Good day, ladies and gentlemen. Welcome to the SmartCentres REIT Q4 2020 conference call. I would like to introduce Peter Forde. Please go ahead.
Good afternoon. I'm Peter Forde, President and CEO. Joining me on the call today are Mitchell Goldhar, Executive Chairman, Peter Sweeney, Chief Financial Officer, Rudy Gobin, EVP, Portfolio Management and Investments. The call will begin with comments by Mitch, Rudy, and myself, followed by Peter Sweeney, who will talk about our results for the quarter and year-end, including IFRS valuations, liquidity, our debenture issuance, and accounting provisions. We will then be pleased to take your questions. Our comments will mostly refer to the outlook and mixed-use development initiative sections of our MD&A, which are posted on our website. I refer you specifically to the cautionary languages on pages three and four of the MD&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, is 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 with the reward of the SmartVMC condo closings in fourth quarters. The last nine 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 us 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 services 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 getting back to opening their stores and operating at full capacity once the lockdowns are lifted, which is just now starting to take place for many tenants. 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'll 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 three 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 us 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.
With that, I'll pass it over to Mitch.
Thank you, Peter. During the course of last year, we stayed on the offensive, even 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 governments' general receptiveness to moving intensification forward is paying off. On page 18 to 20 of our MD&A, there's a growing list of examples of the very active residential and other development applications 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 million sq ft of additional density. Some built on undeveloped land that we own, some on top of existing retail, a limited amount replacing existing weaker retail, making for a more dynamic, vibrant, and welcoming mixed-use center. 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, Revera.
As a very recent example, we obtained zoning approval for four residential towers in Barrie on the waterfront for 25+ stories each. In Alliston, we recently obtained zoning approval to add residential, hotel, and self-storage to our existing operating Walmart anchored dominant center in Alliston. In Mirabel, Quebec, north of Montreal, we obtained residential zoning this past Monday to add 4,000 residential units on our 50-acre site adjacent to our outlet center. A site where we recently doubled our ownership interest from 33%- 66% after acquiring Simon's interest in that surplus property. 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 eight-acre parcel along Yonge Street, next to our Aurora site, where we intend to undertake residential. A 50% interest in a Markham Main Street project with Revera.
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 of downtown Toronto quality towers and under budget. KPMG and PwC Towers. We have just delivered and opened 177 unit residential rental tower in Laval, Quebec on our Laval Centre site, along with three of our 10 SmartStop Self Storage developments in Leaside, Brampton, and Vaughan Northwest. Now our third and fourth quarter results include the closings of the condo units in the SmartVMC Transit City 1 and 2, the 55-story towers.
Our share, 25% share of the profit to date from these two towers is contributing CAD 45 million, not counting the townhomes, which have not yet closed but are sold out. In the spring and summer of this year, 2021, we will deliver the closing of 631 units in Transit City 3, generating approximately a CAD 20 million additional profit. For the three towers combined, we are not only meeting but expected to exceed our original plans for profit by more than CAD 35 million. Other specific project highlights. One, two additional towers, Transit City 4 and 5, 1,026 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 continuing in cash flow on these projects. SmartVMC's purpose-built residential rental building of 451 units is under construction, along with Transit City 4 and 5.
SmartVMC, the new 140,000 sq ft 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 additional future residential land on which we have already made an application to the City of Vaughan. Self-storage. In addition to the three open and operating properties, there are two others under construction, Oshawa and Scarborough, and six others in the process of obtaining municipal approvals, totaling near 1 million sq ft of new development of self-storage. Seniors residence. 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.
Six with Revera, two with Groupe Sélection. All of these projects are in the municipal approval stage, with construction scheduled to start shortly for the two 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 in 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 with our as-of-right residential densities or our potential densities on rezoning completion is reflected in our property IFRS values.
When we present development project yields or profits from condo projects, land is included in the cost side of the equation at an estimated market price. All internal fees, capitalized costs are included in cost, reflecting a more conservative approach to the calculating of the development yields that we report. After hearing all of this and reading the development initiatives section of our MD&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 where significant value is created. It is clear that our current unit price is 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 pre-sales occur in the case of condos, and only when more than adequate financing is available. Lastly, let me clarify. The disconnect we are seeing between the significant development initiatives underway and some already realized in 2020 with a CAD 45 million profit to date from Transit City 1 and 2 with our unit price displays an illogical discount which ignores the significant value creation from our mixed-use initiatives, predominantly on lands we already own and is not reflected in our higher price 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 Gobin.
Thank you, Mitch. The pandemic continued to affect the financial results through the fourth 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% 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. One, 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.
This 60% of our tenant base being essential services increases to 70% for the markets outside the Greater- VECTOM 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. Two, 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 CAD 3.5 billion over the next five 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 fourth quarter in Vaughan, a new Walmart prototype store as part of the SmartVMC store relocation and a first of its kind in Canada, which includes a 10,000 square foot e-commerce omni-channel fulfillment center and a drive-through pickup facility. It will fulfill as many as 8x the online orders of an average Walmart store. Three, virtually all of our revenues from shopping centers are from open format outdoor centers, enabling customers to practice physical distancing while completing shopping for their everyday needs.
Shoppers are more comfortable and feeling safer in this unenclosed format. For Q4, our renewal experience, excluding anchors, was 6.9%, owing to the seven Walmart stores renewing in that quarter for nearly 1 million sq ft. 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 CECRA, designed to assist certain tenants such that effectively the tenant bears 25% of its rental cost, the landlord 25%, and the government 50%. The program originally applied to April, May, and June. After communicating with all of our smaller tenants, we applied for relief for all tenants that qualified, approximately 725.
Thereafter, we extended such relief for the full six months. To us, this was an important step in 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 CAD 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 shut down 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, SAIL, Reitmans, and Aldo. Collectively, all such tenants initially indicated the intention to close 66 units in our portfolio, approximately 415,000 sq ft, which is less than one-third of the total units we have with these same tenants and representing 1.65% of gross revenue. The remaining 128 of the units with these same tenants will continue to operate. Generally speaking, these tenants have expressed a strong interest in remaining in our Walmart anchored centers.
145,000 sq ft of the 415,000 sq ft previously mentioned for closure were two SAIL units, Etobicoke near Sherway 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 good users. Ultimately, such use will undoubtedly convert to residential or other mixed uses over time as we obtain appropriate municipal permissions. In the meantime, we will continue to maximize cash flow and value. With the remaining 270,000 sq ft of vacancy from the balance of the COVID-related bankruptcies, we will continue our routine work of filling up all of these with the best fit tenants for each center. As shown in our MD&A, cash recoveries from our tenants continues to improve. In our April update press release, we indicated cash recoveries for the month of April was 67%.
As of now, we've collected nearly 84% of gross billings for the month of April, with cash received from tenants and including the CECRA recoveries. In fact, gross billings collected improved from that 84% for April to 96% by the end of Q3, and remaining in the 94%-95% range in the fourth quarter. To avoid any confusion, gross billings used in these calculations are based on rent rolls, excluding tenants that closed through CCAA or the bankruptcy filings process. 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 sheets of many real estate companies. However, for many years now, we have encouraged the capital markets to focus on our commitment to the SmartCentres balance sheets. 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 to 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 one, 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 continued to grow, increasing by approximately CAD 150 million, CAD 5.8 billion as compared to the prior year. We expect these metrics to continue to improve in the future. Number two, our BBB high credit rating from DBRS continues to attract debt capital at historically low interest rates for longer terms. In keeping with our strategy to take advantage of lower interest rate environments 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. Our weighted average term of debt was maintained at five years.
Lastly, number three, our interest coverage ratio, net of capitalized interest, was maintained at a very strong 3.7x level. This in spite of the COVID-19 related provisions that were necessary. Our adjusted debt to adjusted EBITDA multiple ended the year at 8.5x. Both metrics reflecting the business's 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 CAD 1.5 billion, which is represented by over CAD 794 million in cash on hand, our undrawn line of credit, which stands at CAD 490 million, and our CAD 250 million available accordion feature.
A portion of these funds are earmarked to fund the following. Number one, January of 2021, we used CAD 300 million of this cash to fully redeem both Series M and Series Q debentures. Number two, we intend to use CAD 323 million to repay our Series P debentures that mature in June of 2021. Lastly, number three, we expect to repay approximately CAD 50 million in maturing mortgages over the next six 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.
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 1,100 units in the first two phases of our Transit City project. In aggregate, over the last two consecutive quarters, we have received over CAD 53 million in proceeds from the closing of these first two phases.
Similarly, in 2021, we expect to recognize approximately CAD 25 million in FFO from the closings of Transit City 3. We expect this recurrence of FFO and cash flow from the closings of condominium and town home 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 substantive improvements in our collection levels in the fourth quarter. Our provisions for bad debts were significantly reduced from our experience in both the second and third quarters. In this regard, in addition to the CAD 25.2 million of provisions that were taken in aggregate for the second and third quarters, we provided for an additional CAD 5.4 million in COVID-19 related provisions in the fourth quarter of 2020.
These fourth 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 nine months. From a valuation perspective, the stability that we experienced in the third quarter continued into the fourth quarter, with cap rates, discount rates, and other modeling variables remaining status quo and resulting values remaining stable for our portfolio of income-producing properties. Our development property portfolio experienced a CAD 18 million IFRS loss in value during the fourth 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 first two 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-19 experience, the year's second half experience is directionally important because it suggests that the market has now stabilized. 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 first quarter 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, these future value increments that are derived from our proposed mixed-use initiatives are substantial. With that, I'll turn the call back to Peter Forde.
Thanks, Peter. To sum it up, a very interesting quarter and year. Over CAD 45 million of profit in the last two quarters from condo closings at Transit City 1 and 2 in Vaughan. A rapidly improving rent collection picture. An accelerated mixed-use intensification and development program with 56 projects underway. Sorry, 57. A solid occupancy level of 97.3%. Prudent and strategic acquisitions adjacent to existing properties and/or with established or new partners. A strong focus on our balance sheet. With that, we'll turn it back to the operator to coordinate us in addressing your questions.
Thank you. As a reminder, you may queue up to ask a question by pressing the number zero-one. In case you wanted to cancel your question, you can always press the pound sign. Thank you. Currently, there are no one asking a question here.
Okay.
Okay. Yeah, we do have the first person queuing up here. Yeah, the first person is Sam Damiani from TD Securities. Please go ahead.
Thank you. Good afternoon, everyone.
Thanks, Sam.
Good afternoon, Sam.
I wonder if you could just explain the total return swap that was announced in the press release.
Yeah. Well, as you know, we have a lot of liquidity and cash, so we have made an arrangement to make a deal with a major institutional bank, whereby we would be achieving a better return, better yield on our cash. It's for a period of time. Yeah. The arrangement is a deal whereby the result will be that the intention is we achieve something closer to the yield of our units and instead of what we're getting as a cash deposit in the bank. It's shifting. We just made the deal recently. It's just early stages, but that's the reason for it, and that's hopefully effectively what will be expected to happen.
Okay. That's helpful. Thank you. 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?
Yeah. We'll give more detail on some of the mechanics of the deal. Suffice to say that we're satisfied with the deal. We're satisfied with the risk/reward and all the various scenarios. There's lots of details. We'll go into those, share them with you in the next quarter.
Okay. All right. That's helpful. Just switching on to the development pipeline, which was expanded, including obviously the REIT portion as well. There was a lot on the books to do over the next few years and even more now. Is capital recycling becoming more of a factor in your mind in terms of funding this activity over the next few years? Or how should we think about how that CAD 3 billion is going to be funded?
Yeah. Firstly, you should keep in mind that we don't have to do any of it. We didn't buy this market, and there's not a loud clock ticking. We want to do it, and we fully intend on doing it, but we don't have to do it. In terms of the hierarchy of guiding principles of whether we proceed or not will be our availability of whatever equity is required and capital requirements and availability of financing. Of course, our debt levels, which we're going to be very protective of. 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 the sale of a few properties.
There'll be various, and of course, proceeds from closings of condos from previous years. These will be, among others, sources of capital equity, and there's the financing availability as well. Each and every, as we get closer and closer to being able to commence at any one of these places, and the market's there and we're happy with the returns, these are sort of levers that we can pull and will pull if we need to protect those higher tier priorities.
Thank you. My last question is just on occupancy. Maybe Rudy, how did you see the fourth quarter? Did that meet or exceed your expectations, down just very slightly? What are you thinking about for the next Q1 and Q2, generally high level in terms of where occupancy could end up?
Yeah, 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 filing tenants that filed in Q2, affected Q3 and Q4, obviously. Not a lot of tenants were ready to jump back in and start leasing space in Q3. By Q4, there was an uptick. There was an uptick of a number of tenants. I think we did almost 200,000 sq ft 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. You saw the returns in rents. We had a high recovery rate in our rental structures. That was good, too.
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 to slowly improve, and we don't go into any more of these, so that we will see a little bit of an improvement into 2021. I think the first quarter, Sam, 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 holidays, 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. 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 two, which has been great. Is that okay, Sam?
Yeah.
Might have lost Sam.
Thank you. Yeah, Sam, he left here. Yeah. We do have another question here. Yeah, the next question is from Brendon Abrams from Canaccord Genuity. Please go ahead.
Hi, good afternoon, everyone. There might be some issues with the operator and trying to get into line. 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?
Mitch, you might be on mute.
We might have lost Mitch here. I don't see him in the conference anymore. Yeah, he's not here. You might have to call back. Yeah.
Peter, do you want to take that one?
Sure. 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, SmartCentres embarked upon a strategy to roll out a robust mixed-use development platform. That's not news to anybody on this call. 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. 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.
That's effectively what has taken place in 2020, where this pipeline of new development initiatives actually got its start. I think, as Mitch mentioned, we had two 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 profit to be forthcoming now for many years to come. It's fair to say when our board thinks about distribution levels, ultimately they think about our payout ratio in relation to those distributions. Mitch, clearly at an 87% payout ratio, Brendon, our board has determined for now that it wasn't prudent for them to think about a distribution cut.
Mitch, I'm just answering Brendon's question on distributions while you're offline.
Yeah. I think 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. We're satisfied that the payout ratio with our various programs is solid and conservative enough. Now, of course, we are not happy with the unit price and the yield. We'll obviously layer in the consideration of what is the best use of our capital because we don't think that it's I know everybody thinks their stock is low and the usual 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 the yield that we're operating at, a unit price we're at, as well as zero, basically, value put on lands that are extremely valuable, could be sold.
We just got an approval of 12 million sq ft on a 700,000 sq ft shopping center. An additional, basically 11.3 million sq ft on top of what we are valued at in Cambridge. It's a company in and of itself, that property, as it currently now is zoned. Of course, it's valued based upon some multiple of our income on Cambridge. That's true with VMC, which is zoned for millions of sq ft. By the way, I don't know whether everybody has figured out I was meaning to emphasize that the condo profits from Transit City 1, 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.
The latest condo sales are somewhere between CAD 50 and CAD 100 per square foot higher than our Transit City 5 sales were at. 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 VMC. To factor the value, if we were to take all of what I just said on just say Transit City into the valuation of say the NAV alone, I would be adding zero to our NAV because that's what's being allocated to that property. We have so many of those properties that are currently zoned and imminent from generating cash flow.
We can't ignore the fact that the market has had time to digest all this and are slowly looking at payout ratios of leased space, even though we are well into a significant transformation, a very profitable one. That does not go ignored. If it was just strictly on the basis of our 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 is helpful. 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 over the last year. Would the REIT consider using the NCIB to purchase units? I know there is a lot of capital allocation opportunities and decisions, but would that be something to be considered for 2021?
We passed the NCIB a year ago, I think. Obviously, keep all our options open. Did just make a deal with an institution on a potential strategy to use some of our cash that it's fresh, it's new, but at the moment we're satisfied with. We're looking at all these things for sure.
Okay, that's great. I'll turn it over. Thank you.
Thank you.
Thank you. Yeah, as a reminder, you may queue up to ask a question by pressing the number 01. 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 queued up here. We're just getting their name here. It won't be long here. We'll take a minute. Thank you.
You know what, operator, would you remind everyone on the call what the routing instructions are to place a call? There seems to be maybe some confusion. Maybe you just remind them as to what they have to press to get a question, please.
Yeah, sure. Yeah. As a reminder, you may press zero one to queue up to ask a question. Okay, the next question is from Tal Woolley from NBF. Please go ahead.
Hey, guys, I made it. I'm excited.
It's a skill testing thing we do here. You got to really, really want to ask a question.
Okay, where to start? I know you'll sort of unveil a little bit more about the total return swap choice. I have a couple quick questions. Peter, if we're thinking about 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 se. We're still working, Tal, on the accounting elements of this arrangement, because obviously it's new and it's sort of pioneering in some respects from an accounting point of view. As Mitch mentioned, I think we'll be able to provide a little more clarity in our Q1 disclosure on what to expect for this going forward, Tal. It's really, I think, too early to say.
Okay. To Self-storage. Of the sites that you have being under approval right now, how many of the proposed sites are on existing SmartCentres retail land, or are they all on adjacent or new lands?
Yeah. They're all on lands that were adjacent or part of our shopping center that at one time would have intended to be retail, but we are now doing the self-storage instead of retail. 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 some land across the street from a shopping center, I guess, in Aurora. Other than that, they're all on a part of our shopping centers.
Yep, that's correct. Yeah.
Okay. I just wanted to ask a question too about the type of tenant that My recollection of how some of your smaller tenants, or your non-anchor tenants got into SmartCentres properties is that, you had a lot of mid-market apparel retailers like the Reitmans, the Comark of the world that you mentioned earlier, who in the late 90s and early aughts saw the rent at SmartCentres was being far more affordable, and that Walmart was driving a ton of traffic, right? Versus some of the more traditional department store anchors. That Walmart traffic is clearly going to continue into the future. With some of these guys retrenching, who's the right tenant for the future for those 4,000 and 5,000 square foot boxes that were formerly occupied by the apparel guys? Because you guys have done tremendously well with other value tenants like Dollarama.
I'm just wondering who you think you see as the right replacements for those apparel tenants.
Well, you named a couple right there. There's still lots more Dollaramas of the world. Not in the 5,000-foot range, but we're in negotiation with a lot of potentially new QSR concepts, for example. There's been some kind of interesting emergence of new restaurant concepts that build kitchens that supply actual multiple restaurant chain, different banners we've been leasing to quite a bit actually lately. There's other discount concepts that are replacing You used Reitmans as an example. They were never really a discounter. They just found a way to improve their margins by getting out of the malls. They're partly also being replaced by some new discount concepts that are very suitable and compatible with our formats. Rudy, I'm sure you also have some other.
Yeah
specific examples, because I know we're doing quite a bit of leasing in that space.
Yeah, like cannabis.
Cannabis, by the way, yeah. Cannabis is another area. When something's busting, something else is booming, and cannabis is booming quite a bit actually right now. Go ahead, Rudy, sorry.
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. We're trying to put in something, let's say, that would fit very well with each of those communities, not just fill a space because somebody called to fill a space. 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 Orangetheory, F45s. 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 fitness 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, were all still doing new deals with us. We had a number of, I'm going to call it small financial firms. Not the Schedule I banks, but small other financial firms. 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. We had a lot of different uses that were typically wouldn't want a big part of a shopping center.
We're also now attracting the stronger tenants who might have been in light industrial who want to move into the mainstream retail. That's coming in as well. We're looking at all of the different kinds of uses. Keep in mind, we were never big on what you call fashion retail. Our fashion retail, like the Reitmans you mentioned, we're only in some of our bigger centers. 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 Reitmans. 60 of those locations remained open, and because they're in a Walmart anchored site, and are carrying on. Not a large number of the tenants that filed actually closed stores in our locations. If you think of, for example, Moores. Moores had 23 locations in our portfolio.
They literally only closed four. Every other one is operating and in a Walmart anchored site. We have a lot of uses coming in, and we like the traffic we're seeing. We're very pleased by what's transpiring right now.
I guess just my last question would be, you guys have some malls yourself. There's obviously been a lot of discussion and concern around the enclosed malls. We're seeing some transactions being done even on regional malls now. Do you feel like that asset class is going to bounce back? Do you potentially have a concern with malls being a bit of a weight on the overall market going forward? 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 still 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?
Yeah. I'm sorry. Yeah. What was I just I don't know what happened. I got disconnected again. I caught the last part of that question. What was-
Yeah. I'm just trying to get a sense of how do you feel about malls right now that we're getting through the end of the pandemic? I'm just wondering, we've all obviously had concerns about how malls will fare pre and post pandemic and whether do these properties need to restructure and could they become a little bit more competitive in terms of rent with open-air centers?
Well...
There you go now.
Who are we looking for?
Mitch.
We lost Mitch again.
Did we lose him again?
Probably.
At some point, we had Mitch on two lines and yeah, now he's for sure gone. I think he's trying to call back. He won't be long here.
Okay. It's okay, guys, we can follow up later. It's probably easier just to do it on a regular call.
I'll just say, first of all, we do not have many malls, as you know, Tal.
Yeah.
I think obviously the top regional malls will likely be doing very well once we get out of the pandemic. I think this medium to smaller malls in smaller communities are likely going to continue to struggle as they were before the pandemic. 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. No worries.
Thank you, Tal. Yep. We do have another question here.
Hey, it's Ron.
Yeah.
Ron, just one sec. Before we hear this question, 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. Yeah.
I got disconnected again.
Yeah, Mitch is back now.
I'm sure you got the gist of the answer, because technology is trading at 15 times and it doesn't work. Never mind. Okay. I'm sure you got the gist of the answer. I don't think that our competitors are suddenly going to become enclosed malls. I think there's going to be a lot of changes with enclosed malls for sure, but I don't think that they're going to suddenly become a new type of competitor. I don't see that.
Thank you, Mitch. Yeah. As a reminder, you may queue up to ask questions by pressing the number zero one on your keypad. The next question is from Michael Markides, private investor. Please go ahead.
Hi, am I on?
You're on, Michael. Yep.
Hi. Hello from Greece, and 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 CAD 8.2 million in general and administrative expenses. I would like you to elaborate on what that included and whether it is here to stay, these expenses, or whether they are expected to go down this year and in the future. Thank you.
I guess, Peter, maybe you want to.
Yeah, I can. It's Peter Forde. I'll start, and Peter Sweeney will jump in ahead if I miss something. 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've 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. We did incur some additional other expenses, IT and so on. 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 and half would not be.
Meaning especially the legal fees would not be something. There were some special things that were going on in 2020, some related to COVID, some related to the special transactions that we completed in 2020, and I would not expect we'd be incurring again.
Yeah, I think, Peter, the only other thing that we might want to add is that in that G&A number, that CAD 8 million year-over-year increase, that does include CAD 1.8 million of G&A costs attributable to Transit City. From the accounting point of view, those costs would've been capitalized until the project's completion, which took place as everyone knows now in Q3 and Q4, we would've had to take those CAD 1.8 million of G&A costs into account in 2020. That amplified that year-over-year increase as well. At least CAD 1.8 million of that CAD 8 million is attributable to the closings of Transit City 1 and 2.
Got it. Okay. Thank you, and here's to a better year this year.
Yes.
Thank you.
Thank you.
Thank you. As a reminder, you may queue up to ask a question by pressing the number zero one. 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 fourth quarter 2020 call. Everyone, please continue to stay safe. Thank you.
Ladies and gentlemen, this concludes the SmartCentres REIT quarter four 2020 conference call. Thank you for your participation and have a nice day.
Bye.