Good day, ladies and gentlemen. Welcome to the SmartCenters REIT Q4 2020 Conference Call. I would like to introduce Peter Fort. Please go ahead.
Good afternoon. I'm Peter Fort, President and CEO. Joining me on the call today are Mitch Goldhauer, Executive Chairman Peter Sweeney, Chief Financial Officer Rudy Gobin, EVP, Portfolio Management and Investments. The call will begin with comments by Mitch, Rudi and myself, followed by Peter Sweeney, who will talk about our results for the quarter year end, including IFRS valuations, Our comments will mostly refer to the outlook and mixed use development initiative sections of our MD and A, which are posted on our website. I refer you specifically to the cautionary languages on Pages 34 of the MD and A Material, which also applies to comments any of the speakers make this afternoon.
Today, we will not only provide you with the highlights of the quarter, but update you on our major projects. Our focus remains on operating our existing shopping centers while simultaneously creating value through real estate development. This development process and the value it creates takes time, It's specific to each one of our significant number of development projects underway and is not conducive to a quarterly reporting cycle. 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 The reward of the SmartVMC condo closings in 4th quarters.
The last 9 months were unusual for all of us With the spread of the pandemic, the accompanying shutdown, restarts and second wave shutdowns across the country. This impacted every one of Personally and from a business perspective to varying degrees. The pandemic added some challenges for us In the short term, but we remain firmly focused on our long term strategy of growing our mixed use development. The pandemic challenges required our attention in assisting all of our tenants in various ways By keeping our shopping centers operating so as to effectively serve their communities. With more than 60% of our tenants considered essential And with food and pharmacy retailers in every center, everyone worked hard to maintain a safe operating environment for tenants And customers alike.
The second shutdown at the end of the quarter and into the New Year in varying degrees across the country made it an even greater priority for us. Our attention was and remains on assisting our retailers In addition, we 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, you will recall, we offered our properties for COVID testing and PPE Storage and had several institutions accept the offer. More recently, we have been in direct contact with government agencies To donate for free our space as inoculation centers to help accelerate the rollout of the vaccination process for Canadians. As mentioned before, Mitch's vision some 3 decades ago was 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 dedicated team and an operating company around it.
Our land development mindset and culture Makes us unique in operating a shopping center portfolio. Our core competency in land development makes It's very comfortable 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. These great shopping centers with a strong tenant base and covenant With their outstanding access on or near highways, transit and most importantly, in the midst of growing populations, Provide a solid foundation to the development of higher and better residential and other uses. Many investors and some analysts Are not yet acknowledging or giving us the proper credit for the planning, applications and physical development that is now underway in so many of our centers, driving significant value, which is here to stay. And with that, I'll pass it over to Mitch.
Thank you, Peter. During the course of the last year, We stayed on the offensive. We've been accelerating the processes of obtaining rezonings and site plan approvals. It is through these approved land use changes that we were able to drive value into our properties and our NAV. The lasting relationships we have forged over the last 30 years with many Canadian municipalities As well as government's general receptiveness to the moving to moving intensification forward On Page 18 to 20 of our MD and A, there's a growing list of examples of the very active residential and other development application And rezonings achieved that were submitted By our in house development teams during the COVID shutdown or have been well advanced by our team of professionals such that the applications will be submitted in the next few months.
When you look at the list closely, You will notice the significant amount of residential 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 additional density, Some built on undeveloped plans that we own, some on top of existing retail And a limited amount replacing existing weaker retail, making for a more dynamic, vibrant and welcoming mixed use center. And of course, that is not all. For example, many of the future phases of the VMC And our lands in Laval Centre in Quebec are not included in that number. The several seniors residences we are working on with our partner, Revero.
As a very recent example, we obtained zoning approval for 4 residential towers In Barrie on the Waterfront for 25 story plus stories each. In Allison, we received we recently obtained sorry, we recently obtained So any approval. To add residential hotel and self storage to our existing operating Walmart Dominant Center in Alliston. In Maribel, Quebec, north of Montreal, We obtained residential zoning this past Monday to add 4,000 residential units on our 50 acre site adjacent Our outlet center, a site where we recently doubled our ownership interest from 33% to 66% after acquiring Simon's interest The first phase will be the development of an apartment building with approximately 170 units. We expect to start construction of that in 2022.
An 8 acre parcel along Yonge Street next to our Aurora site where we intend to undertake residential, a 50% interest in a Marcom Main Street project with Rivera. Now let's talk about the new development initiatives already under construction. Over the last several years, we have pointed out To the investment community that it is part of our culture to deliver on what we say. This was true for the first two office towers at SmartVMC in Vaughan, where we delivered exactly what we said, 100% occupied with strong tenants Downtown Toronto Quality Towers and Under Budget, We have just delivered and opened 177 unit residential A rental tower in Laval, Quebec on our Laval Center site, along with 3 of our 10 smart Bob, Self Storage Developments, Dean Leaside, Brampton and Vaughan Northwest. And now our 3rd and 4th Quarter results include the closings of the condo units in the SmartVMC Transit City 1 and 2, The 55 storey towers.
Our share, 25% share Of the profit to date from these two towers is contributing $45,000,000 not counting the townhomes, which have not Yes, closed but are sold out. In the spring summer of this year, 2021, we will deliver the closing of 631 units of Transit City 3 generating approximately a $20,000,000 additional profit. For the 3 towers combined, we are not only meeting but expected to exceed our original plans for profit by more than $35,000,000 Other specific project highlights: 1, 2 additional towers, Transit City 45, 100 and sorry, 1026 units are sold out, are under construction. We have the 20% deposits in place from the purchasers. We are nicely set up for recurring flow accounting and cash flow on these projects.
SmartVMC's purpose built Residential rental building of 4 51 units is under construction along with Transit City 45. SmartDMC, the new 140,000 Square Foot Walmart store opened in October on schedule, allowing For the closing of the existing store on the SmartVMC site and freeing up extremely valuable land for residential For additional future residential land on which we have already made an application to the City of Oren. Self storage. In addition to the 3 open and operating properties, there are 2 others under construction, Oshawa and Scarborough and 6 others In the process of obtaining municipal approvals, totaling near 1,000,000 square feet of new development of self storage. Seniors residents, first, let me reiterate.
With all the troubling pandemic information that is in the news related to seniors, Almost all the tragic news relates to government funded long term care facilities, a business we are not in. Instead, with our partners, we are developing seniors apartments with Extra amenities and limited levels of residential care, all tailored to seniors. 6th with Hubera, 2 with Groupe Cielectro. All of these projects are in the municipal approval stage with construction scheduled to start shortly for the 2 towers in Ottawa. A few general reminders about our development pipeline and capabilities.
Most of the development initiatives we are planning are on lands we already own, Unlocking value, supplemented by select acquisitions adjacent to our properties and or with existing or new strategic partners. We use our in house development team to drive these initiatives. We know our markets, the municipalities and every detail about our properties. We have developed adverse conditions before, both as a private company and as a public REIT. As an important reminder, across our portfolio properties, none of the additional land value associated Our as of right residential densities or our potential densities on rezoning completion is reflected in our property IFRS values.
And when we present development project yields At an estimated marketable price and all internal fees, Capitalized costs are included in costs, reflecting a more conservative approach So the calculating of the development yields that we report. After
hearing
all of this and reading the development initiative Selected to that section of our MD and A. You can see the pandemic did not slow down our development drive. To the contrary, we accelerated our transition to a more diversified REIT by moving municipal approvals forward, Which as stated earlier is what significant value is created. It is clear that our current unit price It's not reflecting the value of this development potential. As prudent managers Of not only our projects, but also of our balance sheet, it is very important to note that we will only move forward With capital intensive construction initiatives as market conditions warrant, sufficient presales occur in the case of condos and only Lastly, let me clarify.
The disconnect We are seeing between the significant development initiatives underway and some already realized in 2020 with the $45,000,000 profit to date from TC 12. With our unit price, displays and a logical discount, which Ignores the significant value creation from our mixed use initiatives, predominantly on lands we already own and is not reflected in our IFRS values. Nevertheless, we will stay on course and on strategy as we continue to execute on what we say we will do. Now I will turn it over to Rudy Goetz.
Thank you, Mitch. The pandemic continued to affect the financial results through the 4th quarter, albeit to a far lesser extent than the previous two quarters. Our priority during this period of uncertainty was And continues to be protecting our employees, the communities we serve, our tenants and our business, While doing everything possible to mitigate the financial implications, to ensure liquidity and to continue strengthening our balance sheet. Our operating shopping center portfolio is 97.3 percent leased at December 31st and remains focused on essential services and value oriented retail, not fashion, recreational or entertainment retail. It is well suited for these turbulent conditions as evidenced by the following.
1, based on revenue, 60% of the REIT's tenant base is comprised of essential services, which continue to operate throughout the crisis, Supporting local communities, meeting the everyday needs of residents for groceries, pharmaceuticals, banking, household maintenance, General Merchandise and Other Essentials. And this 60% of our tenant base being essential services increases to 70% for the markets outside the Greater Becton area, where our occupancy rates are even higher. In these smaller markets, Our shopping centers are often the essential service hub of the area and in all cases anchored by a Walmart store. With the pandemic and the lockdowns, early indicators are that the demand for housing and therefore shopping in these less urban markets is increasing As people consider leaving the urban areas for the suburbs, this is good for our shopping centers and Further enhances the opportunities to intensify on our existing lands in those markets. 2, Walmart, which anchors 75% of our properties and represents over 25% of our rental income, along with our family of value oriented focused tenants are well suited to serving its community during this period of pandemic induced weaker economic conditions.
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 experience simpler, faster and more convenient. This continued commitment to its retail operations in Canada speaks to the ongoing strength of Walmart and its growing ability to drive traffic to our centers. We are fortunate to have opened in the Q4 in Vaughan a new Walmart prototype store as part of the SmartVNC store relocation and a 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 of an average Walmart store. 3, virtually all of our revenues from shopping centers are from open format outdoor centers, enabling customers to physical distancing while completing shopping for their everyday needs.
Shoppers are more comfortable and feeling safer in this unenclosed format. And 4, for Q4, our renewal experience, excluding anchors, was 6.9% Owing to the 7 Walmart stores renewing in that quarter for nearly 1,000,000 square feet. We recognize the importance of small independent retailers to the Canadian economy. Our rent relief focus to date has been on supporting These non essential small independent retailers, which represents approximately 6% of our contracted rent. As you know, in 2020, the federal and provincial governments put in place the Canada Emergency Commercial Rent Assistance Program, otherwise known as SECRA, designed to assist certain tenants such that effectively the tenant bears 25% of its rental cost, The landlord, 25 percent and the government, 50%.
The program originally applied to April, May June. After communicating with all of our smaller tenants, we applied for relief for all tenants that qualified, approximately 725. And thereafter, we extended such relief for the full 6 months. To us, this was an important step And the continuity of business for many of these smaller retailers. In Q4, the province of Quebec announced the details of a plan to top up the federal program for Quebec based tenants, yielding a further $450,000 recovery for us.
The federal program Through the landlords ended in September and was replaced by the Canada Emergency Rent Subsidy Program, which is assisting qualified tenants directly. In the meantime, some of our non essential medium and larger tenants have also asked for some rent relief or have just not met their rent obligations. While protecting our legal rights as a landlord, we had discussions with these tenants about rent deferrals in a few limited cases, Abatements. As the government shutdown non essential retailers for a second time, We have found ways to accommodate tenants with a real need when appropriate and justified, but also factoring in the reality of our own situation and of our unitholders. There have been announcements of several tenant restructurings during the COVID period, Either through CCAA or bankruptcy filings, major names such as Moores, Comark, Theo, Reedman and Aldo, collectively all such tenants initially indicated the intention to close 66 units in our portfolio, Approximately 415,000 square feet, which is less than 1 third of the total units we have with these same tenants and representing 1.65 percent of gross revenue.
The remaining 128 of the units with these same tenants We'll continue to operate. Generally speaking, these tenants have expressed a strong interest in remaining in our Walmart anchored centers. Now, 145,000 of the 415,000 square feet previously mentioned for closure with 2 sale units, Etobicoke, near Sherwood Gardens and Vaughan, our 407 redevelopment site on the west side of Highway 400. Discussions with several interested retailers for both locations have taken place, including with food, Medical and Sporting Goods users. Ultimately, such use will undoubtedly convert In the meantime, we will continue to maximize cash flow and value.
With the remaining 270,000 square feet of vacancy from the balance of As shown in our MD and A, cash recoveries from our tenants continues to improve. In our April update press release, we indicated cash recoveries For the month of April, it was 67%. As of now, we have collected nearly 84% of gross billings for the month of April. With cash received from tenants and including the secular recoveries, in fact, gross billings collected improved from that 84 for April to 96% by the end of Q3 and remaining in the 94% to 95% range in the 4th quarter. And to avoid any confusion, gross billings used in these calculations are based on rent rules excluding tenants that closed through CCAA or the bankruptcy process.
And now I will turn it over to Peter Sweeney. Thank you, Rudy, and good afternoon, everyone. As we know, these challenging times will test The balance sheet of many real estate companies. However, for many years now, we have encouraged the capital markets The focus on our commitment to the SmartCenters balance sheet, our unyielding focus on conservative capital management, Our discipline in the deployment of capital on acquisitions and developments and our continued desire to match gearing and similar debt levels The long term nature of our assets, the strategic focus on long term viability and growth have allowed us to manage through this period of uncertainty. In this regard, we note the following highlights for the year ended 2020 as compared to the prior year.
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 68% from 63% And our unencumbered pool of assets continue to grow, increasing by approximately $150,000,000 $5,800,000,000 as compared to the prior year, and we expect these metrics to continue to improve in the future. Number 2, our BBB high credit rating from DBRS continues to attract debt capital At historically low interest rates, the longer terms and in keeping with our strategy to take advantage of lower interest rate environment Pursuant to our refinancing activity during 2020, our weighted average interest rate for all debt Continued to decrease and at year end was 3.28% as compared to 3.55% for the prior year. And our weighted average term of debt was maintained at 5 years. And then lastly, number 3, our interest coverage ratio, Net of capitalized interest was maintained at a very strong 3.7 times level, this in spite of the COVID-nineteen related provisions that were necessary and our adjusted debt to adjusted EBITDA multiple ended the year at 8.5 times, Both metrics reflecting the business' strong and stable ability to fund its obligations even during these 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 metrics noted above, please also consider that at the end of the year, our liquidity position exceeded $1,500,000,000 which is represented by over $794,000,000 in cash on hand, Our undrawn line of credit, which stands at $490,000,000 and our $250,000,000 available accordion feature, A portion of these funds are earmarked to fund the following. Number 1, January of 2021, we used $300,000,000 of this cash We've clearly redeemed both Series M and Series Q debentures. Number 2, we intend to use $323,000,000 To repay our Series T debentures that mature in June of 2021. And then lastly, number 3, We expect to repay approximately $50,000,000 in maturing mortgages over the next 6 months. 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 that are expected to begin construction this year, including a large retirement home project in Ottawa, several apartment building projects In both Ontario and Quebec and also a large townhouse project in Vaughan. In 2020, our liquidity position was further strengthened with proceeds received from the closing of over 1100 units in the first two phases of our Transit City project. In aggregate, over the last 2 consecutive quarters, we have received over $53,000,000 in proceeds from the closing of these first two phases. Similarly, in 2021, we expect to recognize approximately 20 $5,000,000 in FFO from the closings of Transit City 3, and we expect this recurrence of FFO and cash flow from the closing Condominium and townhome developments to continue for many years to come. The cash flow generated from these closings Further fortifies our liquidity position and also supports our distribution strategy.
As Rudy has mentioned, we continue to experience Stantive improvements in our collection levels in the 4th quarter and our provisions for bad debts were significantly reduced from our experience in both the 2nd and third quarters. In this regard, in addition to the $25,200,000 of provisions that were taken in aggregate For the 2nd and third quarters, we provided for an additional $5,400,000 in COVID-nineteen related provisions in the Q4 of 2020. These 4th quarter provisions represent approximately 35% and 55% of those taken in Q2 and Q3 respectively and reflect the continued improvement in collection activity over the last 9 months. From a valuation perspective, the stability that we experienced in the Q3 continued into the Q4 with cap rates, discount rates And other modeling variables remaining status quo and resulting values remaining stable for our portfolio of income producing property. Our development property portfolio experienced an $18,000,000 IFRS loss in value during the 4th quarter That was principally driven by more conservative leasing assumptions being included in the valuation models for our retail development.
After the valuation erosion experienced during the 1st 2 quarters of 2020, which was primarily reflective of additional vacant space and the additional time now Expected to backfill such space in our portfolio, much of which resulted from the COVID-nineteen experience, the year's second half experience is directionally important Because it suggests that the market has now stabilized. And based on the discussions that we have had with the appraisal community, we are not expecting Any substantive further declines in property values for the Q1 of 2021. As we have said many times in the past, It is important to recognize that we have not factored into our IFRS values any value that accrues from future development of mixed use space And these future value increments that are derived from our proposed mixed use initiatives are substantial. And with that, I'll turn the call back to Peter Ford.
Thanks, Peter. So to sum it up, a very interesting quarter year. Over $45,000,000 of profit in the last two quarters from condo closings at Transit City 12 in Vaughan, A rapidly improving rent collection picture, an accelerated mixed use intensification and development program with 56 projects underway sorry, 57 and a solid occupancy level of 97.3%. Prudent and strategic acquisitions adjacent to existing properties and or with established or new partners and a strong focus on our balance sheet. And with that, we'll turn it back to the operator to coordinate us in addressing your question.
And currently, there are no one asking a question here. Okay. Yes, we do have The first person queuing up here. And yes, the first person is Sam Damiani from TD Securities, please go ahead.
Thank you. Good afternoon, everyone.
Good afternoon, Stan.
I wonder if you could just explain the total return swap That was announced in the press release. Yes. Well, as you know, we have a lot of liquidity and cash. So we have made an arrangement with a deal with a major institution, institutional bank. Whereby we would be achieving a better return, better yield On our cash, it's for a Period of time.
So yes, The arrangement is it's a deal whereby we will the result will be that we will achieve something The intention is to achieve something closer to the yield of our units. And instead of what we're getting as a cash deposit in the bank. So It's shifting. We just made the deal recently. So it's just early stages, but That's the reason for it.
And that's ultimately the effectively what will be expected to happen. Okay, that's helpful. Thank you. And does the REIT have the sort of unilateral right to sort of unwind it? Or How does it work?
How does it sort of come to its conclusion? Yes. I mean, we We'll give more detail on some of the mechanics of the deal. But suffice to say that Yes, we're satisfied with the deal. I mean, we're satisfied with the risk reward And all the various scenarios.
And so We'll go into there's lots of details. We'll go into those, share them with you as everyone in the next quarter. Okay. All right. That's helpful.
And just switching on to the development pipeline, which was expanded, Including obviously the REIT portion as well. So there's there was a lot on the books to do over the next few years or even more now. Is capital recycling becoming more of a factor in your mind in terms of funding this This activity over the next few years? Or how should we think about how that $3,000,000,000 is going to be funded? Yes.
I mean, firstly, you should keep in mind that we don't have to do any of it. So we didn't buy this market and there's not allowed Quite ticking. But we want to do it and we fully intend on doing it, but we don't have to do it. And so, yes, one of the in terms of the hierarchy of guiding principles of whether we Proceed or not, it will be our availability of whatever equity is required, capital Requirements and availability of financing And of course, our debt levels, which we're going to be very protective of. So but we do believe that through various Programs, which may include bringing in a partner here and there at market, which will be a source of equity, Obviously, deposits on condo sales, it may even include sale of a few properties.
There'll be various, of course, proceeds from closings of Condos from previous years. So these will be among others sources of capital Equity and there's the financing availability as well. So each and every as we closer and closer to be able to commence in any one of these places And the market is there and we're happy with the returns. These are sort of leaders that we can pull and will pull if We need to, to predict those higher tier priorities. Thank you.
And my last question Just on occupancy, maybe Rudy, how do you see the Q4? Does that meet or exceed your expectations down just very slightly? And what are you thinking about for the next Q1 and Q2 generally high level in terms of where occupancy could end up?
Yes. I think given what was going on in the world and our markets, We were pleased with the outcome. We did have a reduced Amount with the CCAA tenants, bankruptcy tenants that filed in Q2, expected Q3 and Q4 obviously, Not a lot of tenants were ready to jump back in and start leasing space in Q3, but by Q4, There was an uptick. There was an uptick of a number of tenants. I think we did almost 200,000 square feet of leasing in Q4 alone To the tenants who wanted to expand their footprint, which is very good.
People weren't looking at A re lockdown, now that the re lockdown has locked down and now has reopened or will reopen shortly, that did bode well for us. So You saw the returns in rents. So we had a high recovery rate in our rental structures. That was good too. So, I think the recovery is happening slowly and we're looking at this market and we're looking at the shutdowns and hopefully everything will continue They slowly improve and we don't go into any more of these, so that we will see A little bit of an improvement into 'twenty one.
I think the Q1, Pam, as you know, is always a quarter where people, smaller, struggling tenants, At the beginning of the year, they make it through the Christmas holiday shopping season and then There's always a little bit of fallout. In this case, there wasn't a big shopping season Over the holiday, so I expect a smaller fallout, but nevertheless a little bit of a fallout in Q1 and then an improvement Over the balance of the year. So that's how I would think it would play out. Again, Everything subject to the pandemic, reflecting the recovery that it's currently reflecting over the last week
or 2, which has been great. Thank you. Yes. And yes, Sam, yes, he left here. So yes, So we do have another question here.
The next question is from Brandon Abrams from Canaccord Genuity, please go ahead.
Hi, good afternoon, everyone. And there might be some issues with The operator and trying to
get into line, so just
to be aware of that. Maybe just on the distribution, some of your Peers have revised that in the last few months. And just given kind of the current environment and significant capital Commitments required for the development pipeline going forward. Have there been any discussions on The distributions and to what extent would things really have to change here to make an adjustment there?
We might have lost Mitch here. I don't see him in the conference anymore.
Peter, do you want to take that one?
Sure.
So I think it's fair to say and just to remind everyone, Decisions on distributions ultimately are Board level decisions. Clearly management has recommendations, but Ultimately, our Board will be responsible for making this decision. I think it's fair to say that Several years ago, SmartCenters embarked upon a strategy to roll out A robust mixed use development platform. That's not news to anybody on this call. And I think it's Fair to say also that at that time, what we announced was that we thought that this new mixed use initiative program Would supplement growth from the existing core portfolio of shopping centers.
And little did we know that there might come a time where we would go through a pandemic year where this mixed use development platform would actually assist in allowing our distributions to be maintained. But that's effectively what has taken place in 2020, where This pipeline of new development initiatives actually got its start. And I think as Mitch mentioned, we had 2 consecutive quarters In Q3 and Q4 of distributions coming from Transit City and clearly those distributions have helped Supplement the challenges that were experienced in the other part of our business. Having said that, it's also and This should also come as no surprise that we expect this condo and townhouse profits to be forthcoming out for many, many years to come. And so it's fair to say when our Board thinks about distribution levels, ultimately they think about our payout ratio In relation to those distributions, which is that.
And clearly, an 87% payout ratio, Brandon, our Board has determined for now that it wasn't prudent for them to think about A distribution cut. Mitch, I'm just answering Brandon's question on distributions while you're offline.
Yes. I mean, you may have already covered it, but we can sustain our Level of distributions as we see it based on I'm sure that Peter covered off there. And we're satisfied that the payout ratio is with our With our various programs, it was solid and So now of course, we are not Happy with the unit price and the yield. And we'll obviously layer in the consideration And what is the best use of our capital? Because it's just not We don't think that it's I mean, I know everybody thinks their stock is low in the unusual cliches, But it is a bit extreme to actually have closings and cash coming in and Visibility on the program and still be operating at a yield that we're operating at Truly valuable.
I mean, it could be sold. I mean, we just got an approval of 12,000,000 square feet on a 700,000 square foot traveling center with an additional Yes, basically 11,300,000 square feet on top of what we are valued at in Cambridge, Which is actually unbelievable master plan for it's a company in and of itself, that property It's currently now zoned. And of course, it's valued based upon some Multiple of our income on Cambridge and that's true with VMC, which is owned for 1,000,000 of square feet. And by the way, I don't know whether everybody has figured that I was Meaning to emphasize that the condo profits from TC1, 2, 3, 4 and 5 Are substantial, but they are the result of sales per square foot less than what is being sold across the street at Festival. So the latest condo sales are somewhere between $50 $100 per square foot higher than our TC5 sales were at.
And going forward, it is our intention to do it in house. Hence, The REIT's share will be 50%, not 25%, and that's just EMC. And so to factor the value, if we were to take all of what I Sid, on just a Transit City into the valuation of, say, the NAV alone, I would be adding 0 to our NAV because that's what's being Allocated to that property. So we have so many of those properties that are currently zoned and No, we meant from generating cash flow and generating cash flow. We can't ignore the fact that the market has had Time to digest all this and are looking at solely looking at Tail ratios of leased space, even though we are well into a Significant transformation, very profitable one.
So that does not go, but if it was just strictly on the basis of our The ability to sustain those payout ratios and not an examination of the best use of our capital, then we would Stick by our statement that we intend on maintaining distributions.
Okay. That's helpful. And maybe just before I Turn it over just on that last point about the disconnect between the unit price and the value That the Board and management sees in the REIT. I know insiders have acquired the stock quite significantly in the last Over the last year, would the REIT consider using the NCIB to purchase units? I know there's a lot of capital allocation Opportunities and decisions, would that be something to be considered for 2021?
We passed the NCIB a year ago, I think. So Obviously, keep caller options open. Did just make a deal With the institution on potential Strategy to use some of our cash that we're fresh, it's new. At the moment, we're satisfied with. So we're looking at all of these things for sure.
Thank you. And Currently, we do not have any other questions.
Operator, if you could just give it a minute.
Thank you. Okay. We have one person that queue up here. We're just getting their name here. It won't be long here.
It will take a minute. Thank you.
Operator, would you remind everyone on the call what the routing instructions are to place a call? There seems to be maybe some confusions. Maybe you just remind them
Okay. So the next Question is from Paul Woolley from NDC. Please go ahead. Hey guys, I made it. I'm
It's a skill
Okay. Where to start? Just I know you'll sort of unveil a little bit more about the total return swap choice. I just a couple of quick questions. Peter, if we're thinking about this, this just means like we should be thinking about picking up probably our interest income forecast a little bit going forward As long as this is on the books?
I don't think it's interest income per We're still working, Tal, on the accounting elements of this arrangement because obviously it's new and it's We're pioneering in some respects from an accounting point of view. So Mitch mentioned that we'll be able to provide a little more clarity in our Q1 disclosure on What to expect for this going forward, Tal. So it's really, I think, too early to say.
Okay. PDA. Perfect. Self storage, The sites that you have sort of being under approval right now, how many of the Proposed sites are on existing Smart Centers retail land or are they all on sort of like adjacent or new lands?
Yes. I mean, they're all on Lands that were adjacent to a part of our shopping center that at one time would have intended to be retail, But are now we are now doing the self storage instead of retail. But there I'm not thinking of one Other than the one we bought strategically with our partner on DuPont Street Downtown, all the other ones are on Existing shopping center lands that we already owned or in one case, we bought To land across the street from a shopping center? I guess that we yes, in Aurora. But other than that, they're all part of our shopping centers.
Yes, that's correct.
Okay. And then I just wanted to ask a question to
you about Sort of the type of tenant that like my sort of recollection of how some of your smaller tenants Or you think your non anchor tenant got into SmartCenters properties is that you had like a lot of mid market apparel retailers like the The call marks of the world that you mentioned earlier, during the late '90s and early thoughts, saw the rent at Smart Centers being far more affordable and that Walmart was driving a ton of traffic, right, versus some of the more traditional Department of Surankers. And Walmart traffic is clearly going to continue into the future.
But With some of these guys retrenching,
like who's the right tenant for the future for those 4,5000 Square The boxes that were sort of formally occupied by the apparel guys because Yes. You guys have done a tremendous amount of other value tenants like Dollarama. I'm just wondering who you think you see as like the right replacements for those apparel for those apparel tenants.
Well, You named a couple right there. I mean, there's still lots more dollaramas of the world. We do a lot of There's not in the 5,000 foot range, but we do a lot. We're in negotiation with a lot of potentially new TGS concepts, For example. So there's Seeing some kind of interesting emergence of new restaurant concepts that Build kitchens that supply multiple actual multiple restaurant chain Yes, 2 from banners.
We've been leasing 2 quite a bit actually lately.
So
There's other discount concepts that are With pricing, Reedman's was never you use Reedman's as an example, they never really had discounter. They just found a way To improve their margins by getting out of the malls, but they're partly also being replaced by some new Just given concepts that are very suitable and compatible with our formats, Maybe I'm sure you also have some other specific examples because I know we're doing quite a bit
of leasing in that space.
Cannabis, Cannabis is another area. When something is pumping, something else is booming and cannabis is booming quite a bit actually right now. But go ahead, Yes.
No, we looked at in the last half of the fourth quarter a big uptick in calls from tenants wanting to take Advantage of the space. So we're seeing we're trying to put in something, let's say that that would fit very well with each of those communities, not just Fill a space because somebody calls it fill a space. So we have everything from daycare wanting to come back into our centers, Because the daycare business is required, people want it near retail. Medical, not just medical, dental, not just medical doctors, but labs are asking for A lot of our locations, they want to put in labs, what I'm going to call small fitness, The Orange Dairy F45, they don't think that's going away. They may think the bigger fitness may be slowing down, but the small Face to face dedicated business thinks that they'll be fine.
Smaller pharmacy are calling us up saying they want to open up a small pharmacy. Obviously, Mitch mentioned fast food. The fast food business, some of them were doing quite well for takeout. So they are interested not the sit down restaurant types. Obviously, liquor, beer, we're all still doing new deals with us.
We had a number of, I'm going to call it small financial firms Not the Schedule A Banks, but small other financial firms. And then you had a bunch of office, I'm going to call it The retail office type offices like brokerages, they want to be in a shopping center. They don't want to be in an office building if you're a brokerage. So we had a lot of different uses that were Typically not wouldn't want a big part of a shopping center and something and we're also now attracting the stronger tenants who might have been in light industrial Want to move into the mainstream retail. So that's coming in as well.
So we're looking at all of the different kinds of uses. Keep in mind, we were never big on what you call fashion retail. And our fashion retail, like the reasons you mentioned, were only in some of our bigger centers And some of them had the dream of, well, I'm just going to be where Walmart is, and that has worked out very well for them, by the way. In our regions, 60 of those locations remained open. And because they're in a Walmart anchored site and are carrying on.
So Not a large number of the tenants that filed actually closed stores in our locations. If you think of, for example, Moore's. Moore's had 23 locations in our portfolio. They literally only closed 4. Every other one is operating and in a Walmart anchored site.
So we have a lot of uses coming in and we like to see We like the traffic we're seeing, so we're very pleased by what's transpiring right now.
And I guess just my last question would be, you guys have some malls yourself, But there's obviously been a lot of discussion and concern around being closed malls. We're seeing some transactions being done Even on regional malls now. And do you feel like That there's like that asset class is going to bounce back Or do you personally have a concern with like malls being a bit of a weight on the overall market going forward? Like now that we're sort of maybe getting closer to the end of the pandemic, is that going to be a more competitive option? Or is it So it's going to be sort of like the premium rent to what you would be offering in the Open Air Centers?
Mitch, you
want to take that one?
Yes. I'm sorry. Yes. What was that just I don't know what happened. I got just kind of filling in.
Certainly, I cut the last part of that question, Luis.
Yes. I'm just trying to get a sense of how do you feel about malls right now, like now that we're Getting through the end of the pandemic, because I'm just wondering like, we've all obviously had concerns about how malls will fare Pre and post pandemic and whether it could do these properties need Director, could they become a little bit more competitive in terms of rent with Open Air Centers?
Well,
Probably.
At some point, we had Mitch on two lines. And yes, now he's for sure gone here. I think he's Trying to call back, it won't be long here. Okay.
It's okay, guys. We can follow-up later. It's probably due
to the Sunfex to recall. But I mean, I'll just say, first of all, we do not have many malls as you know, Tal. Yes. But I think and I think Obviously, the top regional malls are going to will likely be doing very well once we get out of the pandemic. But I think this medium to smaller malls in smaller communities are likely going to continue to struggle as they were before the pandemic.
I mean, I don't know whether that's I have no idea if that's what Mitch was going to say, but that would be my view.
Okay. Thanks very much guys. Appreciate it.
Okay.
Thank you, Tal. And we do have another question here.
Hey, Ron, just one sec. Before we hear this Can you just remind maybe some of the other analysts on the call again, just give them instructions on how to ask the question, please?
Yes, sure. Yes. I guess, it's coming again. You guys Mitch is back.
I'm sure you got the gist of the answer, but Because technology is trading at 15x and
It doesn't work.
Never mind. Okay. I'm sure you got the gist of the answer. Don't think that our competitors are suddenly going to become enclosed balls. But I mean, I think there's going to be a lot of changes within closed malls for sure, but I don't think that they're going to be a direct suddenly become a new type Competitor, I don't see that.
Thank you, Mitch. And the next question is from Michael Marcedes, Private Investor. Please go ahead.
Hi, am I on? Yes.
You're on, Michael. Yes.
Hi. So hello from Greece. Thanks for taking my question and congratulations on the progress on your redevelopment pipeline In the past year, my question is, in the past year, there was an increase of €8,200,000 in the general and administrative expenses. I would like a bit of I would like you to elaborate on what was included and whether it is here to stay in the expenses or whether they are It could go down at this year end in
the future. Thank you.
I guess, Peter, maybe you want to
Yes, I can it's Peter Ford. I'll Let me start and Peter Sweeney will jump ahead if I missed something. But basically, some of it is salaries and benefits, which is Partly, obviously, normal annual increases, but more importantly, we did add some staff during the year. I think Probably about 15 net on average addition during the year compared to the previous year. A lot of that would have been, I guess, development related activities or people.
We did have a lot of legal fees that we incurred during 2020 as compared to 2019. And then we did incur some additional other expenses, IT and so on. So to answer your question about how do I see it in terms of going forward, I would say about half of that is probably Something that would continue in half would not be, meaning especially the legal fees would not be something There were some special things that were going on in 2020 that I would not and which some related to COVID, Some related to the special transactions that we completed in 2020, and I would not expect to we'd be incurring again.
Yes. I think, Peter, the only other thing that we might want to add is that in that G and A number, that $8,000,000 year over year increase, that does include $1,800,000 of costs, G and A costs attributable to Transit City. And so from the accounting point of view, Those costs would have been capitalized until the project's completion, which took place as everyone knows now in Q3 and Q4. And so we would have had to take Those $1,800,000 of G and A costs into account in 2020. So that amplified that The year over year increase as well.
So at least $1,800,000 of that $8,000,000 is attributable to the closings of Transit City 1 and 2.
Got it. Okay. Thank you. And cheers to a better year this
year. Yes.
Thank you.
Thank you. Currently, we do not have any other questions.
Okay. I guess given there are no further questions, I just want to thank everybody for taking the time to participate in our Q4 2020 call. And everyone, please continue to stay safe. Thank you.
Ladies and gentlemen, this concludes the SmartCenters REIT quarter 4 2020 conference call. Thank you for your participation and have a nice day.