Good day, ladies and gentlemen. Welcome to the SmartCenters REIT Q1 2021 Conference Call. I would like to introduce Peter Ford. Please go ahead.
Good afternoon. I am Peter Ford, President and CEO. Thank you for joining us this afternoon. Joining me on the call today are Mitchell Goldhar, Executive Chairman Peter Sweeney, Chief Financial Officer Rudy Gobin, EVP, Portfolio Management and Investments and Mauro Pambianchi, Chief Development Officer. The call will begin with my comments by Mitch, Rudy and myself, followed by Peter Sweeney, who will talk about our results for the quarter, including IFRS valuations, liquidity and our financial metrics.
We will then be pleased to take your questions. Our comments will mostly refer to the outlook a mixed use development initiative sections of our MD and A, which are posted on our website. I refer you specifically to the cautionary language on Pages 34 of the MD and A material, which also applies to comments any of the speakers may make this afternoon. Today, we will provide you with the highlights of the quarter, update you on our development applications and major projects as well as provide some insights on tenant and operational initiatives. Our focus remains squarely on our tenants and operating our existing shopping centers, while simultaneously creating value through real estate development.
This mixed use development process and the significant value it creates takes time and is specific to each one of our significant a number of development projects underway for which Mitch and I will provide you some highlights shortly. We remain on course with each of these projects as well as remaining on strategy with the portfolio. Within the context of real estate development, this strategy is moving us forward nicely with the rewards from the Transit City 1 and 2 SmartVMC condo closing last year, which generated $45,000,000 in FFO and the closing of Transit City 3 this year, which will generate a further $20,000,000 of FFO. The pandemic period has been unusual for all of us with the initial shutdown, the restart of 2nd and third wave shutdowns across the country. This impacted every one of us personally and from a business perspective to varying degrees.
The pandemic added some challenges for us in the short term, But we remained firmly focused on our long term strategy of growing our mixed use development. Initially, the pandemic required our attention in assisting all of our tenants in various ways, And we continue to do so even now, keeping our shopping centers operating so as to effectively serve their communities. With more than 60% of our tenants considered essential services and with food and pharmacy retailers in every one of our centers, everyone worked incredibly hard to maintain a safe operating environment for tenants and customers alike. But every tenant needed attention and our organization stepped it up, working as one, finding individual solutions for many circumstances and tenants needing assistance. For this, I am both grateful and humbled by the strength and outpouring of ideas from our team.
Our attention remains on assisting our retailers in getting back to opening their stores and operating at full capacity once the lockdowns are liquid are lifted. In addition to assisting our valued tenants, We are proud to have offered our centers to all levels of government and public health authorities to play a role in reducing the impact of the pandemic. Initially, we offered over 1,000,000 square feet of our properties for COVID testing and PPE storage and have several institutions accept the offer. More recently, we have been contacted by government agencies requiring vaccination centers, which we have offered at no cost and for which many have taken us up on the offer, and I'm proud to say we have over 250,000 square feet being utilized today for vaccine centers or other COVID related uses. And with that, I'll pass it over to Mitch.
Thank you, Peter, and thank you all for joining us today. As most of you know, we started with a vision some 3 decades ago to build retail centers with Walmart as an anchor. Staying attentive to every detailed step just as we do today with our mixed use plans. This includes building a strong dedicated team with an operating company around it. Our entrepreneurial mindset and culture what makes us unique, 1st and foremostly in land development as well as operating our shopping center portfolio and platform.
Our core competencies in land development make us very proficient in driving profitability through intensifying and repositioning many of our strategically located properties, almost all of which we know very well because we developed them in the first place. We didn't buy these properties finished as managers or asset managers for that matter or with that mentality. We are a culture of change and we are always focused on change and we have the in house capabilities of executing on that change. These great shopping centers with a strong tenant base and cash flows, outstanding access to Aneer Highways and Transit. And most importantly, I have a phone call here, and most importantly, in the midst of growing populations, particularly now, providing a solid foundation to the development of higher and better residential and other uses.
Some investors analysts are just beginning to acknowledge this and seeing the planning locations and physical development that is now underway in so many of our centers driving significant value, which is also growing and is also here to stay. This prolonged and challenging time has been difficult, But we've learned a lot. We've learned about the strengths of our portfolio. We've learned about the strengths of our people and it has been particularly and peculiarly Productive as well. Over the course of the last year, we have we went on the offensive, accelerating the processes of obtaining rezonings and site plan approvals.
It is through these approvals, land use changes that we are able to drive value in our properties and our NAV. The lasting relationships we have forged over the last 30 years with Canadian municipalities through the development, the initial development of our properties as well as government's general openness now to moving our intensification, it's just beginning to pay off. On Pages 21 to 23 of our MD and A, there's a growing list of examples of the active residential and other development applications made Ann Rezonings achieved recently by our in house development teams. When you look at this list closely, you will notice a significant amount of rosadventure along with a variety of other new and exciting initiatives creating significant value not recognized in our IFRS balance sheet values to date. The list on these three pages encompasses in excess of 42,000,000 square feet of net additional density, mostly built on undeveloped land within our centers and very limited amount replacing existing retail.
It makes for a dynamic, vibrant and welcoming mixed use center. Here are some of the highlights. Our rezoning application was made ingest this quarter for several projects, including Pickering, Eglinton East, Westside on Eglinton at Caledonia, Richmond Hill, Aurora, Whitby and London. That's this quarter. Many of the future phases of the VMC, our lands in Laval Centre in Quebec and our master plan for many of our projects are not included by the way Inez, 42,000,000 square feet we talked about.
The several seniors residences we are working on with our partner Rivera are also now reflected in our NAV. Recently, we obtained zoning approval for 4 residential towers Ed Barry's Waterfront for 25 storeys each. In Mirabel, Quebec, north of Montreal, we obtained residential zoning last quarter to add 4,000 residential units on our 50 acre site adjacent to our outlet center. And there's residential all around us. This is a site where we recently doubled down and bought the interest from our partner raising our interest from 33% to 66% after acquiring Simon's interest in the property.
The first phase will be developed and will be about 170 Apartment Units sometime in the next 10 months or so from now. This quarter, we closed with Canadian Tire on an 80 Acre Parcel along Yonge Street, Ami Di Lin Jason to our Aurora Retail Center at Murray Drive. Supported by the municipality, we intend to undertake a midrise residential development. And finally, we obtained board approval this quarter to move forward with a 26 storey residential tower in our Stoney Creek project, just across from Eastgate Anne the acquisition of a site along Jane Street in Toronto to build a 137,000 Square Foot New Smart Stop Ed, 126,000 square foot smart spot will now be built on our Hamilton Center site. Now let's talk a little bit about 57 new development initiatives already under construction or about to commence construction as summarized on Page 19 of the MD and A.
Over the last several years, we have pointed out what we say we have pointed out to the community, the investment community that it is part of our culture to deliver on what we say we will deliver. This was true of the first two towers at SmartVMC, where we delivered what is what we promised, which is 100 percent occupied office tower with strong tenants in a downtown Toronto quality office tower, and we delivered it under budget. The first office tower to be completed in the emerging Vaughan Metropolitan Sud, won the award of excellence Aswan's Urban Design Award and Aswan's Urban Design Award. Now for some specific project highlights. Transit City 3 is nearing completion with a scheduled closing in over the next the 2 quarters contributing approximately $20,000,000 in FFO to go along with the $45,000,000 generate $45,000,000 generated from last year for TC, we went into, as Peter mentioned earlier.
What we have not yet what we have not mentioned to date about those 2 events is that, that is based on our 25 percentage. Going forward, other than Transit City 45, the REIT will most likely on a significantly higher percentage of its condo developments and other developments at the BMC. Speaking of which, Transit City 45, 1026 units are sold out, are all under construction, 20% deposits are in place from the purchasers And we are nicely set up for more of this recurring flow of condominium cash flow from projects. Smart BMC put this built residential rental. 451 units under construction continues to progress well out of the ground.
Go have a look. Better yet, rents an apartment. It's the only new rental apartment in Valens. And by the way, we own 50% of that. SmartVMC, the new 140,000 Square Foot Walmart store, which opened late last year on Applewood, allowed the closing of the existing store on the SmartBMC site and freed up valuable land for residential density.
We now held our public hearing and presented our residential proposal to the design review committee for that property. More importantly, we are now in for site plan approval for the first phase of this 4,000,000 Square Foot Intensification Block to develop 6 27 residential units in 4 towers at varying heights, which we expect turning to market potentially later this year. Self storage, in addition to the acquired DuPont project and the 3 recently constructed properties, there are 2 others under construction, Oshawa South and Scarborough East and 6 others in the process of obtaining municipal approvals totaling nearly 1,000,000 square feet of new development. With regard to our seniors' residence, let me again remind you that we are not in the government funded long term care Facilities Business. Instead, with our 2 partners, we are developing seniors apartments with tailored amenities, 6 with Rivera and 2 with Croupe Cilacao.
And lastly, we are about to commence 100 and a 74 Unit rental building along with a 228 Unit Retirement Residence at our Laurentian Place in Ottawa. Keep in mind a few general reminders about our mixed use development pipeline and capabilities. Most of the development initiatives we are planning our on land we already own and have owned for many years, unlocking value supplemented by select acquisitions adjacent to our properties such as our recent acquisition in Aurora for residential development and Jane Street in Toronto the SmartStop with our partner. We use our fully integrated in house development team to drive these initiatives. We know our markets, the municipalities and every detail about our properties.
We have developed in adverse conditions before and will continue to drive value for the long term. As an important reminder, our current IFRS value does not reflect our as of right residential densities or our potential densities on rezoning depletion. After hearing all of this and reading the development initiatives in our MD and A, you can see that the pandemic did not slow our engines. To the contrary, we accelerated our transition to a more diversified REIT by moving approval forward, which was stated earlier is where the significant value is created. And while our unit price has been recovering a bit of late, it is clear that our current price It's still not reflecting the value of the significant development potential.
Take our large 73 Acre property in Cambridge, Ontario, for example, which is included in our IFRS value book at $92,000,000 Ed is now with the recently issued ministers order. We are able to we are currently approved and zone for 12,000,000 square feet of mixed use. If you were to input even $30 per square foot. You would conservatively be in the $300,000,000 to $400,000,000 range of value On that property with that zoning, it is currently on our books for 92,000,000 As prudent managers, not only our projects, but also of our balance sheet, it's especially important to note that we will only move forward with capital intensive construction issues as market conditions warrant, sufficient presales occur in the case of condos and only when financing is fully available and in place. Additionally, let me point out some of our capital recycling initiatives.
We have undertaken nearly $100,000,000 in strategic conditional deals so far In 2021, at average low 5 cats, the assets are non core and the proceeds will help fund future development of our mixed use initiatives. Now I will turn it over to Rudy Kopin.
Thanks, Mitch. As Peter mentioned earlier, the pandemic continued To affect our operating results through the Q1 of this year, albeit to a lesser extent than last year, our operating shopping center portfolio remained at a strong 97.3 percent leased as of March 31 and remains focused on essential services and value oriented retail. It is well suited for these turbulent conditions as evidenced by the following: 1, So 60% of our reach tenant base is comprised of essential services. What may be less known is that this increases to 70% for the market outside the Greater Vecton area, where our occupancy is very close to 100%, if not 100%. In these smaller markets, our shopping centers are often the essential service hub of the area and all and are in all cases anchored by a Walmart Supercenter.
With the pandemic and the lockdowns, early indicators are that the demand for housing and therefore shopping in these somewhat smaller markets is increasing as people consider leaving the urban areas for the suburbs. This is good for our shopping centers and further enhances the opportunity to intensify on our existing lands in those markets. Number 2, our tenants are quickly adapting by expanding their e commerce, product lines, delivery models, pickup capabilities, space utilization, all while striving to maintain customer loyalty and sales. 3, Walmart, which anchors 75% of our properties and represents over 25% of our rental income, Along with our family of value oriented tenants are well suited to serving its community even during this pandemic. As we highlighted previously, Walmart plans to spend $3,500,000,000 over the next 5 years to make the online and in store shopping center experience simpler, faster and more convenient.
This continued commitment to its retail operations in Canada speaks to this ongoing strength of Walmart and its growing ability to drive traffic to our centers. We are fortunate to have opened last quarter in Vaughan a new Walmart prototype store as part of the SmartVMC store relocation and the first of its kind in Canada, which includes a 10,000 square foot e commerce omnichannel fulfillment center And a drive thru pickup facility. It will fulfill as many as 8 times the online orders 4, virtually all of our revenues from shopping centers are from open format outdoor centers, providing a safe and comfortable environment for customers to practice physical distancing while shopping for their everyday needs. Clive for Q1, we completed nearly 157,000 square feet of new leasing even in these challenging times, Which helped in maintaining our 97.3 percent leadership position carry forward from the last quarter. And 6th, that being said, To date, we have renewal experience for Q1, though relatively flat at 0.2% with 2,700,000 square feet renewing, Was not unexpected given the current environment, but beginning to improve as existing and new retailers begin to see opportunities to expand their offering in different markets as populations begin to shift.
We recognize the importance of small independent retailers to the Canadian economy. Our rent relief program and focus to date has been on supporting these non essential small tenants, representing approximately 6% of our contracted rents. As you know, in 2020, the federal and provincial governments Put in place the Canada Emergency Commercial Rental Assistance Program, otherwise known as SECRA, to assist tenants, And we participated providing relief to over 700 of our small and independent tenants. While the federal program ended in September, it was replaced by the Canada Emergency Rent Subsidy Program, which is assisting tenants directly, those who are qualified. Many tenants are still suffering and with the continued shutdown and we are assisting where we can and prioritizing those most in need.
Last year, there were announcements of several tenant restructurings during the COVID period, either through CCAA or bankruptcy filings. Major names, as you know, such as Moores, Comark, Sale, Reibmans and Aldo. Collectively And perhaps fortunately, less than a third of the stores of these tenants actually closed in our portfolio, approximating about 415,000 Square Feet or 1.6 percent of gross revenues. The remaining 2 thirds or 128 of the stores with these same tenants have continued to operate. For the most part, these tenants I've expressed your strong interest in remaining in our Walmart anchored centers.
Now with the 415,000, 145,000 Square Feet with 2 sale units at Otobacole near Sherway Gardens and in Vaughan at our 407 redevelopment sites. We have now conducted site visits with interested retailers for both locations and have received an LOI for 1, which we are evaluating. Ultimately, the higher value use is to convert to residential or other mixed use over time as we obtain appropriate municipal permissions. But we will continue to maximize cash flow in the interim with strong tenants wanting a presence in the market. With the remaining 270,000 square feet of vacancy from the balance of the COVID related bankruptcies, we will continue our routine work of filling up all of those with the best fit tenants for each center.
In addition, due to the growing resiliency of our remaining small tenants, There have been no further filings in 2021 affecting our portfolio. As shown in our MD and A, cash recoveries from our tenants continue to improve. For the Q1, we recovered a full 94% of tenants' rents, an improvement over the prior quarter and showing signs of continuing to improve. And to avoid any confusion, these gross billings views in these calculations are based on rent rules excluding that close during and through CCAA. Regardless, our same property metric did reflect a negative 3.7% over the prior period, largely due to the lower renewal rates quarterly and a slight higher vacancy, albeit we maintain our 97.3% Thanks very much, Rudy, and good afternoon, everyone.
We have encouraged the Capital Markets to focus on our commitment to the SmartCenters balance sheet, our yielding focus on conservative capital management, our discipline in the deployment of capital on developments and acquisitions and our continued desire to match gearing and similar debt levels to the long term nature of our assets. The strategic focus on long term viability and growth continue to allow us to manage through this period of uncertainty. In this regard, we note the following highlights for the Q1 of 2021 as compared to the comparable quarter in 2020.
Number 1,
In keeping with our strategy to repay maturing mortgages and to grow our unencumbered pool of assets, unsecured debt in relation to total debt increased to 69% from 66% And our unencumbered pool of assets continued to grow, increasing by approximately $263,000,000 to $5,900,000,000 And as we maintain our strategy to continue to repay maturing mortgages, we expect these metrics to further improve in the future. Secondly, our BBB high credit rating from DBRS Morningstar permits us to continue to attract debt capital atlowinterestratesforlongertemsandinkeepingwithourstrategytotakeadvantageoflowerinterestrateenvironments pursuant to our refinancing activity over the last 12 months, our weighted average interest rate for all debt continued the decrease and as at March 31, 2021, was 3.26% as compared to 3.41 percent for the prior year. This 15 basis point reduction And our weighted average term of debt was 5.1 years as compared to 4.8 years last year. And lastly, number 3. Our interest coverage ratio, net of capitalized interest, was a very strong 3.6x multiple.
This, in spite of the impact that COVID-nineteen has had on our operating results over the last 12 months, and it further confirms the foundational strength of our core business. In addition, our adjusted debt to adjusted EBITDA multiple to fund its obligations even during these most uncertain times. From a liquidity perspective, as we look to the immediate future and continue to manage through the current uncertain capital markets environment, In addition to the conservative debt levels noted earlier, please also consider that at the end of the quarter, our liquidity position exceeded $1,100,000,000 which is represented by approximately $400,000,000 in cash, our undrawn line of credit, which stands at $490,000,000 and our $250,000,000 available accordion feature. Note please that $323,000,000 of this cash is earmarked to repay our Series T debentures that mature in June of 2021. And the balance is expected to be used to fund costs associated with our development pipeline.
Note also that we continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place to ensure project completion of our various development initiatives, And we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments, all of which are expected to begin construction this year. And these include a large retirement home project in Ottawa, several apartment building projects in Ontario and Quebec and lastly, a large townhome project In Vaughan, Ontario. Our liquidity position was further strengthened in 2020 with total proceeds in excess $53,000,000 being received from the closing of over 1100 units in the first two phases of our Transit City project. Similarly, in 2021, we expect to receive approximately $25,000,000 in total proceeds from the closings of the 631 presold units in the 3rd Transit City phase. The cash flow generated from these closings, further fortifies our liquidity position and supports our distribution strategy.
As Mitch mentioned earlier, what is important to remember is that the contribution levels experienced in 2020 And those expected in 2021 represent only a 25% interest in these respective Transit City phases. As we plan for the imminent launch of our next phases of residential development at SmartVMC and elsewhere, It is our expectation that SmartCenters ownership share in these projects will be substantially higher. Please also remember that we expect this recurrence of FFO and cash flow from the closings of condominiumtownhome developments the continued for many years to come. Notwithstanding the challenges associated with COVID-nineteen. As we have seen since the Q3 of 2020, our collection levels continue to show improvement.
Also during the Q1, our provisions for bad debts were significantly reduced from our experience in 2020. In this regard, our expected credit loss provisions in the Q1 totaled $2,300,000 as compared to approximately $30,000,000 in ECL provisions that were taken for the 9 months ended December 31, 2020. From a valuation perspective, the stability that we experienced in both the 3rd and 4th quarters of 2020 continued into the Q1 with cap rates, discount rates and other modeling variables remaining substantively status quo and resulting values remaining relatively stable for our portfolio of investment properties. After the valuation erosion that was experienced during the 1st and second quarters of 2020, which was primarily reflective of additional vacant space And the additional time expected to backfill such space in the portfolio, much of which resulted from the COVID experience, This first quarter's experience is directionally important because it further confirms That the market continues to stabilize, which should further improve our credit metrics into the future. As we have said many times in the past, it is important to remember that we have not factored into our IFRS values any value that accrues from future development of mixed use space.
And as Mitch had pointed out earlier, these future value increments that are expected to be derived from our proposed mixed use initiatives are expected to have a meaningful impact
Thanks, Peter. So as you can tell, our organization remains focused our mixed use intensification, while taking care of our tenants and properties. With $45,000,000 a profit last year from TCI and 2. We are now expecting a further $20,000,000 this year from TCI in Vaughan. We have an improving rent collection picture and payout ratio, and we are delivering on the 57 construction projects underway with more to follow.
We are maintaining and improving a leading occupancy level Of 97.3 percent throughout the year and prudent and strategic acquisitions and with established partners as well as targeted capital recycling and a strong focus on cash flow management and our balance sheet further enhancing our ability to fund all future capital requirements. And with that,
of course. And we do have a you questions queued up. First question comes from Sam Damiani from TD Securities. Please go ahead. Thanks.
Just a quick one for me and then I'll turn it back. Some of the NOI a decline in the quarter was due to a decline in GLA as properties are transferred into HUD. Could you just tell us for the rest of 2021, if you expect further GLA at any consequence to be transferred into PUD?
Yes, I don't know, Rudy or Peter. Yes.
The decline on the same property, Sam, it's a result of much more than that. It was a result of lower occupancy, general occupancy because there were bankruptcies that I mentioned earlier. It's a result of the lower rents from some of the remaining tenants who are renewing, and you saw the renewal rate being fairly flat Given the condition of the markets with some tenants who are again the non essential tenants and then very, very small portion of that would have been redevelopment. For the balance of the year, we don't see much in terms of that because again, we have no sight of any bankruptcies or filings. And as such, I think you may see the opposite.
You may see some stuff come out of redevelopment once we have identified the use the alternate use for such space. So not much expected for the balance of the year.
All right, does that answer the question, Sam? Yes. So I'll turn it back
to others to ask questions.
Perfect. Next question comes from Michael Markidis from Desjardins Capital Markets. Please go ahead.
Thank you, everybody.
A couple of questions on my end. I guess the first one, I'm not sure if I heard you correctly, Mitch, Did you mention that you had $100,000,000 in additional deals in terms of strategic sales that we're Benjamin Nishu.
Yes.
Okay. Could you perhaps give us a little bit more color just on the properties, what market
Well, Joe, first of all, I guess, I should, I mean, mention that this is something we may have more of, probably a fairly regular occurrence in the next number of years, not just a couple of non strategic core assets, but maybe in some cases, even some land. But those are looking at, I think, low 5s that I believe where we are with Click to the Cap, Capri. Yes. I I mean, these are the things that are, I believe, just we're just giving you some visibility on this, but Gail, they're sort of they're under contract right now.
Okay. And it sounds like it's not a wholesale Bigger or larger program, it's just this is something that perhaps maybe there's more
of a recurring?
Yes. There's a couple of assets that are not our We just don't see the they're just not strategic for where we're going and they don't have the potential for we don't see the potential for intensification or repositioning or redevelopment. So there's a few other situations where at the right cap rate, we will so and we're not yes, we're not just sort of blanketing the market with a whole bunch of things. We're just selectively, we're fine with centers holding them and managing them. But ideally, over the next few years, Mehul, who will dispose of the non strategic ones.
Okay, great. Good to hear. Second, I think You guys have emphasized the point that with the current, I guess, the future phases of Transit City condominiums that haven't started just Yes, we will have a greater than 25%. Should we interpret that to mean that it would just be, the 2 partners Going ahead, you wouldn't have a condo developer involved or would you just read that the condo developer would be involved in at a lesser stake?
I mean, we've built you kind of remember for these 3 55 storey towers to basically be well, they are done. 2 of them are completely closed, one of them started closing yesterday. We made the deal with Centricor, what, 5 years ago. So in the 5 years since then, by the way, they've been fantastic partners, could not ask for better partners. Budd, during that 5 years, we've built our own residential program.
Keeping in mind, this whole these initiatives go back 6, 7 years ago. It's not COVID, but everything just gets blurred together. So in that time, we have built a residential department. We are now in a position to develop our own in house condos and residential rental. So we're doing that We're going to do that.
So when we did the deal with Synacor, we did really bought in at a at the end market price. And now we've enjoyed the benefits of our share of the profit, but at 25%, it was still significant. But just imagine that back then we were selling Transit City 1 and 2 at like 700 and something a foot, maybe 705, 710 a foot, Transit City. So maybe we average 1, 2 and 3 probably about $0.07 a foot. The market today across the road, I believe their last sales were over $1,000 We will not have to acquire the next phase, the next phase.
So you can just imagine Mason, I'd like to know that we'll be building most likely without an outside partner. Peter will not just be at 50 percent ownership for the REIT, but also deal at higher per square foot Silkeres.
Okay, great. Thank you. And last one before I turn it back, maybe this one's for either Sweeny. In your MD and A, you've got committed and uncommitted retail developments. And I think if I add the total invested costs, again for committed and uncommitted, it would be about $200,000,000
carrying value of your property under development
and this would just be on balance sheet of the Just curious if you could reconcile the $400,000,000 differential.
Mike, thanks for the question. Unfortunately, I just don't have the information in
Mike, I wanted to also clarify something the important tangible to your question. One is, we intend on proceeding with another VMC Residential Phase there this year, I mean, it's going to market. So and maybe 2 additional phases. In each phase, we'll have at least 1, if not 6 hours each. And second, I just want to point out, of course, we always will evaluate the pros and cons of bringing in the partners.
So if it were some, if it had merit, we might still do that. But at the moment, that's not what it's it's not how it's looking.
All right. Next question comes from Jenny Ma from BMO Capital Markets. Please go ahead.
Thank you and good afternoon. I wanted to ask about the the leasing spread. And I apologize if you addressed this to Sam's question, I got cut off. I'm not sure if you did. But it looks like For Q1, it's gone flat and was actually marginally negative when you exclude the anchors.
Can you give us some more color on what's driving that? Is there some sort of slight changes in the lease structure or pushing out some rent steps in later years? Because It looks like it's on pretty good volume. Anything would be helpful and any guidance on sort of how to think about that number going forward?
I guess, Rudy.
Sure. Yes. Yes. Hi, Jenny. The spread that's happened in Q1 It's really a result of the, I'm going to say, 10 to 12 CCAA bankruptcy filings prior year where in those properties in those tenancies where they Closed.
They closed the 1 quarter, but the other or the 1 third and the other 2 thirds or 3 quarters that remained open. We reduced the rents a little bit because they wanted desperately to stay in our Walmart anchored center. So when you combine any maturities that are happening in this quarter in this COVID environment and because it got prolonged, you combine the two effects of a renewing tenant. We had a small number of the fashion tenants. None of these, by the way, were the essential tenants causing this, The fashion tenants, apparel type tenants, just struggling through it and asking for rents that in the short term, we lowered.
So I don't think this is an ongoing thing. This is something that you've seen now and because 2020 What negotiated, by the way sorry, 2021 was negotiated, by the way, mostly in the latter parts of 2020 because everybody would give Their notice then and then we renegotiate. That's the result of the pandemic and the bankruptcies and maintaining the tenancies that are there in a shorter term rental structure to get them back to full rents After that year. So I think you'll see a good recovery of that, but that's the cause of it. It's a small number of tenants.
Out of the 3 almost 3 I think it's 2,700,000 square feet we renewed so far this year.
Yes. Okay. So is it fair to say that if you ex out those tenants that the rate you've been getting on renewal would be consistent with that sort of low to mid single digit you've been Tracking prior to the pandemic?
Correct. Correct. And we've done that. We didn't disclose it that way, but that's correct. Because again, there were enough of them that we didn't want to say step 4, lead, but that assumption is accurate.
Okay. And then the little growth that you got, I guess, from the anchors, Would that primarily be more grocery oriented anchors in the portfolio?
Yes. It's the grocery, it's the bigger guys as well, Canadian Tire, Loews. Anyone, as you know, in our anchor list, Which is over 30,000 square feet is considered an anchor. So it's all of those, yes.
Okay. So is it fair to say sort of non Walmart anchors?
Correct.
Okay, great. And could you just remind us, just given the discussions about construction costs going up across the board, In your developments that are currently underway, could you comment on how much of those costs have been fixed already?
Well, everything that's under construction in BMC is locked in, Which is great. Actually, we didn't even experience increases. We got in just early on TC4 45, which was great. Yes. And but any construction anything that we haven't commenced construction on in the GTA has not been locked in.
The projects, for example, that are under construction in Quebec are locked in. So Fair to say anything that's under construction right now is locked in. But I will say that construction prices in the GTA for sure our higher, there's no doubt about it.
Okay, great. That's helpful. And then this quarter, You guys have maintained your distribution and highlighted the strength of your balance sheet. I'm just wondering, when you're thinking sort of longer term about your development funding. Does it suggest that you're going to maybe push the leverage a little bit to fund that or sort of back up some of the positions you mentioned, which lienfer do you think is the one that you prefer to push?
Yes. We prefer to try to maintain our debt levels where they are. So the lots of other levers. We mentioned already the sale of non core assets. Obviously, we can bring in some partners, more passive partners into some of the developments, new profitable developments.
There's other levers, but the other lever we have is just do not actually commence the development. If it's going to move our debt levels into nearly to an area that we're not comfortable with, really the driver is Gabriela Willaudette.
Okay, great. And with regards to distribution, like Is that a lever that you would push? Or is that something that you're still evaluating at this point? Or are you pretty committed to maintaining at current levels?
Well, as you know, it's a monthly decision and so it's a Board decision. So obviously, we've intimated in the past that we're comfortable with our distribution based on everything that's going on right at the moment, but of course, things can change And we'll monitor that. So obviously, we'll leave that decision to the Board every month.
Okay, fair enough. And then my final question is with regards to the $2,300,000 of expected credit losses. Does that number represent a real decline sequentially, which is nice to see? And does it include any reversals of previous bad debts taken in 2020. Peter?
No, I think Jenny, it's fair to say that it principally reflects the business' performance in Q1 and expectations for collections of remaining amounts outstanding. I think as I mentioned, it's a demonstrable improvement over the experience of last year. And we have been trending this way. You'll see in Q2 of last Sure. I think we provided for about $15,000,000 $1,500,000 in Q3.
It was closer to 10 in Q4, it was closer to $5,000,000 And so at least directionally, the Q1 experience $2,300,000 sort of follows that trajectory that we've been following through for almost now the last 12 months.
Right. That's definitely nice to see. That's all for me. Thank you and I'll turn it back.
All right. Next question comes from Pammi Bir from RBC Capital Markets. Please go ahead.
Thanks and hi everyone. Maybe just sticking with the leasing spreads. I'm just curious, how long would those You mentioned short term rent reductions. How long would those be in effect for? And then secondly,
do any of
these leases perhaps Include rent
bumps on an
annual basis after the initial reduction?
Yes. I'll let Rudy answer that, but I would just want to point out many of our renegotiations around that also included things to clear the way for development as well. Keep that in mind, Rudy.
Yes. With regard, Penny, for the tenants that did come to us and ask that question during when they were maturing, There are 2 categories. The first category are the tenants who says we're struggling a little bit and we need some help. And when they renewed, we renewed them and that would be for a 1 year term generally. And then it would bump back up after the year.
Some of them were even shorter term, meaning even late last year when the game to the last part of the year. And because the pandemic carried on, we would extend that for a few more months. So Generally, it's that. Some tenants came to us and said a fewer said, we would like to renew, but can we renew for a shorter term? And we said we will need flexibility in that lease because, again, and these are the small think of the smaller tenants, the apparel type tenants.
So the combination of the 2, both would end up being short term and both gave the landlord the flexibility to either increase the rent or take control of the space after that initial year.
Got it. Okay. And just maybe coming back to the comments around Non strategic assets and disposition. In that $100,000,000 that you mentioned, Mitch, are those transactions In line with your IFRS values, I think you mentioned low five cap rates, just curious on that. And also, are any of those Walmart Acre Centers?
Thank you. You're really interested in that. I am yes, in one case, but you'll understand
better later
on that one I guess, Rudi, I think you're probably in and around IFRS.
They are actually you may have one slightly lower, but collectively, they are actually higher than our IFRS values that we currently carry in our books in terms of the value that we have contracted. That's interesting.
Yes.
Got it. Okay.
And then just lastly, coming back to the other comments, I guess about the successful rezoning that were completed in the quarter. I'm just curious and you also mentioned, sorry, the Cambridge property, what do you think even at a low density value per billable foot, what that could be worth? I'm just curious, can you remind us, First of all, we've already gained or a markup recorded on the successful rezonings in the quarter, which it doesn't appear to be the case, but And then secondly, what is your approach to marking up the assets once successful zoning is achieved?
No, I don't we have not marked up our properties on rezonings yet, Including, I don't think even BMC reflects full OP Secondary Plan and Zoning Permissions, that they can land there, which is today, it's truly valuable. I mean, it might be worth, who knows what $100 a foot probably if there's I'm just going off the top of my head if it's if there's, I don't know, 6000000, 7000000 square feet still yet to be built at the on the REITs side there and Now you'd have to back out the existing IFRS value there, but just to unlock it because we don't have that. I'm not sure if you could even I don't know. We could probably say there's virtually no value Right at the moment, but we are looking at that. We have discussed it and we are contemplating at what point it is appropriate for us to adjust our values.
We want to make sure we continue to be conservative. Yes, we're taking a long term approach to that, but we are discussing that internally. Okay.
And then just to be clear, when you do, let's say, When you are involved in a transaction where you say sell an interest to a coal on a specific asset, would you then mark up your share you retain? Yes, of course.
Okay. Got
it. Thanks so much. Pammi, it's Peter Sweeney. Just for clarity. We would only mark up to the extent that it represents that portion of a property.
So for VMC, for example, if it was a single phase With a partner, we would only mark up for that pro rata share of the entire VMC. It wouldn't be for the entire VMC space, so to speak.
Brent. In that case, you've got maybe 3 or 4 or 5 acres that's been used for the 5 towers, 4 of which are 6 towers, 5 of which are in partnership. And there's 50 acres plus or minus there. So yes, each one of those individual towers have been adjusted, but the vacant land all around it has not been.
Thanks very much. I'll turn it back.
All right, and before we go to the last question in the queue, we currently have in the queue. 01 now. And the last question we currently have in the queue comes from Tal Woolley from National Bank Financial. Please go ahead.
Hi, good afternoon everybody.
Hi, Al. Good afternoon.
Just wanted to start with the collection rates. When do you see those getting back to normal?
Well, first of all,
I mean, obviously, a lot of it's sort of having more or less common sense. I mean, We normally would have collected 99% plus. We collected 94%, so we're talking about 5% here overall. So But I mean, the indications are things are normalizing in that regard And so and getting stronger, steadily stronger. So I guess it'll be somewhat probably back to normal when we are all more or less open, keeping in mind that so much of our stuff is essential and so it's really the 5%, 6% of our portfolio, which are smaller retailers that are partially affecting that.
So Rudin, did you want to maybe also add something to that?
Yes. I would say if you look back at the year as Pre COVID, what Mitch said is exactly right. We're between 99% 99.7% On $800,000,000 of revenue in those prior years, we may have had $1,000,000 to $2,000,000 Tal of Badgett and that was it. So as soon as this, meth borian is over, I expect that we will return to that Because the tenants that don't make it through won't and the tenants who have adapted through this environment would have come out stronger as you've seen some of the retailers who are releasing results are doing very well, and some still struggle because of the closures. So I expect to go back to the norm of the pre COVID period.
And have you started to have thoughts about how like Let's say we get past, I can't remember the exact month when SIRS starts winding down, like if these rates Don't improve. What are sort of how are you thinking about how you'll deal with that issue?
Can you say that again?
I'm just saying like once we sort of get past, say like when A little bit or maybe but they don't quite go back to where they were. When do you start thinking about Like in terms of what to do with some of these tenants who have been lagging, let's say, on Paymap?
I mean, each one really is an individual, but it's an individual by individual case. If you saw the range of tenants like that would be included in what you said. I mean, each one is going to have its own tailor made Mio's kind of solution. And you remember, we're also developing. So in some cases, we want to move things tenants around.
So there will be a lot of things going into that decision, but I don't know, Rudy, do you want to add anything to that?
Yes. I was going to say, the other thing too that's happening simultaneously, there will be a I want to call it a trail off of a very small proportion of that because everybody is adapting now. But There are a large number of tenants that are calling us up asking for space, which is why the occupancy has stayed so high. So when we look at the categories, the medical categories, the pet store categories, the dollar stores, the drug stores are calling us up, the clinics, the LCBOs and so on, Winners, HomeSense expansions. There are a lot of tenants that are still expanding their footprint into our centers.
And that's why we were able to do upward of, whatever, almost 200,000 square feet of releasing of space in Q just on our Q1. So there will be a churn like there is always every quarter. And unfortunately, tenants will adapt And they will get help from governments and us, and some will struggle through it. So We will just keep introducing new tenants to the portfolio and keep our flexibility in our leases.
Okay. Capital spending for this year. Peter, do you have like an approximate amount for maintenance, development, that you could offer for
us to think?
I mean, on the CapEx spending for maintenance, I don't want to sound glib, but it's not a substantive number From the REIT's perspective, Tal, when we think about development spending, again, as Mitch said, this number It's variable and really is a function of when we want to or not start projects. But at least for now, the expectation is for 2021 to spend in the area of about $200,000,000
And that's on the balance sheet and in the JVs?
Yes, yes, yes. Sorry, when
I say spend, what I really mean is commit to spending as our share of projects. Okay,
Got it.
And then just
on the development side, I'm just wondering like where you announced Transit City Fix, the launch of that last night, that's going to be another condo building. How are you feeling about condos versus purposeful rental right now?
Again, that depends on where, I mean, but good. I mean, there's lots and lots of places the answer would be good. And there Yes, there's some places would be on the condo, not so interesting. But it's interesting, usually in most of the places where the condo is not particularly necessarily interesting, it is interesting from a rental res point of view. And generally speaking wherever the condo is viable, so is the multi res.
But yes, I mean, even in places 10 years ago, you wouldn't have thought condo was viable. There's interest. A lot of our centers are in these communities just outside the core They were now becoming very desirable. They were already desirable, just the Toronto world doesn't necessarily brush up against the Cambridges of the world, but we have very strong positions in those places. And we've noticed a strong increase in demand for our residential there, before we even started and that's from the residential development community.
And you can also see some of the other launches in these communities as well that you can see some of the strength in some of these markets. Some of these places we'd say there wasn't much of a condo, an interesting condo opportunity are now looking like various.
Okay. And I guess my last question.
I think like when I thought about how development would unfold at Smart It was going to be really focused on intensifying the existing properties. And certainly, there is a lot of that going on. There also has been, however, like some projects that you guys have taken on that have been outside. Like I'm thinking about the Berry project with Greenland. You've got another one in downtown Toronto, I believe, with them.
How like can you talk to me a little bit about like why choose why commit to those kind of projects versus the stuff where you're sort of staying closer to home on, as you said earlier, the land you developed and the land you know the best.
Yes. Well, it's not so much just that we know the land the best. It's just we don't want to pay market price to our growth is not going to be kind of give it and take it away. I mean, it's just an exercise and just exercising. So that's along with we do know our properties intimately, but we know those markets intimately.
I mean, we've been in Barrie, for example, first of all, I grew up in the summers in Barrie on Kempenfeld Bay. And secondly, the first Walmart that I ever opened was in Barrie. And then we went on to do numerous other developments in Barrie. I mean, we know that market intimately. So the location, the property in downtown, in the lakes, on the waterfront in Barrie, we know that.
We were also looking at a senior somewhere around there. So that's an easy natural kind of sort of extension of what we're doing there. And that's probably true with most markets across the country that are over, say, 5 or 10000 people, it's a very it's valid question, why would we buy in that market? That's really to me the issue and we won't be doing a lot of it, just won't be, but those were really fantastic opportunities. 1, Barry, the price was right and the property was right, and we believe Barry is going to be very interesting.
So keep an eye on it. Widening the highway, the growth is increasing. It's all the things that are happening with COVID. There's a lake. It's going to be an interesting market in the next 10 years, 10 years and beyond.
And then, Belroyal, that's the other one we bought in the market. And it It was an opportunity that Greenwood had unique to them to buy it from partners that go back 50 years. They had a right after so many I can't remember how many decades. The call list and said, do we want it? Otherwise, it would have gone to the market and sure it would have who knows what it would have gone for, but we thought it was unique opportunity.
So those sort of stories behind those 2, but there's a million things of course that we say no to. So we are very, very much It's what we are very much sticking to our knitting like you were saying. Okay.
Thanks very much gentlemen. Have a good evening.
Thanks, Tal.
You too.
All right, and that was the last question we had in the queue.
Okay. So I'll just close and Again, thank you all for taking the time to participate in our Q1 2020.
Ladies and gentlemen, this concludes the SmartCenters ARIT Q1 2021 conference call. Thank you for your participation and have a nice day.