SmartCentres Real Estate Investment Trust

Good day, ladies and gentlemen, and welcome to the Smart Centers Reach Q1 2024 conference call. I would like to introduce Mr. Peter Slam. Please go ahead.

Good afternoon, and welcome to our first quarter 2024 results call. I'm Peter Slam, 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, Portfolio Management and Investments. We will 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 would like to refer you specifically to the cautionary language about forward-looking information, which can be found at the front of our MD&A materials. This also applies to comments any of the speakers make this afternoon. Mitch, over to you.

Thanks to you. I'm Mitchell Goldherb. Good afternoon, everyone, and welcome to our call. I'm pleased to report a strong start to 2024, building on the momentum of last quarter and, indeed, last year. Before I get into some details, an invitation. If you haven't been to a SMART Center, Walmart Anchor location recently, I encourage you to visit. there surely is one near you, and that is no matter where you are in Canada, there will be a Smart Centers in proximity. What you will notice and feel is something new and obvious. Increased activity, traffic, consumer traffic, brighter lots, easier access, more stores, and a wider selection of retailers, such as daycare, fitness, clinics, pickup locations for your click and collect, and, of course, great value, especially if saving money is your thing, which is everybody's thing. Now for a few details. Lease extensions, which a lot of people refer to as renewals, are providing strong rental increases of 8.9% excluding interest on 4.4 million square feet already extended in Q1. Same property NOI is up $4 million or 3% in the quarter over the prior year. Cash collections remain strong at 99%. Portfolio occupancy was temporarily reduced in the quarter, as you have seen in our disclosure. This was almost all the result of two unrelated tenant vacancies in the quarter, which we fully expect to release in the next quarter or two on current negotiations, advanced negotiations with strong covenant tenants, and on completion will not only result in a 9.84% in place in community occupancy, but we expect that those will be done at higher rent as well. With stronger leasing interest for both existing and new build, we expect our occupancy rate to improve even more and relatively quickly. and much of it with stronger covenants and higher rents. For the first time in a while, we have executed over 200,000 square feet of new build leases, which will further expand our footprint across the country in the coming quarters. Growth is coming fast and strong from recognizable names such as TJX Banners, Dollarama, Schroeper Strugbart, LCBO, Banks, Canadian Tire, and some national grocers and general merchandisers. Built on our stable cash generating platform, we continue to build and secure significant mixed-use permissions with 56 million square feet already zoned. And remember, on lands we already own, which creates great value and expansion value of our NAV. We will, of course, be prudent and strategic in executing these projects. That is when market conditions permit and with appropriate financing in place. Here are some specific highlights briefly. SiteWorks are continuing for our 40-story artwork project comprising 320 sold-out units right here in the VMC. Two, through our smart living department, our 458-unit millway apartment rental project was fully completed during Q4 last year. and now expecting to grow to 88% in the next quarter and into the mid-90s before year-end. We have exceeded our lease-up occupancy expectations as well as our rental assumptions with this project in the heart of the Bond Metropolitan Center, BMC. Construction of our Vaughan Northwest townhomes with our partners is progressing well with two closings taking place this quarter and nearly all pre-sold units expected to close on schedule by year end. Four, in Leaside, we continue with our site work for a 224,000 square foot retail center

comprising primarily of the anchor tenant of Canadian Tire of 200,000 square feet.

Our new Ripby storage facility opened in March, adding to our operating portfolio with five locations remaining under construction. This portfolio continues to expand with two new locations in the process of obtaining municipal approvals, one within Smart Center's Laval East Center and a new strategic site that was acquired with Smart Stop, our partner, subsequent to the quarter end in Victoria, B.C., just off the downtown. Lastly, we continue to be strategic with our portfolio development, and we'll execute on some limited capital projects recycling in unutilized lands to assist with debt reduction and development cost funding, the pace of which will depend on the market. As you can tell, we remain active in creating value in our retail operations and strategic in our significant development pipeline. We also take great care in maintaining our conservative balance sheet, which remains a high priority for us, along with maintaining a significant unencumbered pool of assets now standing at $9.2 billion. We will continue to manage our debt carefully and maintain ample liquidity, which Peter will speak to shortly. But before that, let me pass the call over to Rudy for some operational highlights. Rudy?

Thanks, Mitch. And good afternoon, everyone. The MD&A, along with our press release, provided some expanded disclosure on the operations side of the business. But let me give you a few highlights. As you have read, leasing was strong in the first quarter for both vacant space and lease-up of new builds, as Mitch mentioned earlier. New build leases have been executed with tenants such as Strappers Drug Mart, Winners, HomeSense, Dollarama, and Scotiabank. This momentum in demand has been building with our existing retail partners and also by some new entrants in categories such as furniture, specialty foods, health and beauty, fitness, and a number of service-oriented retailers. Our portfolio is in strong demand, notwithstanding the the two or so independent and unrelated tenant departures, which created a data point this quarter, which we expect to revert shortly. We continue to monitor tenants for any risks as well, risks of business restructurings or interruptions, and are pleased to report that except for the two independent tenants just mentioned, there's virtually no impact to our portfolio in the quarter. Given our high traffic centers, strong leasing demand, and value focus, the REIT is able to release space quickly, maintaining our high occupancy levels. Various strong national tenants continue to expand across the country, and with expanded store sizes and new build locations. In the quarter, We completed deals in Carleton, Halifax and Bracebridge for new build locations for TJX banners. Also, national grocers such as Sobeys, Loblaws and Metro are somewhat active, exploring their opportunities for banners and customer reach. Our premium outlets continue to excel in driving traffic and improving sales, leading to meaningful increases in EBITDA and value to the REIT. Tenant Sales places our Toronto premium outlets in the top three highest performers in Canada, and for the first time, also in the top three of Simon's portfolio. Our Toronto and Montreal locations remain fully leased, even with the one or two small tenants in financial difficulty, because there is a lineup of interest, which by the way, is causing some discussion with our partner about expansion. Overall, Q1 has delivered a great start to 2024 in nearly every operational metric. NOI growth, cash collections, tenant retention, and rental rate increases. all while providing a larger and broader array of tenants. With that, I'll turn it over to Peter.

Thank you, Rudy. The financial results for the first quarter once again reflect the strong performance in our core retail business and the continued contribution from our mixed-use development portfolio. For the three months ended March 31, 2024, FFO per fully diluted unit was $0.48 compared to $0.54 from the comparable quarter last year. The decline is primarily due to the fair value decrease on our total return swap as a result of fluctuations in the REITs unit price, which amounted to $0.04 per unit, and the condominium closings that occurred in the prior year, which did not repeat this quarter, amounting to $0.02 per unit. As a result, FFO with adjustments, which excludes both the townhome and condo profits and the TRS loss, was 52 cents per unit for the quarter. This is an increase of one cent from the comparable quarter last year and was due to higher rental income driven by increases in base rent from our shopping centers, primarily due to contractual rent step-ups and lease-up activity, as well as incremental rents from new self-storage and apartment properties all partially offset by higher interest expense. Net operating income for the quarter increased by $5.9 million, or 4.7% from the same quarter last year, largely due to higher rental rates, lease-up activities, and continued strong performance at our shopping centers. Same property NOI, including equity accounts and investments, increased by $4 million, or 3%, compared to the same period in 2023. Leasing activity remained strong during the quarter with 4.4 million square feet of lease extensions with a compelling average rents growth of 8.9%, excluding anchor tenants. Our occupancy level, including committed leases, was 97.7% at the end of Q1, as Rudy and Mitch already described. In terms of distributions, we maintained our distributions during the quarter at an annualized rate of $1.85 per unit, The payout ratio to AFFO with adjustments, excluding the TRS and the townhome sales, for the three-month ended March 31, 2024, was 94.5%, an improvement from 99.9% for the same period a year earlier. This progress was mainly attributable to the increase in NOI and lower capital expenditures. Adjusted debt to adjusted EBITDA was 9.8 times in Q1, representing slight improvement from 10 times in the prior year, but an increase from 9.6 times last quarter due to additional development spending and fewer condominium and townhome closings, as I mentioned during our Q4 call. Our debt-to-aggregate assets ratio was 43.8% at the end of the quarter, a 60 basis point increase compared to the same period a year earlier. Our unencumbered asset pool remains unchanged at $9.2 billion in Q1. Unsecured debt, including our share of equity accounts and investments, was $4.4 billion, virtually unchanged from the prior quarter, and represents approximately 82% of our total debt of $5.4 billion. During the quarter, we recorded a fair value reduction in our investment properties portfolio of $118.9 million. This adjustment was mainly attributable to softening market conditions in a small number of properties under development in non-core areas. From a liquidity perspective, we are comfortable with our current liquidity position, approximately $448 million of undrawn liquidity as of March 31, 2024, including our share of equity-accounted investments and cash on hand, but excluding any accordion features. The weighted average term to maturity of our debt, including debt on equity-accounted investments, is 3.4 years. Our weighted average interest rate was 4.17%, a slight increase of two basis points from the prior quarter. Our debt ladder remains conservatively structured, where the most significant aggregate maturities are in 2025 and 2027. Approximately 81% of our debt is at fixed interest rates. Just before we open up the call to questions, I want to touch briefly on our development projects that are underway. Once again, we have updated our MD&A disclosure, focusing on those development projects that are currently under construction. We have also added new information around our development pipeline this quarter on page 16 of the MD&A, including the amount of square footage in each stage of the development cycle. we have approximately 86 million square feet in the pipeline currently, including, as Mitch mentioned, approximately 6 million square feet of zoned lands at the REITs share. As you will see on page 17 of the MD&A, there are currently 10 projects under construction, down from 12 last quarter. There were two projects that were completed in Q1, namely the industrial project in Pickering and the self-storage project in Whitby. As noted, we also closed on the first two units of our Vaughan Northwest Townhomes project. We expect 95% of the pre-sold units to close this year. The REIT share of total capital costs on these 10 development projects is approximately $512 million, with the estimated cost to complete standing at $352 million. And with that, we would be pleased to take your questions. So, operator, can we have the first question on the line, please?

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad. We'll go first to Dean Wilkinson at CIBC.

Thanks. Afternoon, everyone. Maybe just more of a strategy question for Mitch. You know, if we're in a world where it's, you know, high threes, maybe low fours on the interest rate spectrum, Does that change your longer strategic view around all of that excess density? And what would cause you to either bring stuff forward or push stuff out? And how are you thinking about sort of the cost of capital around that?

Yeah, I mean, if we got to low fives, high fours, it would be good. I mean, as, you know, like putting a developer hat on, you know, you really – should be able to you make things work at at those kind of um cost of capital um yeah they're not there at the moment um and most of our you know our residential entering into the residential space are high-rise buildings they take you know anywhere from 30 to 40 months depending on you know, depending on the buildings to build. So we just have to be super, super careful. I mean, we don't have to do any of it. So, you know, the way I look at it is like, you know, guitars to screw up. I mean, we're just not going to take any chances if it's borderline. Luckily, and, you know, we're very lucky that these are properties that we already own. We don't have to buy properties on market. for the majority of what our plans are to get significant traction in the residential space. But we're just not going to play it, you know, we're just not going to play it close to the line. So if it gets down like, you know, in that range and we feel that, you know, the outlook is stable, then we might initiate, you know, some more intensification projects. We may hedge with bringing in some partners and, you know, selling projects you know, capitalizing on sort of 25% to 50% of those projects. We're just not going to take any chances. We do not need to do any of that. But it is an enormous amount of embedded value. I will say that, you know, it is really just being patient and not being twitchy and not being, you know, but it's real value. It really is just finding the right moment in time, whether it be rates, cost of capital, or be it, you know, sale price, be it construction prices, you know, a combination of that. It's massive, massive amounts of value that will be ultimately extracted, you know, if done properly, extracted to returns that are, you know, just far below in excess of anything you see normally in the, you know, the regular, you know, internal growth types of internal growth. It will far exceed the types of internal growth you see in typical REITs.

Yeah, I mean, it's unfortunately, you know, the capital market tends to look quarter to quarter, and as a developer, you can look out 10 years. Would there be circumstances perhaps where you might look to just, all right, get to the zoning, get to the entitlement, which, as you've pointed out, is kind of where the big lift is, and then maybe just sell that off? Or would you just want to keep the patience and hold those back and say, you know, we don't want to leave anything off the table here?

No, absolutely, the former. There's no way. We are not going to, you know, try and hold out for the last dollar and stay in and develop it all and everything like you were saying in the latter. You know, if and when the market is, it will come back. You know, you can put it in your diary. It will happen. It will come back. And when it comes back, you know, depending on, you know, to what extent, we will – you know, willfully, willingly sell lands to, you know, to third parties. That density that you're referring to with leaving things on the table for sure. You know, you need to leave things on the table. You want to leave things on the table because then you can do another deal and another deal, another deal. And, you know, we have so much density because that is our gig. That is one of our differentiating factors. It's not going to mean that we're going to leave everything on the table in every deal. We'll leave lots on the table for others to develop out on some of these zone properties, but we'll have plenty to develop out ourselves and move the needle in terms of our own footprint, residential footprint, and the recurring income but with the benefit, of course, of the capital that selling some of those will generate. So I think it's an enviable position. In the meantime, our retail is strong, so we can hang out until that day comes, but we are absolutely not going to insist at all on holding out to develop it all and get to the last dollar.

That's great. Well, it is a really big table. Thanks. I'll hand it back. Thanks, Mitch.

Thank you.

We'll move next to Sam Damian at TD Cowan.

Thank you, and good afternoon, everyone. Great to see the leasing come together on the new build on the retail side. That was something you guys talked about, I think, maybe a couple of quarters ago, so 200,000 square feet. I'm just wondering, I guess you mentioned two or three locations for TGX, Carleton, Halifax, and Bracebridge. Are there any other locations that are particularly represented in that 200,000 square feet? And I guess the more important question I had is what kind of return on asset, like what kind of yield on cost are you anticipating on these incremental expansions into these shopping centers?

I'll answer the first part of this question. Sam, and then I'll turn it over to Rudy. But, you know, we just named a few. You know, we think that over the whatever it is now, you know, 20 years, 19 years, I don't know, it's actually 20 years, 21 years doing this, something like that, that you and others would pick up on the fact that we are a little bit understated, a little bit conservative. with our choice of words. Um, so, and we will continue to be, um, because, you know, it's probably, you know, just, just, you know, probably the, the better way to do things. And, and, and, you know, it's, it's, it's, um, it's a way to do things, but really just, you know, a few examples of markets and tenants there's, you know, There's other things going on, let's just say, leasing-wise, in many different markets with strong tenants. You know, there was, for sure, 10 years ago, there was five years of investment in e-commerce and making sure that retailers, making sure that they don't, you know, slip with the Amazons and the others in terms of you know, online shopping, and then there was the pandemic, you know, then there was COVID and the pandemic. So, you know, the population continued to grow every year. But there was really no growth. And you can also learn that a lot of retail sites got redeveloped for residential. And if you put that all together, you know, put that all in a pot and stir it, you've got a real, you know, reduction in square footage. And so what we're feeling and observing now is a little bit of a sort of resurgence and with strong tenants. We're a bit of a go-to for certain types of national retailers, strong national retailers that want to now catch up with And so we've got a lot going on. Those are just examples. So I'll turn it over to Rudy. Rudy, if you don't mind expounding a little bit.

For sure. Thanks, Mitch. Sam, yeah, we started talking about this a couple of quarters ago, exactly what you said. You know, those locations with TJX are new build, brand new build, and you can see the markets. It's very interesting in those markets where they're putting in those banners. Also, we're doing some expansions in existing banners where they're doing the combo store. So, you know, we didn't want to list all of that. But some of the other tenants that we have been doing deals with is, for example, Scotiabank and Mark. and LCBO and Golf Town. I think I mentioned that in Quebec. So it is not like it's, you know, we're doing things from BC and Vancouver and Chilliwack all the way up through Ontario, all the way through in Quebec as well. So those are some of the names and you can well imagine why we're so excited is because there's lots more discussions and negotiations currently happening that we'll be talking about in future quarters.

That's very helpful. What Rudy was not naming were also some other types of tenants, which are very basic food and general merchandisers, which are also... have also been, you know, holding back in the last 10 years. And, of course, you know, retailers have learned, everyone's learned that everyone loses money on home delivery. So, you know, the emphasis is on not just on physical shopping by the retailers, they're motivated, but also the consumer side. who the novelty of home delivery is over. It's very, very much here to stay, but people are social creatures, and it is more efficient and cheaper to shop. Ultimately, it's cheaper to shop physically, as you will see over time. And so a lot of emphasis and investment is going into that from the food and general merchandisers We are a bit of a go-to for that. We have the larger sites. We have lower coverage. We can always fit somebody, you know, pretty much any prototype into an existing center. So in addition to the intensification program of residential, you know, we are being asked to accommodate, you know, a demand for, you know, intensification of retail because we do have the lowest average coverage of, you know, pretty much anybody on site. And, of course, retailers are just, you know, much more flexible with respect to parking ratios. So, yeah, the retail is steady, you know, let's just say as an understatement. And from across the board, including food and general merchandise.

Just as a follow-up. Sorry, go ahead. Sorry, Sam.

Sam, I was going to say the second part to your question, which I didn't answer. Yeah, with regard to the yield, each of these deals, by the way, as and when we do it, and given that construction costs are where they are, you can well imagine that the rents we're getting are higher than our average rents in the category. So you can well imagine with construction costs, we're making sure that every deal we do, because we're going to be very close to starting construction on all of these. They're not long timelines to get going that we're looking and making sure we're creative on all of these deals. So I will tell you that all of these deals are creative for us given our, you know, our then cost of capital when we make these decisions and when we negotiate the rents we need to make this happen.

Okay, great. That's really good color. And I just have a couple quick follow-ups on this is one, I'm not sure if the sites that you're pursuing here in the near term You know, would they be sites where they were subject to sort of the earnouts from prior years where, you know, the return that the REIT gets is kind of predetermined a little bit? Is it like that or is it more like this is, you know, this is really on the REIT's account, you know, purely enjoying all the upside?

I mean, it's hard to answer that off the cuff, but I'd say mostly it's the REIT on their own mostly. There's some earnouts for sure. And yes, these markets that we named, I guess they sort of highlight the fact that in those markets where 20 years ago, 25 years ago, nobody really gave much or didn't pay much attention to Bracebridge or Carlton Place or whatnot. These are places that have seen significant growth, injection of economic activity is probably, you know, partly related to pandemic, partly because their proximity to larger markets. But we are very strong in those markets occupancy-wise. You know, there's really no, you know, there's no, you know, we're strong in those markets, let's just say. So when certain retailers decide that those markets have sufficient populations and sufficient economic strength to answer such as TGX, you know, we're, we're there with the strong, you know, with the dominant site and, you know, our, our, you know, our, our, our metric, you know, our, uh, earnings and other metrics are quite sensitive to adding, you know, 20, 30, 40,000 square feet of new square footage at, as Rudy says, um, accretive rents, um, in multiple locations. So, uh, That's without buying any more land. I'm just, you know, fitting them in. Some of the borough notes, I'd say most of them are really, you know, 100% REIT. I'd say the majority of them.

Perfect. Thank you, and I'll turn it back now. Thank you.

As a reminder, if you would like to ask a question, please press star 1. We'll go next to Lauren Calmar at Desjardins.

Thanks, Bethany and everybody. I think Rudy might have alluded to it earlier, but is there any desire for Walmart to expand? And if so, is that something that smart centers would participate in?

You know, I would always, I'd prefer Walmart at this moment in time, you know, speak for themselves if they're going to make any, you know, public statements about their plans. But I will say that the relationship, you know, we are Walmart's largest landlord in Canada, so that's technical. But intangibly, you know, we have very, very good relations. You know, we are constantly and continuously in contact with each other. The relationship that goes back to, you know, the original, uh, Walmart entry and expansion in Canada and continue, you know, growth in Canada, uh, was done, you know, in a way between us, uh, that developed, uh, you know, very strong, uh, partnership, if you will, small P partnership, actually a capital B partnership as well on the, in the real estate. And that has continued. It really has not changed. I was at Walmart two days ago, um, spent many hours there, it's normal, sharing with each other, sharing our information and strategizing. So I'll leave it to Walmart to comment on any of their plans in Canada. But I would think and I would like to think that if Walmart were willing you know, interested in expanding in Canada, that we would be a part of it.

And I know you talked about all the density on existing sites, but for a Walmart expansion, would you actually have to go out and acquire new sites, theoretically, or would that be something you could accommodate on certain sites?

I would say, you know, it's really a good question. You know, maybe... Maybe there's more to the question than you really meant, but let's just say that, I mean, you know, Walmart and the likes of Walmart, you know, they haven't expanded, you know, lockstep with the, you know, with the things I mentioned earlier, population growth, you know, changes in, you know, in various types of markets, medium-sized markets, because of various reasons that I mentioned. So the short answer would be there would probably be new stores, a lot of it. There would probably have to be new stores. So on-site expansions will happen, and on-site renovations to stores will happen. But I think... I think, you know, there's, there's a chance that there'll be, you know, there'll be, there'll be net new stores. And so we would be, if it was including us, you know, it would involve acquisitions of new properties and a total, you know, expand, you know, expansion of our footprint in markets that we're not, not currently in.

Okay. And, um, That's very helpful. And then maybe just the last one, the self-storage portfolio, you got nine now and another bunch under construction. How big are you comfortable, you know, growing this to?

We're very nervous. Like everything we do, we're kind of always thinking about the worst case scenario. I don't know how much you know about my, you know, you know, just, you know, kind of history or whatnot. I mean, you know, uh, so it's really, it's, it's so, it's almost too good to be true, to be honest. So, um, and our self storage, um, program is a wonder, wonder child. I mean, um, so yeah, we don't believe in, in, um, you know, um, you know, Everything working out, you know, just too good to be true. We don't believe in too good to be true. So we're constantly looking at the storage segment carefully. But I will say that even with that, you know, passing through the prism of being super, super careful and cognizant that, you know, you can overbuild and, you know, you can, you know, you can create, you can commit a folly. At the moment, it really seems like there is still a little bit of, you know, runway there. And so we see it, you know, continuing. I will say that SmartSnap are also excellent operators. You know, some of you should just, you know, take out a storage unit in there and just see because, you know, you want to do analysis. It's another level of analysis, you know, because they're really outstanding operators. You know, operating today is probably one of the biggest really kind of challenges that people gloss over, you know, running a retail store, running a storage facility. So we're really lucky to be with some, with a company who are excellent operators, but we're cognizant of, you know, storage and, supply-demand, per capita, all the rest of it. So we'll probably, if ever we think there's any potential for any erosion of rental rates or supply-demand metrics, we will be conservative. But I will say that we've taken that into account with every one we've done so far. Um, and, um, you know, fingers crossed, uh, you know, we'll continue this, um, trend of having, you know, exceeding our, our lease up, uh, our, our, um, our, um, um, lease up, uh, timeframes and our rental rates, but we're quite sober about it, you know, and, uh, We'll be watching it, continue to be watching it very, very, very closely. But so far, it's really been quite a wonder child for us.

All right. That's what we like to hear. And maybe one quick one for Peter, just on capped interest. Is sort of the Q1 number a decent run rate for the balance of the year?

Yes.

Perfect. Thank you very much. I will turn it back.

Thanks, Mark.

We'll go next to Tammy Burr at RBC Capital Markets.

Thanks, and hi, everyone. Nice to see that pickup in the same property and wide growth this quarter. But I was a bit surprised by maybe the size of the growth given the occupancy drop. Can you maybe just provide some more color around that? And then secondly, should we expect that to maybe drop off a bit until maybe some of that space from a releasing standpoint is – is cash flow producing.

I'll start, and then Rudy, you can jump in. I mean, look, two units, completely unrelated units, just happened to become vacant during this quarter, halved. led to an occupancy drop. But they really are, you know, really anomalous. And it is not a reflection. You know, it's sort of, in a sense, almost ironic because, you know, our leasing is steady, if not, you know, strong and steady across the country. And I think there's some, you know, I'll say potentially good news you know, with respect to our overall occupancy and leasing and even portfolio expansion. But then, you know, this quarter we happen to have had two large vacancies that, you know, generate a number that is just not a reflection of what's going on at all at our shop. With respect to those two, there's actually a third that's smaller but doesn't really move the needle on its own. There's interest in those two units from companies that are very significant creditworthiness and additive to traffic generation and at rents that are higher than what we were contracted for. when they were occupied. So, you know, it's just a moment in time. I really, you know, I don't want to... I don't want to say anything too strongly, but I really would not... obsess or focus on that. It just happens to be a moment in time. It's just not reflective of what's going on. So stay tuned. Projects take a little while, but the interest is real. We've negotiated a few leases in our case. So when I say that they're likely to happen, that's based on what we know from experience. and likely very strong tenants, higher rents. So I wouldn't get, you know, thrown off course by those, you know, data points at this moment in time. Lou, did you want to add something?

Yeah, nothing to that part, Mitch, but the other part, including, you know, the independent-ness of those tenants and, Pammy, the You asked about the rental growth. We've been reporting these kinds of growth, I guess, in the last three, four quarters. And I'll tell you, the momentum and what's picking up, and you can see it in the new build. The new build, you can tell it's driving it, is pushing rents a little bit higher because, again, traffic is, as Mitch mentioned earlier, traffic is just something – so much stronger than it would have been a year ago. So now what we're seeing is tenants certainly redeveloping, growing, adding square footage, changing their offering, and doubling down, I'm going to say, on the locations. You can see that with 82% of our tenants already extending for the year by the end of the quarter, that is significant. unprecedented from prior first quarter. So we expect to see more of the same going forward. Yeah.

Great. Yeah, no, that's good to hear. Just to clarify, was the pickering industrial, that was included in the drop in occupancy this quarter, if I'm not mistaken. Is that correct?

That's correct.

Okay. All right. Thanks very much. I will turn it back. Okay.

we'll take a follow-up from Sam Damiani at TD Cowan.

Thank you. Yeah, I just wanted to maybe follow up on Pami's question, trying to understand how the 3% same property and a wide growth was achieved given the drop in vacancy. And I just want to kind of address the renewal schedule in the MD&A as well on page, I think, 35. So are you saying that 4.4 million square feet rolled during the quarter, or is that a trailing 12-month number? And, you know, for the two larger vacancies that occurred in Q1, how much rent contributed to NOI from those two?

Do you want to just quickly address that on me?

Yeah, for sure. The 4.4 million, Sam, is the amount of extensions we completed in the quarter relating to the 5 point something million that is maturing in the year. So that's the percentage that... We did, because tenants are, again, coming to us early, wanting to lock up their space and negotiate deals, so it's that. So, again, a high number for the quarter. The NOI growth, again, is the NOI growth, notwithstanding the vacancies. It's just... strong NOI growth. And again, NOI being everything, right, all in. It's not just the rents, not just the net rental increase. It's NOI relative to, which is revenues and expenses. So it's a little bit of apples and oranges to compare the rental extension rates with NOI changes because they do encompass all the operating costs as well.

Of course. But I mean, the two vacant spaces, the larger ones, they were obviously different circumstances. But in the one case, I assume the rent was paying until the space went vacant. And the other one, it just obviously is a bankruptcy. So how much of the quarter did those two spaces contribute rent?

Oh, not much. The other tenant is, again, a logistics independent operator with one location, so not a significant impact on the overall rent. That's why you're not seeing an impact that you might have otherwise expected with two plus of these kinds of tenants because again the renewals um and the new deals that have started for um lease up of space that that work that was vacant at the end of the year last year which we've done in the year um you know probably around 150 200 i can't remember that exactly the number of thousand square feet also would have made up for some of that in the in the noi yeah and i just want to be mindful sorry go ahead so imagine

you know, you got like 130,000 square foot building and somebody's taking it for like $5 a foot, okay? You know? So from an occupancy point of view, they left, so we got back 130,000 square feet. But we put them in sort of on the fly when the tenant, when the original tenant that was occupying that building, when their term ended, expired, we put in a tenant that was, you know, kind of almost in a sense sort of like a temporary tenant, which we would have had rights to terminate, but they were paying, let's say, net $5 a foot. So they're paying all the taxes and common area and $5 a foot on a huge amount of space, but immediately, because they can move in so quickly. There's no land use or anything related to So we did that because that was, on balance, attractive, especially during COVID and then when nobody was doing anything. But now, you know, things have changed, and we have interest in that space. Had that tenant still been there now, we might soon terminate them because we have interest in that space for somebody at double-digit rents, double-digit rents. and a much stronger covenant. But in between, you know, it's vacant. So, you know, we report it as a vacancy. And then, you know, the bad boys basically said they went bankrupt. So, you know, we... We're very confident in that location, very confident in our building, and we have multiple interests in that space, and we fully expect to lease it within the next quarter or two. You'll probably lease it in the next quarter, but rent commence in the next quarter or two. And, you know, the Bad Boy deal, the building was built for Bad Boy, you know. Nobody other than myself should take, you know, have responsibility for that deal. Nobody? Nobody. Nobody. But, you know, I have zero regrets about it. You know, the bad boy deal was done at below market rent. And so even though it's, you know, it's work and it's a headache, you know, we're sort of cut out for the work and the headaches part. We will probably lease that space at more than what we had rented it to bad boy for. Yeah. So, I mean, you know, it's work and a headache, but, you know, it's vacant right now, but it's a great building in a very strategic location. So we'll probably release that in the next quarter and rent will commence in the next two quarters. So, yeah, I mean, that's a little bit more color on those two situations.

That's a really good color. And I certainly want to be mindful of time, but if there's, you know, a 60-second answer to this question, I'd appreciate it. And sort of back to my earlier question on the call, which is, you know, about all this retail development, are you finding in some cases it overlaps with on sites that you had been contemplating, you know, high density development? And are you presented with the opportunity to choose between developing something, you know, single story, fairly low risk, short term, you know, quick get it done with, you know, a good, good attractive yield and forego that sort of higher density land value opportunity. Is that something that's starting to play out or are you mostly?

Yeah, you should be a developer. That's a very good question. That's really, really, you know, lateral thinking. Absolutely. We are doing some retail deals where we will preclude, we will forego density. But are we really foregoing density? Absolutely. Not really, but, you know, in that specific location, will we give term to a strong, because what we're trying to say to you in between the lines is a lot of interest from strong tenants, will we forego some density to get a new single-story retail deal done at a good rent from a strong tenant for a long-term lease? Yes. Why? Because we have 50, 60, 70 million square feet of density. We don't need – we can give up, you know, 500,000 square feet of density to do a deal with, you know, blank, strong, AA plus retailer, okay? So, yes, we are absolutely doing that. It also obviously supports and augments the existing, you know, shopping center. And by the way, the sophisticated retailers are very interested – not just open but interested in talking about going on to the ground floor of some of our density. So in many cases, I would say, we are going to do both. But there are certainly a number of cases where we will forego some of that density for a good retail deal that's single-story, accurate parking, long-term lease that's accretive from a strong tenant. That's great. Thank you very much, and I'll turn it back.

And that concludes the session. I will now turn the conference back over to Mitch Goldhart for closing remarks.

Thank you. Yeah, thank you all for participating. This is our Q1 analyst call, and we appreciate all the thoughtful questions. If there are any more questions or feedback, please feel free to reach out to any of us. In the meantime, have a good day, and thanks for taking the time to be part of this call. Have a good day.

Ladies and gentlemen, this concludes the Smart Centers REIT Q1 2024 conference call. Thank you for your participation, and have a nice day.