increased by $4 million, or 3.1%, largely due to exceptionally strong performance at our Montreal and Toronto premium outlet centers that Rudy just mentioned. Same property NOI, including equity accounted investments, increased by $5.1 million, or 4%, in the quarter. Leasing activity remained strong, which is expected to drive continued but modest growth in NOI over the coming quarters. Our occupancy levels, including committed leases, was 98% at the end of Q4, virtually unchanged from the prior quarter, but up 40 basis points from a year earlier. In terms of distributions, we have maintained our annual cash distribution level of $1.85 per unit throughout the COVID-19 period. For the full year 2022, our payout ratio to ACFO, excluding the impact of the total return swap, condominium and townhouse closings, and the Smart BMC West land acquisition, was 92.6%, representing a significant improvement from 96.5% in 2021. Total assets, including our proportionate share of equity-accounted investments, were $12.1 billion at year end, compared to $11.5 billion in the prior year. For the quarter, IFRS fair value adjustments in our investment property portfolio resulted in modest net gains of approximately $13.4 million, principally reflecting additional leasing activity. We did not make any portfolio-wide changes in our capitalization rate assumptions this quarter. During the quarter, we repaid $176 million of debt The release of cash held as security for our TRS liability, as well as proceeds from the repayment of loans receivable during the quarter were the primary sources of capital used to repay debt. We expect to continue to repay debt over the course of 2023 using proceeds from our upcoming condo closings at Transit City 4 and 5, as well as from the recently completed sale of some parklands at the Vaughan Metropolitan Center, which closed earlier this week. At the end of Q4, our debt to aggregate assets ratio stood at 43.6%, and our unsecured debts to secured debt ratio was 74%. Total unencumbered assets to unsecured debts was 2.2 times at year end, up from 1.9 times a year earlier. In terms of debt to EBITDA, our ratio on an adjusted basis including equity-accounted investments, with 10.3 times at Q4, compared with 10.2 in the prior year. Excluding the liability associated with our total return swap brings this ratio down modestly to 10 times, both in Q4 and a year earlier. We were pleased that our credit rating was reconfirmed at the BBB high level during the quarter, and we remain focused on continuing to strengthen our balance sheet and improving the outlook for our rating. The weighted average term to maturity of our debt, including debt on equity-accounted investments, is approximately four years, and it bears a weighted average interest rate of 3.86 percent. We remain comfortable with our conservatively structured debt ladder, where the most significant aggregate maturities are in 2025 and 2027. We do have an upcoming maturity this spring, with a $200 million debenture, and we are currently exploring multiple refinancing options. Approximately 82% of our debt is at fixed interest rates, which has been a significant benefit to us during the recent rising rate environment. In short, our balance sheet remains strong, it withstood the pandemic well, and we believe that we are extremely well positioned to fund the various growth-oriented development projects that are currently in our pipeline. Just before we open up the lines for questions, I want to touch briefly on some of our various mixed-use development projects that are currently underway. We have added some new disclosure on page 22 of our MD&A this quarter, as Mitch referenced earlier, that we hope users find helpful. As you will see, we have 11 projects under construction at the moment, including over 1,000 condominium units, another 1,000 rental units comprising conventional apartments, seniors, and retirement units, along with 174 townhomes, 240,000 square feet of industrial space, and more than 2,600 self-storage units. All of these projects are expected to be completed by the third quarter of next year, with the first ones, Transit City 4 and 5 and the Millway Rental Project, expected to be finished later this quarter. Collectively, the REIT's share of the total expected project cost, including land, is $539 million, of which $304 million has been spent to date. We have more than adequate liquidity to finance the remaining $235 million of construction costs associated with these projects. We intend to update this table quarterly, so I expect that as the year progresses, you will see certain projects come off the list as they reach completion, and other projects get added as construction commences. Later this year, for instance, we expect to add the Canadian Tire side and Lease side, and the Art Walk condominium and rental development at SmartVMC. Project financing work on these developments has already begun. Upon completion, each of these projects is expected to drive continued FFO growth, as well as allow us to recycle capital into other opportunities in our development pipeline and facilitate prudent management of our capital and liquidity needs. And with that, we'd be pleased to open up the line to your questions. Operator, can we have the first question on the line, please?
spk07: Certainly. The first question is from Mario Sarek from Scotia Capital. Please go ahead, Mario.
spk06: Hi, good afternoon. I wanted to touch quickly on the operational side and just trying to establish kind of the building blocks in terms of potential kind of same-store NOI and FFO per unit growth in 2023 versus 22. So Rudy, on the 50% of the 23 maturities, lease maturities have been renewed. Can you give us a sense of what the lease renewal rates have been, both including and excluding anchors?
spk05: Most of the 50% we've done now are actually higher than this year's renewal rates so far. And I don't know if you recall last year when we were doing this each quarter and we give the updates, we tend to have a strong list of tenants who want to renew earlier in the year. So right now, We are north of 3% increase in our 50% already renewed compared to this year. So it's looking very good. I don't have the breakdown, Mario, with regard to what it is with and without our anchors, but that is an all-in number. So it's looking stronger than 2022. Got it. Okay.
spk06: Good to hear. And then in terms of the occupancy, I think in your – Disclosure, it was noted there was an expectation for a higher occupancy in 2023. Given you're already kind of at a sector leading 98% least, how much higher do you think the occupancy gains can go? And then conversely, if Canada was to revert into an economic recession, how should we think about potential downside to occupancy levels in that scenario from here?
spk00: um yeah i'll start with that uh first of all we're trying to trying to go we're trying to increase that by three percent uh occupancy um retail humor 101 um but um uh we um um we actually do well you know uh in first of all kovic did do a lot of things with respect to uh You know, sort of a little bit of Darwin went on around COVID. So we don't really have, and as Rudy and I think we've all actually touched on the focus on strengthening, you know, even strengthening even more our tenant profile from a credit worthiness point of view. Combine that with the fact that we're sort of value-oriented here and we make up two-thirds or more of our portfolio is basically just essential services. We actually do well in both strong economic times and tough economic times. So we anticipate for a variety of reasons that just stated. that we don't see a lot of exposure for downward occupancy, but if it's a recessionary type environment. In fact, given what's going on, we might be actually a little bit stronger. So that's my part of the answer.
spk05: Rudy? Yeah, and I'd say to Mario, you talked about a lot of different types of tenants who have come to the table wanting space. everyone from logistics to distribution to last mile to furniture and crafts. So we have a number of new tenants to the portfolio wanting space. And it adds a really nice mixed use to our centers. So they may see some turn, like I mentioned earlier, where we were at 90% retention. So that 10% of our maturing maturities, which is around... know roughly five million square feet a year um churns so all you know we at any one point in time it may be plus or minus but but generally we expected to maintain and improve that uh throughout uh 2023 got it okay and then maybe just shifting gears uh to capital allocation um
spk06: What are your updated thoughts on the magnitude of potential asset dispositions in 2023?
spk00: We are open to that, subject to, of course, you know, valuations to what can be achieved in terms of, you know, prices. We're not going to sell our assets short, if you will. So we're open to it. The last few months has certainly not been conducive to that. We had a number of different capital raising activities going on going back a year ago, but that certainly just kind of came to stand still going back, I don't know, whenever sort of the inflationary and news and interest rate increases started. But we stay in touch with all of the institutions that were interested in teaming up. And of course, we get approached all the time for people who want to acquire our assets. But we're open to all the above, subject to the details. And it's certainly... I would say possible that something along those lines could happen this year.
spk06: Got it. Okay. And then my last question, I believe in the last call, the Q3 call, you noted a development budget for both 23 and 24 of roughly about $250 million. Is that still a fair assessment or has anything changed in the past three months that would either accelerate that figure or decelerate it?
spk00: Yeah, it's decelerated. As we said on that call, I'm glad that you guys are listening. Actually, it's great. So, yeah, we are going to slow it down because as we say it on that and other calls, we will always look at the environment and make development decisions based on, you know... Dave Kuntz, playing it safe, so we have decelerated some of our. Dave Kuntz, Development initiatives things that are under construction are all locked in for you know pricing and. Dave Kuntz, Pre sales and so on, but going forward, each and every one is being assessed very, very carefully art walk is highly likely to go ahead and think Peter mentioned that already. Dave Kuntz, You know couple storage probably proceed. as well, and a few other things we're looking at very closely. But other things we have definitely, the approval process, no, the drawings, no, testing on some tendering, but we're definitely going to slow down initiating a number of our developments.
spk06: got it okay uh so like in terms of the 250 like i guess i'd have to go through the math in terms of the cost of some of the things that you mentioned but because that is that 150 200 versus 250 is that kind of the quantum of the slowdown that we should think about um it's hard to say right now because there's a couple big projects that if we don't proceed you know it's you know it's big money like you know so we're actually in the process of you know really very much
spk00: daily going through the handful of projects that could are candidates to start, but the implications are huge whether we proceed or not. Peter, anyone else?
spk02: Yeah, so you saw in our MD&A, Mario, We've got $235 million left to go on the 11 projects that are currently under construction. But that, of course, is over both 2023 and 2024. And so we haven't provided the breakdown of how much of that is in 23 and how much will be in 24. And some of the new projects that Mitch described won't start until the second half of this year. So the heavy lifting from a budget perspective is into next year, really. I see.
spk06: Okay. That's it for me. Thank you for the question.
spk07: Thank you, Mario. The next question is from Pammy Beer from RBC Capital Markets. Please go ahead, Pammy.
spk04: Hi. Good afternoon. In terms of the disposition of the small piece of land there at DMC, what was the motivation there to sell or maybe just versus retaining it? And I'm just curious how the sale price compared to the IFRS value.
spk00: Yeah, I mean, it was... It's not so much a motivation. I mean, it's part and parcel of, you know, the process of developing requires some contribution towards parks. And so we wanted a large park in terms of the overall development of the VMC, SmartVMC. So in certain respects, it exceeds what we are currently, you know, obligated to. So the settlement with the city resulted in their acquiring the nine, you know, what is ultimately the nine-acre park, which was always going to be a park. And, you know, the valuation of the park was based on, you know, appraised values. It was all third-party property. It was all third-party appraisals to the satisfaction of the city staff and city council, and then ultimately by us because we had to agree with it as well. So, yeah, obviously it also is consistent with what we paid ourselves for lands recently on the west side of the smart BMC.
spk02: And just in terms of your question on how it compares to the IFRS values, Pammy, there was no material gain or loss either way. As you know, it was two separate parcels of land, and so they had slightly different valuations on our books, but the price, as Mitch notes, was consistent with both appraisals and our recent acquisition price, and so there was no material gain or loss either way.
spk04: Okay, maybe just switching, I wanted to maybe just touch on the self-storage business. How much have you invested in that, you know, that segment at this point? And I'm just curious, it seems to be going quite well. I think last quarter you had provided the disclosure on the occupancy levels. I'm not sure if it's still in there, but I'm just curious how you're generating to be the target of
spk00: You cut out at the end there about the... I couldn't hear you at the end of your question.
spk04: Oh, sorry. Yeah, I was just questioning how the yields are coming in relative to the target. I think your range is like 68%. The business seems to be going quite well, but I just wanted to see how it's tracking relative to expectations.
spk00: Yeah, you're right. I mean, we... a number of years ago when we commenced this program, we sort of targeted, you know, the 7% range, excluding the buy-in by the partner. But it is exceeding that. We were very pleased with the, you know, with the performance, both in terms of, you know, stabilization and also just overall performance. Total investment, I don't know. I don't know that we've actually got that.
spk02: I don't think we've disclosed that, no.
spk04: Okay. And then just a couple of housekeeping items. I believe there was a larger increase in the capitalized amounts to G&A and interest in Q4 relative to last quarter. were these just year end type catch-ups or are those the sort of the reasonable run rates? I just didn't really see a big change in the development, uh, or the properties under development. So I'm just curious, um, how we should think about that for, for the year ahead.
spk02: No, I wouldn't, I wouldn't characterize it as year end catch-ups. I think it's more, you know, a combination of, uh, rising interest rates, um, on the interest capitalized and, uh, The G&A, I think it's, you know, pretty normal course. There's a few puts and takes, but nothing unusual this quarter.
spk04: Okay. Last one for me. Just on the transit city four and five condo closings, all of those should be done before Q3? And then just, I guess, maybe an add-on to that is, you know, are you seeing any risk of any of those units perhaps not closing?
spk00: First of all, the first part, I would say that by the end of Q3, it'll all be closed. And we haven't seen any sign of defaults. A couple assignments, but we don't see any, we have not seen any signs of defaults. I would also point out that the third deposit was due on Art Walk, the 36-story tower that we haven't commenced construction but will be. And they were, for all intents and purposes, all received in January 2023, just last month.
spk04: Great. Thanks very much, Mitch. I'll turn it back.
spk07: Thanks, Danny. Thank you, Tammy. The next question is from Sam Damiani from TD Securities. Please go ahead, Sam.
spk03: Thank you, and good afternoon, everyone. Mitch, I think you may have just answered my first question, which is, you know, what's changed at Artwalk to give you a little bit more confidence in proceeding with construction? And it sounds like the receipt of those deposits might have been it. Is that fair to say?
spk00: That's right on, yeah.
spk03: Okay, perfect. And is it still going to be a partial rental building as was initially proposed?
spk00: Yep, it's a separate building, shared underground, shared underground everything, obviously parking, but other things too. And it's 15 stories and it's a separate rental building. Yes, it's also going to go at the same time. I mean, it still isn't a final decision to go, by the way, yet, but... but looking like we're a step closer for sure. And there will also be a small four-story office building along with that.
spk03: I see. Okay. And just on sort of a similar vein with the Vaughan Northwest townhomes, that construction, I think you said it may have actually already started. The sales level is still at 60%, I think I read. What is, you know, what's going on in terms of sales there? Do you expect those to resume or pick up in the near term? And are you going to build the ball and, you know, without pre-sales potentially?
spk00: We're servicing. You know, are we disclosing the percentage sale there? I think so. Yeah, yeah. So they're about 50% sold. The sales is being done by our partner. And, yeah, I mean, they're townhomes in a, you know, townhomes are a very desirable product in a desirable, you know, census tract. So sales continue. We're not going to, you know, build the actual townhouses if they're not sold. The servicing for them, you know, is... um, you know, is for all of them. So it's, it's quite normal, um, to do that. Um, but we're optimistic about being able to sell the balance.
spk03: That's great. Okay. Just final one is on, uh, on, on the potential headwinds. Uh, you know, I guess that's, uh, excuse me, bed, bath and beyond has been in the news over the last few months. Uh, you know, the, sale of Lowe's Canada to Rona, all branded as Rona, now complete or at least in process. Are you concerned about any closures impacting your exposure to either of those retailers in the coming year?
spk00: So Bed Bath & Beyond, we have a sum total of two. One of them I mean, yeah, one of them we already have interest on the space and have for a long time before they even sort of went public with some of their financial situation. And the other one in Cambridge is very close to where we are intending to do some residential development. There was a scenario we were actually looking to relocate the Bed Bath and Beyond there, but did not because for various reasons, including that one. So that would be the height. That would be the height of our concern with respect to, I'll let Rudy illuminate a little bit more on the Rona Lowe's thing in a second, but bottom line is there's no concerns of about them from our portfolio. And the other one, not sure which, was it Rona and Bed Bath & Beyond? As I was implying earlier, there was some turnover over the last three years. We have replaced a lot of that with strong tenants and And the tenants that did do some closing have reconfirmed their interest in our center. So we're actually in not bad shape, you know, I would say for the certainly the foreseeable being the next 12 months. Rudy, you want to add something to that?
spk05: And I just add to Mitch's comment, Sam. You know, we have eight locations with them and we have a very strong relationship with Lowe's Canada and U.S. as well for that matter. all of their locations, when we met with them at the ICSC last month, they communicated all of them are in good shape, good standing, and intending to remain that way. It's about, I don't know, 850,000 square feet or so. And you may recall a couple of them, those took SAMS boxes back in the day. And, of course, in those leases, their rental rates are good rental rates for Lowe's and for that size project. So in one, in fact, they've come to us and asked to expand the store because it's too small. So very good, you know, a very good tenant for us, and we are seeing things remaining strong with them.
spk00: I also add to that, you mentioned sale. I forgot. Sale, we have one situation with them, vacancy. And we actually have interest for the entire 70,000. We have multiple interests. We have more than 70,000 square feet of interest over the one that's vacant. The other one that we had become vacant has been leased on a temporary basis at market rent. So actually, I would say at the end of the day, we'll probably end up a little bit ahead with respect to the sales that we got back
spk01: sales meaning the store excellent thank you and i'll turn it back all right uh thank you sam the next question is from tal woolley from national bank financial please go ahead tell hi good afternoon everyone hi good afternoon um let's just start at the millway where where do you see asking rents um as you start to lease up the building
spk00: Are you the candidate? No, I'm not in my condo, but I'm good. So, yeah, I mean, it depends on which unit and which building you're in. I mean, Millway is in actually, in a sense, sort of four different types of spaces. That is, there are podiums of four and five, podium of the tower and the tower itself. So it really depends. But I will just say that our leasing to date is exceeding slightly our original budget, our original pro forma.
spk01: Like are we talking about like four bucks per square foot on average, kind of, or something below that? Below. Below. Okay, got it. And then just with, you know, the delivery schedule you've got for this year, is it possible to sort of estimate what you think like the And why is that, you know, sort of the yields you're getting on the stuff you're completing this year? I mean, it varies a bit by asset by asset type, because obviously there's a mix of stuff in there. But I'm just wondering if we can get some sort of estimate of what you think the income is going to be on these projects.
spk05: Well, until they're, until they're, you're, you're, um, Kyle, you're talking about, uh, apartment leases up, lease up. And as you know, until the building is get to a sustainable state, there will be a lot of space that's not leased up until again, it gets to, it gets to that, uh, sustainable occupancy level. So we're in lease up year. Um, we have the JADCO building, uh, in, in Montreal Laval. under construction. And the first building is obviously fully leased. And Millway, as Mitch just mentioned, is just started. So were you talking about those or something else?
spk01: Yeah, I think I'm just looking at like, you know, like what you guys intend to deliver through 23 and 24. And I'm thinking you've got, okay, you're spending about 540 million bucks here. Are we looking at, you know, sort of yields of kind of like five to six?
spk00: The storage is seven to eight. The rentals are lower. I mean, first year is the worst year with residential rental. I think you know the range of residential rentals. I mean, obviously, it makes up the bulk of the capital investment, and then the really I mean, the rest of it is condo. Yeah. And you can, you know, I think we've given you all the numbers, more or less, on the condo, so you can probably do the math on that one. So, I mean, yeah, I'd say, I hope, I think you can, I think you can, you know, do the math with what I just summarized.
spk01: Okay. And then just on... You know, I think Bill 23 has kind of shown that, you know, for the municipalities, especially those that were using, you know, development charges, I think, to finance growth, you know, are arguably more through sprawl rather than density in some of the suburbs, like obviously places like Mississauga and Vaughan, you know, Aurora sort of stick out and come to mind. You know, these mayors now are in the press talking about, you know, having to increase property taxes dramatically to make up the shortfall from the development charge relief. You know, I think the CBC, you know, as the mayor of Vaughn talking about, you know, kind of 75% plus increases in property taxes. I'm just wondering, like, what your intelligence in the community is kind of saying about how, you know, this shift here, like, are we going to see material increases in commercial tax rates in some of these suburban communities that have, you know, that have financed a lot of their growth through sprawl?
spk00: Yeah, I mean, there's no question we're in the political rhetoric stage on that. We have a provincial government who are very familiar with municipal politics. They come from, their origins are local government and now a lot of them are running the provincial government. So it's the tension that's there between the province wanting to stimulate you know, growth and the municipalities wanting to, you know, provide local services and, you know, community services and such. So I think it's a lot of rhetoric, but offstage, how it's going to end up getting resolved. it's anyone's guess, I think it would be pretty risky for municipal politicians to just vote higher property taxes as a replacement for development charges, but maybe some variation or permutation on tax increases. But I don't know, I think we've got a ways to go on that. And don't forget, province is ultimately big brother to the municipalities. So I guess this is going to bring it to a head and eventually there'll be some kind of an agreement on how, you know, municipalities can, you know, how they can both be happy. I think the province is basically communicating municipalities. We're getting a little bit gold plated with their expectations and laying onto development development, laying it onto the public. And this is a way to try and get back to something a little bit more sustainable. I think it's a stay tuned situation.
spk01: Okay. And then I guess just lastly, you know, you've had, you know, Moros obviously retired. I believe your head of construction also retired in the last little while and you've brought in a team too as well from another firm. Can you just talk sort of about some of the changes that have gone on on the development side and, you know, how you see that structure working going forward?
spk00: Yeah. The bottom line is, I mean, you know, We're in great shape in terms of our overall staffing. Mauro, who is a 20-year-plus veteran here, did a fantastic job. But there's 150 or 60 people in the development department here. And so a lot of horsepower, a lot of experience, a lot of veterans, a lot of 15-year, 20-year people in that department. And then in terms of construction, yeah, Bhupesh did retire. But, you know, we had made plans around that, so we're in good shape. We did, you know, acquire a team of construction, a Cracker Jack team of construction people recently, and they are primarily high-rise construction. focused, whereas our construction department was built step-by-step around the originally the construction of Walmart stores and Winners and Loblaws and Canadian Tires and Home Depots and so on and so forth. And, you know, they've done a great job supering the supers, that is the PCLs and the Brookfields who built our high rise for us. But we want to be able to, you know, we want to be able to do everything that we are doing a lot of. And that's why we don't outsource anything. our leasing. That's why we have in-house legal. We have in-house sales for our residential. We have in-house construction for our low-rise, and we have now in-house construction for our high-rise. So we're feeling very, very good about our construction department and our development department. Okay.
spk01: And then just lastly with the Walmart Canada leases are like, are all of them, do they all have like, um, uh, I'm going to bungle the wording here, but like an exclusive restriction on like Walmart can be the only food retailer on site.
spk00: Uh, good question. Uh, depends. Um, some do, some don't. Um, so, you know, um, It really depends in our portfolio. I would suggest that it's probably anything past a certain date. I don't even want to try and come up with that date right now, but probably they do have food restrictions. But before that date or around or before that date, probably maybe not so much. We did the vast majority of them before that date. So, you know, that's why I say with us, it really depends.
spk01: Yeah. And do you have a sense of how many of the locations actually have a full grocery offering?
spk00: I think all of ours, except maybe one, have full fresh and departmentalized supermarket offering. And by the way, I do want you to know that Walmart does, I mean, not just Walmart. In Canada, we have a very... very, uh, our food store offering in Canada is among the best in the world. Um, and so they, they actually do okay even when they're on the same site. Um, and they also are often across the road from each other and so on. So, um, even though the food, like, you know, lots of retailers want and try to get restrictions on certain things with each other. But when it comes to food, um, You know, at the end of the day, you can look around and you can see food stores next to Walmarts and, you know, Loblaw stores next to Walmarts and even Costco's next to Walmarts. And without getting into all the reasons why, which have to do with square footage of retail per capita, but suffice to say that they actually often do better when they're near or next to each other than when they're not. So they all know that too, just FYI. Okay. That's great. Thanks very much, gentlemen. Thanks, Val. Thank you.
spk07: Do we still have time for another question?
spk00: One more.
spk07: This question is from Gaurav Mathur from IE Capital Markets. Please go ahead, Gaurav.
spk08: Thank you, and good afternoon, everyone. Since this is the last question, I was just very curious to understand, you know, your comment a little further about the slowdown in future development initiatives I'm just wondering if there's a certain asset class or property type which is leading that slowdown over the others.
spk00: Yes, it's residential because it's the most capital intensive. It's the longest term and longest range class. It's no comparison. It's not that tough. And it's also, if it's multi-res, It's the lowest yielding initial value. Storage comes out of the gate red hot and it's low capital intensity. And retail, there hasn't been a lot of it in the last number of years, but there is a little bit of an uptick in that here from our core retail base. But again, that one is a little bit more capital intensive. It's all going to be subject to construction prices. But they are, those are, you know, they are dwarfed by the capital investment involved in our residential program.
spk08: Okay, great. And if I can just squeeze in one more question here, would that be okay?
spk00: Sure.
spk08: Fantastic. And this might be more for Peter, but with the upcoming 200 million refinancing, would it be possible for you to discuss how pricing currently stands in the fund stations that you're having?
spk02: Sure, Gaurav. I can give you a little bit of color there. Maybe not too much, but a little bit. So, you know, right now, while the bond market appears to have tightened over the last couple of weeks and pricing on a new issue basis, hypothetically, has improved a little bit, it's still fairly expensive and it's certainly more expensive by maybe 50 or 60 basis points relative to the current cost of bank financing. So we're looking at it. We still have several months to go between now and the maturity, as you know. And so, you know, hopefully that'll tighten a little bit. We certainly like the idea of replacing a debenture, or I should say maintaining debentures to diversify our funding sources. But, you know, we're not going to pay a big premium for that benefit. So, We're watching the market carefully and we will make a decision with plenty of time prior to that upcoming maturity.
spk08: Fantastic. Thank you for the call, gentlemen. I'll turn it back to the operator.
spk05: Thank you.
spk00: Okay. So thanks, everybody, for participating in our Q4 analyst call and please reach out to any of us for for any further questions and have a great day.
spk02: Thank you.
spk07: Ladies and gentlemen, this concludes the SMART Centre's Q4 2022 conference call. Thank you for your participation and have a nice day.
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