Good day, and welcome to the SmartCenters REIT Q4 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Peter Ford, President and Chief Executive Officer. Please go ahead, sir.
Okay. Thank you. Good evening, and welcome to the SmartCenters Q4 2019 conference call. Joining me on the call today are Mitch Goldfarb, our Executive Chairman Peter Sweeney, Chief Financial Officer Mauro Panmianchi, Chief Development Officer Rudy Govan, EVP, Portfolio Management and Investments and Paula Buster, EVP Development. Today, we'll begin with a few overall comments by me, followed by Peter Sweeney, who will talk about our results for the quarter and financing activities, followed by an update on some of our exciting project developments, and then we will take your questions.
Our comments will mostly refer to the first 10 pages and Page 20 4 and 25 of our supplemental information package and the outlook section of our MD and A, which are posted on our website. I refer you specifically to the cautionary language at the front of the supplemental market, which also applies to comments many of the speakers make this evening. You will hear 2 main things during this call. 1st, we continue to focus on our highly stable portfolio, 98.2 percent leased portfolio of 34,000,000 square feet of well located, value oriented shopping centers and 2, our accelerating mixed use intensification and development programs with growing positive results from these initiatives to commence later this year. On the first theme, we had another strong and stable quarterly performance from our existing retail portfolio, with notable mention going to strong results from the Toronto Premium Outlet expansion, which opened in November 2018, with average tenant sales for the full center at almost $1200 per square foot.
High overall tenant retention with 84 percent of 2019 maturing tenants renewing at an average net rent increase of 4%, excluding anchors, 3.3% overall. Our shopping centers continue to lead the industry at 98.2% leased, inclusive of all executed deals for future positions. And then going forward, for 2020 2021, profits from the first of many recurring residential condo developments and from a variety of new business initiatives and developments, some of which are described this evening and in our quarterly new report. As has always been the case in our business, a handful of retailers come and grow. And in that respect, some good news on the releasing of premises vacated by bankrupt tenants.
21 Bombay and Boeing locations totaling 103,000 square feet that we had are 60% leased or spoken for with strong expressions of interest. And for the 46 Payless Shoes locations that we had totaling 107,000 square feet, we are pleased to report that we are in advanced discussions and or have executed deals for approximately 80% of the locations and in both cases with rents equal to or higher than the previous rents. A few general reminders about our development pipeline and capabilities. Most of the development initiatives we are planning are on land and we already own, unlocking value supplemented by select acquisitions with existing or new strategic partners. We use our in house development team to drive these initiatives, all contributing to enhanced yields and profits over the long term.
Remember, this in house development team developed over 85% of our current retail area. We know the markets, the municipalities and every detail of those properties. It is this team of in house planning experts, developers, engineers, government relations, people, leasing, environmental, geotechnical specialists, construction managers and architects that makes us very unique in our sector. And we continue to enhance the team, offering exciting and challenging learning opportunities for new associates joining our organization. With 34,000,000 square feet built on approximately 3,500 acres of land with less than 24% land utilization and primarily all at ground level, we have over 100,000,000 square feet of land within our shopping centers to accommodate mixed use growth throughout the country that does not and that does not include the nearly 14 minutes square feet of undeveloped lines we also own, much of which we have plans for building out mixed use.
The potential intensification and development program continues to grow as we further review our portfolio for opportunities. The number of potential projects in towers to commence construction in addition to our retail development pipeline within the next 5 years is currently estimated at 105, comprising some 12,400,000 square feet our share of mixed use space. This development will have an estimated cost of $12,100,000,000 on completion, with Smart Center REIT's estimated share of that being over $5,500,000,000 In addition, another 151 projects and towers, 15,500,000 square feet at our share have been identified on which we will commence remodeling, design, pipeline approvals and marketing during the same 5 years, with construction commencing after that. So a total of 256 projects, 27,900,000 square feet in our share of mixed use space and the review of the portfolio continues. A breakdown of these projects by asset type is provided in our MD and A.
Retailers and the new uses we are bringing to the centers, residential condos and apartments, seniors, residences, office and self storage are aware of the synergistic benefits of bringing us all together in one location. The new uses benefit from the great locations, access and visibility of our centers, while progressive retailers in the centers recognize the benefit of having these additional customers at their front doors. As we stated before, we carefully select our development partners looking for expertise in these asset classes and with a good cultural fit and complementary skills. I'm pleased to report that all of the relationships are going extremely well. Rivera, SmartStop, CenterCourt, Selection Group, JADCO, Greenland and of course, our long standing relationships with Walmart and others.
And we continue to be approached by many others to both partnering, interested in both our outstanding land opportunities and our in house development team. Mitch will provide more details on several of these partner relations, but I first wanted to review a significant transaction announced during the last quarter. We entered into a joint venture with Penguin with respect to a 15.4 acre site, let's call it the new JV site, proximate to the SmartVNC lands already jointly owned by SmartCenters and Penguin. 10.76 acres of this new JV site will be used for the development of the latest new Walmart prototype store. This new Walmart store is a relocation of the existing Walmart store currently located on 15.7 acres with up to 78 more years remaining on that lease.
Its termination is expected to unlock significant value for Smart Centers in Penguin in the near and medium term as it moves steps from the new TTC DMC University Alliance Subway Station and the New York Region Bus Terminal as it will allow for full realization of the master plan vision for smartDMC. Once the old Walmart store is relocated in August of this year, it will unlock significant value and development opportunity for mixed use density, comprising of at least 6 additional not previously announced residential condominiums and or purpose built rental towers and will also allow for the permanent use of the lines already being partially used to complete the Transit City 1 and Transit City 2 and the 2 cylinder 55 storey condo towers and the 225,000 square foot mixed use tower at Hosea PWC's recently opened 77,000 square foot offices. The total mixed use density available for the Old Mall Market store lands is expected to exceed 4,500,000 square feet. As part of that joint venture for the new JV site, SmartCenters purchased a 50% interest in the JV site from Penguin for $109,200,000 in cash, all in accordance with terms reviewed by a special committee of the independent trustees of our Board.
The transaction provided us with the unique value creation opportunity resulting from the relocation of the old Walmart store, substantially increasing the value of the existing 15.7 acre parcel And also gave us the opportunity to acquire a 50% interest in additional land around the VNC to develop an additional 1,700,000 square feet of residential condo and our purpose built residential rental density. On that portion of the JV site, they will not be subject to the lease for the new Walmart store. And just as a general reminder, Tulin, our entire intensification program across our portfolio of properties. Virtually none of the additional land value associated with the density we are creating is reflected in our balance sheet IFRS values. To date, we have only recognized the increased land values when we closed the sale of an interest in the land to a JV partner, at which time we recognize the uplift on our retained portion as well through an IFRS fair value adjustment.
And as also as a reminder, when we present the development project yields or profits from our condo projects, Land is included in the cost side of the equation at an estimated market price and all internal fees and capitalized costs are included in costs, which I understand is not the way others may be presenting these same yields. Given the significance of the land redevelopment and intensification, which may not be reflected in our NAV or recognized in our unit price, we will be reviewing in 2020 the appropriateness of recognizing some of this line running bump in our balance sheet IFRS filings. Stay tuned. More about these developments from Mitch in a few minutes, but first, I'll turn it over to Peter Sweeney. Thank you, Peter, and good evening, everyone.
Our financial results for the Q4 of 2019 reflect the continued strength, stability and security of our 34,000,000 square foot predominantly Walmart anchored shopping center portfolio. During the quarter, this portfolio generated the following strong results. Number 1, rental revenue from investment properties of $209,000,000 was $8,000,000 or 4% higher than $201,000,000 recorded in the comparable quarter last year. Number 2, net operating income increased by $4,000,000 or 3.4 percent to $131,000,000 from $127,000,000 in the comparable quarter. And 3, NOI as a percentage of net day trends was 101%, higher than the 100% level experienced in the comparable quarter in 2018.
These continued strong operating metrics are indicative of our portfolio's continued unique ability to demonstrate steady growth even in uncertain times. These improving operating results contributed to an $8,500,000 or 9.2% increase in FFO after one time adjustments to $101,000,000 for the quarter. On a per unit basis, FFO after onetime adjustments was $0.59 per unit, which is $0.02 higher than the comparable quarter last year. This increase was experienced even after factoring in the dilutive impact of our $230,000,000 equity issuance in January of 2019. From a cash generating perspective, during the quarter, ACFO with onetime adjustments increased by $2,700,000 or 3.2 percent to $88,600,000 and exceeded both distributions declared and distributions paid by $8,900,000 $28,000,000 respectively, again representing the business' continued ability to demonstrate steady and consistent cash flow growth.
Excluding the impact of Payless and Bombay Embaring bankruptcy, same property growth would have increased by 1% for the quarter. When factoring in the impact of the bankruptcy, same property NOI growth was virtually flat for the quarter. We renewed or are near completion of renewing approximately 3,000,000 square feet of tenant fees, which represents approximately 84% of our 2019 lease maturity and average rental increases, excluding anchor tenants, of 4%. This is consistent with the improving growth rates that we've been experiencing over the last several quarters and as Peter mentioned earlier, is indicative of an improving retail leasing market. These improved quarterly results can be attributed to the following primary factors: A, the incremental NOI now being generated from new tenants at both the KPMG tower and PwC YMCA towers B, the incremental NOI now being generated from both the 144,000 square foot expansion at TPO and recent earnouts and developments C, our portfolio of maturing mortgages and unsecured debt continues to provide unsecured fixed rate refinancing opportunities at lower rates than the outgoing maturing rates.
And lastly, D, additional percentage rent, parking revenue and other miscellaneous revenue. And now let's focus on our balance sheet. From a financing perspective, we began 2019 with a strong reminder for the capital markets of our conservative management of capital. We applied the proceeds of our very successful issuance of $230,000,000 of equity against some of our credit facilities to reduce our overall debt levels and improve our related debt metrics to appropriately accommodate future levels of expected development demand. And the impact of these debt reductions continue to be reflected in all of our debt and financial metrics.
In this regard, at the end of the year, we note the following further improvements. Number 1, our unencumbered pool of assets has now increased by 33% since last year to $5,700,000,000 from $4,300,000,000 last year. Number 2, our debt to aggregate assets ratio was reduced to 42.3% from 43.9%. Number 3, our weighted average interest rate for secured and unsecured financing decreased further to 3.55% from 3.73%. Number 4, our adjusted debt to adjusted EBITDA multiple was further reduced to 8.0x from 8.2x.
Number 5, our interest coverage ratio improved further to 4.0x from 3.8x. Number 6, our unsecured to secured debt ratio has now improved to 63% to 37% from 48% to 52%. And lastly, number 7, as a result of these continued strong credit metrics that reflect our ongoing commitment to the balance sheet, we received an upgrade to our credit rating from DBRS to BBB high. Recall, please, that when we embarked upon the strategic initiative just over 2 years ago, 2 thirds of our debt was sourced from secured lenders. And just as we began 2019 with a strong statement tied to our equity issuance, this credit rating enhancement allowed us to successfully end 2019 with the successful issuance of $450,000,000 in new 10 year debentures.
For our payout ratio and distributions, our ATFO payout ratio with onetime adjustments for the 12 months increased to 87.4% from the comparable year level of 83% and was primarily influenced by the equity issuance earlier in 2019 and continues to reflect the healthy level of cash flow generated by the portfolio. Our surplus of ATSO with onetime adjustments over distributions declared of $44,700,000 reflects the continued strength and core stability of our business model. When factoring in our highly successful DRIP program, the surplus of ACFO over distributions actually paid totaled $116,200,000 This substantive surplus of cash flow is distinctive in our industry and is funding substantial portions of the development capital required for our large pipeline of mixed use projects. Our financial and operating results for the 4th quarter reflect our strong and stable business model and we believe positions us to continue to provide our unitfolders with stable and growing distributions. As we have previously noted, the very successful BOSS deal that was completed in January 2019 diluted our growth expectations in 2019 by approximately 3%, thus resulting in limited FFO per unit growth for 2019 as compared to the prior year.
However, the expected closings of the first two phases of Transit City condos in 2020 will signify a profound change
in the evolution of
the growth profile of smart centers as these initial closings are expected to result in significant growth in FFO per unit in 2020. I will now turn things over to Mitchell Goldhar, our Executive Chairman, who will provide you with an update on some of our upcoming development initiatives. Mitch?
Thanks, Steve. There is so much happening on the development side, it's impossible for me to cover everything during this call. But here's some of the key highlights. In our seniors residence JV with Rivera, we announced 4 more conditional retirement living site specific deals to develop in strategic urban locations. 3 of the 4 new locations are joint ventures between Smart Centers and Rivera.
They're in Barrie, Markham and Aeroqua, on downtown sites in each of those markets that Rivera already owns and one of the 4 joint ventures is between my company Penguin and Rivera in Toronto on Wilton near Bathurst, and that's on a Penguin owned site. This is in addition to previously announced 3 retirement residence joint venture projects between Starke Centers and Rivera in Vaughan, 2 projects in Oakville. The 7 locations represents a total of 1565 units, comprising of a mix of seniors apartments, assisting living units, independent living units and memory care units. The total investment by the joint venture partners for these projects is approximately CAD825 1,000,000 expected to generate a yield of 6% to 7.5% once stabilized. We have also entered into a joint venture with Greenland and acquired 1.15 Acres in Toronto's Yonge and Davis Hill neighborhood.
SmartCentres has a 75% interest in the joint venture site and will be the developer. This urban infill development site represents This urban infill development site represents
a strategic opportunity to jointly develop, construct, own and manage a
newly built rental apartment building in an established urban neighborhood. The acquisition of this site follows on the recent success of the previously announced joint venture of 7.8 Acres on Berry's Waterfront. Together, these two acquisitions represent a development pipeline of over 2,000 purpose built rental units with an aggregate development value in excess of $1,000,000,000 and this will be part of the continuous growth of the apartment platform. This acquisition reaffirms our commitment to focus on recurring revenue growth in purposeful apartments. We recently announced that we have executed agreements for 3 additional self storage locations in our joint venture arrangement with SmartStop Asset Management.
3 new locations are in Aurora, Markham and Whitney. The total number of SmartSpot joint venture locations is now 10, comprising of over 9,100 units, approximately 1,200,000 square feet, with a total joint venture investment of approximately CAD 200,000,000 Now a quick update on the Vaughan Metropolitan Centre project. With its several 8 commuters and the 2,000 employees working out of the KPMG building and the PwC YMCA building, our project is quickly becoming a metropolitan area. If you have not been here recently, you should come and visit by the way, make sure you take the subway. The YMCA opens mid-twenty 20.
An additional estimated 1200 daily visits will be made to the YMCA. The 3 sold out 55 storey Transit City Condor Towers scheduled for delivery in 20202021, 1741 units are under construction and costs are below budget. These sold at an average price of CAD 7.10 per square foot. Construction activity has reached the 55th floor of Towers 12 and Tower 3 has reached the 29th floor. We commenced construction on 2 additional residential condo towers, one of them 45 and one of them 50 storeys, totaling 10 15 units, again sold out in less than a month.
The 45 storey tower at an average of $8.35 per square foot and the 50 storey tower at an average of $8.65 per square foot. These two towers are in our partnership with Centricor and are connected to our 4 51 Unit Residential Rental Tower that my company Penguin and The REIT are developing, constructing and operating together. In fact, this past Monday, the Minister of Housing and Municipal Affairs, Stephen Clark NPP, Guila Martao Minister of Education, Steven Lecce, along with Vol. Mayor Maurizio Bevilacqua and other counselors were on-site for the official groundbreaking of this purpose built Grenfell Tower and significant milestone in the VMC. We also commenced construction on a new Walmart store in Bonn on the site of our former office.
Once the new location is opened in July 2020, yes, July 2020, Walmart will be moving from its current location, and this will free up 15 acres of additional development lands zoned with permissions on the VMC site. We are already designing the next phase of the VMC to include a 600,000 square foot office tower and additional residential towers. Overall, we continue to see 9,000,000 to 11,000,000 square feet being developed on the approximately 50 acres of the VMC lands that we've owned in partnership with my company. Another recent testament to the growing sentiment of a downtown community feel of the smart VMC was when it was showcased to millions of Canadians on January 12 with Rogers Hometown Hockey Festivities and the broadcast from our transit square directly adjacent to the Vaughan Metropolitan Center subway station. We are reviewing and planning for residential, rental condos and or townhouses on all our sites over time.
Master planning activity participation with the various municipalities are underway on most of these sites. There are too many dimensions, but here is just a sampling of some of the new projects recently approved by our Board of Trustees. Pointe Claire on the West Island of Montreal, a 22 acre shopping center approved for 2 15 storey apartment towers, 300 units without impacting the operating shopping centre. Aliston, north of the GTA, 36 acres including 170,000 square feet of retail approved, a master plan involving 12 acres of residential with a Phase 1 4 storey purposeful rental apartment of 56 rental units. Ottawa South East, 517,000 Square Foot Shopping Center approved a Phase 1 of 21 storey rental apartment building containing 242 units on Ottawa's mass transit line.
Pickering in the east end of the GTA, a 48 acre shopping center, a master plan involving 5,000,000 square feet of density, we approved a Phase 1, 2 residential tower, 25 and 27 storey, 4 82 Unit Phase 1 project. Vah Northwest as part of the master plan of this 41 acre site, 2 residential towers, 12 and 16 storeys, 2 48 units. Lawn 407 across a shopping center directly west and highway 400 of our smart BMC project. The Board approved a master plan of approximately 5,000,000 square feet and the first two condominium towers of 45 storeys, approximately 780 units operating standard. In fact, this past Monday, the Minister, excuse North, Quebec, just north of Montreal, a 20 acre site adjacent to our Walmart anchored shopping center.
The Board approved a master plan involving 1600 residential units with a Phase 1 consisting of 2 10 storey rental apartment buildings, approximately 240 units. And that is just to name a few of the projects underway. We estimate that 10 years from now, we will be generating recurring NOI from these new rental businesses, seniors homes, apartments, office and storage facilities, representing up to 25% of our total rental NOI plus significant profits in the tens of 1,000,000 every year starting in 2020 from the sale of condominiums and townhouses. With that, we will turn it back to the operator to coordinate us in addressing your questions. Thank
you. Thank you. And your first question comes from Brandon Abrams of Canaccord Genuity. Please go ahead.
Hi, good evening, everyone.
Just with respect to the new Walmart JV site acquired in December, I'm wondering if you could provide any color with respect to maybe the breakdown of
the purchase price with respect to
the portion that would be retail or the new Walmart versus, it looks like, the 4.5 acres that would be high density residential?
Yes. Maybe Peter, Peter Ford.
Yes. Well, basically, the entire site, when we value the entire site, we value it all as using a value for what it was suited best for, which is high rise residential. And so that was the basis for the value we paid. So we paid basically the same price per acre for the entire 15 acres, 10 of which 10.5 of which are being used for the new Walmart and the rest of the unit will be used high rise residential that we will do in that joint venture. But what it did at the same time is, of course, freed up the 15 acres here right next to the subway station, on which we'll be able to immediately build start building high rise residential, again, very close to the subway station and close to the towers that we were still successful on already.
Great. Okay. That's helpful. I think in your opening remarks, you mentioned the releasing of the, I guess, Bombay and Payless spaces. I'm just wondering if you could provide any color or insights into kind of the new tenants moving into these spaces or leasing the space, whether there's any trend in terms of the type of service offerings or retailers entering them or if there's 1 or 2 dominant retailers picking
a lot of the spaces?
Sure.
Yes. Probably Ben. Rupi, do you want to add anything, Michel? Sure. The when those spaces became available, a lot of our typical 4,000 and 5000 square foot spaces, because these spaces are normally borrowing all 5,000 square feet, and the EMS are about 3,000 to 3,500 square feet.
So they ignited a flurry of activity from the types of tenants that would be in the food, restaurant, fitness, everything, small pet stores, a variety of service offerings that has come in everything, including telecommunications. So a lot of these tenants who will typically not have access to those small areas in our large shopping center have been. So it is a wide variety. It's right across the country. So there is no one particular use that would be dominant across all of the 60 plus locations that we were referring to.
Okay. Yes. I was just wondering if there's any concentration. It sounds like it's pretty mixed. Just turning to the acquisition.
It seems until recently, the diversification by asset classes didn't primarily focus on your existing sites. And I guess it still will be going forward. But we did made a few acquisitions, whether it's the soft storage on DuPont, the Davisville for apartments and the 50% from Rivera most recently. Just wondering if there's been a, I should say, shift or from a Board or management perspective on acquisitions in terms of outside
of the retail space?
And is this something we should expect more of going forward?
Yes. I'll answer that. Wouldn't say a shift per se, but when the opportunities present themselves, we'll certainly assess those. In those cases, they're really extensions of our relationships. They're not per se things that went on the market.
I mean, if there's a common theme or strain between all of those, it doesn't mean there won't be an acquisition that's out on the market, but
we're really focused on intensifying
sites we already own with the caveat or asterisk that if something comes along, it makes sense.
Of course, we're in
the business. We're always going to be interested in looking at that. And these came through very, very good relationships. So they made sense to us. So we yes, we seize the moment.
Okay. That's great, Oliver.
I might just add on the Rivera. I might just add that it was sort of always contemplated. When we originally did the deal with them, there was a number of our sites that were identified for them to have an opportunity to come in on. And likewise, they had identified certain sites that they owned that we would have an opportunity to come in on. So the 3 that we just did were always part of that original list, not that we had to, but once we had a look, then we chose to go and get involved with those 3 sites.
Things. And your next question comes from the line of Mr. Mike Markidis from Desjardins Capital Markets. Please go ahead, sir.
Hi. Thanks for taking my questions. Sort of a bit of a laundry list here, but first of all, on the outlook in the supplemental, I think the wording before within FFO accelerate FFO growth to accelerate 2020 in excess of 10%. And I guess the 10% or in excess of 10% was removed. Just wondering if you could provide your thoughts as to whether or not that was purposeful or just an oversight?
Yes, maybe Peter.
Mike, it's Peter Sweeney. We had reflected that previously. It wasn't oversight. We're still trying to refine with some level of precision the expected FFO growth levels from the closings of TC-one to 2 this year. And as you can imagine, there's still a lot of work to be done to get to the finish line on those closings.
So
it can't
be the moving target. But I think as Mitch said, I think the point from these development income initiatives is to provide the REIT with continuous and continuing income over the longer term time frame in the tens of 1,000,000 of dollars. So as I say, we're trying to refine with some level of precision the number of units that we will be able to close this year. And so at least for now, we're trying to defer or hold back on giving any further guidance on what that expected level of growth will be this year.
Okay. And just from the mechanics, I think when you guys would have ended those projects into the or sold your interest and kept the retained interest, You would have recognized a fair value gain on your books or some transactional FFO. But what happens subsequent here when you transferred to residential inventory? Is there a write up that's associated at all with feature except your gross proceeds? Or can you simply look at the gross margin that you put out and back into what the transaction amount would be irrespective of timing?
Is your ongoing with that?
I think so. I mean, we don't characterize it, Mike, as transactional, but at least the net proceeds that we're going to recognize from the sale and closing of the units as they start to occur later this year and into 2021, Because it is becoming and has become, in fact, a big part of our operations for us, it is conventional earnings or conventional FFO. And so if you're trying to model it, it's simply taking the yield expectations or return on cost expectations that we've done in the supplemental document and doing the math on that.
Okay. That's fair. Just another quick one here. I think last year you transferred 355,000 square feet from rental pool or income producing to PUD. I can't mean, I didn't look back to see if that was 4Q event because you remind us what I would refer to.
Maybe Peter,
Yes. What would have been again, I'm trying to remember the list, but it would have included some home out bidders, some boxes where we are looking to add or subdivide the space, change the use of the space to a different use where it makes sense to do so in those shopping centers. So in 2019, each of the quarters,
again, they would have been maybe a loaner box, maybe a
homeowners box. Homeowners stores, I think, a couple of locations. And in those locations where we're going to add the mixed use, obviously, the rezonings and so on have to carry on. So it's a variety of change in uses. I wanted to take a look through, if you have I don't have the list in front of me, but I can get a list and have that to you.
But basically, that's what it is. It's spaces where we're doing one of the following three things: subdividing the space to release the space and add new uses and also add mixed uses to the shopping center in that location.
Okay. And I guess just to specify then that 355 wouldn't include the Bombay or the Bowring space or the Payless? No, got you. No. Got you.
Okay. All right. Last one for me. Just in the supplemental information package on guess, piece 23, you guys have the layout of the developments in the earnouts, expected income and gross commitment on the balance in the earnouts and then the equity accounted piece, which is, I guess, arguably most of the future stuff is as it has been invested to date, but not a gross commitment or a net commitment line. I was just wondering if that is outlined somewhere else in more detail in terms of how that looks or if you guys plan to break that out in time soon?
Mike, it's Peter. We I think we've mentioned this or referenced it in the MD and A. We're still working on disclosing those future commitment amounts. And so at least for now, they're not in the public materials. And this chart is retail development, Peter.
So most of the equity accounted for investments are not retail. They're all the other mixed use things that we're going to be doing, Mike and the tables on on Page 2425 talk about some of the mixed use initiatives, which include things that are in the equity accounted for category but are not retail.
Yes. No, I see that schedule there. That's very helpful. I'm just trying to get a sense of the equity investments we get and what's to come sort of in the next couple of years from a much spend perspective. But that's great.
Thanks very much.
We will now take our next question from Pani Bir of RBC Capital Markets. Please go ahead.
Thanks and hi everyone. Just on the back of your commentary on the way you're making progress at Bombay and Payless, just how are you feeling about overall same property NOI growth for 2020?
Pani, it's Peter. I guess for now at least, we're expecting it to be conventional a conventional near somewhere between 0% and 1%. Keep in mind that most of the new leasing that was referred to earlier will be commencing at different points over the course of 2020. So we will not get sort of a full pop, if you will, in the results for 2020. But I think the bigger impact, certainly from a positive perspective, will be felt in 2021.
But I think notwithstanding the timing difference we are expecting based on budget that we've got in place that 2020 safe property growth rate will be somewhere between 0.5% to 1%.
That's helpful. I guess maybe coming back to the question earlier on guidance. Can we maybe just exclude the condo gains? There's some refinancing savings. If you strip out sort of the condo gains, what's the range of FFO growth would you anticipate?
If we're removing the gains, Tommy, from the development income initiatives, we would expect that at least for now the growth rate to be somewhere in the 2%, 2.5% range.
Got it. And maybe just coming back to your comments on potentially recording density value some of your land or I guess unutilized land. Can you maybe just expand on what you're contemplating there? And maybe the methodology or what sites that could apply to or any sort of initial estimates that you might have?
Yes. I think, as I said, it's something we're looking into. So we're at early stages of looking into it
in terms of how we
will measure it. But certainly, what we're planning to do is take into account when we look at it, the program, the new initiatives that we've been talking about now for a while and looking at the permissions that we have are in and in the process of getting through the municipalities and factoring that in and obviously looking at what's happening in the marketplace around us in those various sites and the projects that Mitch was listing that we're working on would certainly be candidates to be looked at as well as many of the other sites that we're working on as well.
Got it. Maybe just lastly, on the Yonge and Davis field site with Greenland, what was your cost of the land? And what's the estimated density on that site?
We haven't actually talked about The
density, I don't know if we announced did we announce we certainly didn't announce the density. Density is to be determined. It is known and it's dedicated for high density. The specific density that we will achieve there is not yet determined. We have a sense for what we think it will a range that we think we'll achieve.
So it will be a high rise building. It's also proposed to be a rental building. So that's
also looked favorably upon by
the municipality. It's already designated, so it's not an issue. But the exact number of square feet and number of floors is not yet determined.
We'll now take our next question from Sam Damiani of TD Securities. Please go ahead.
Thank you and good evening.
Just sort of following on the last question, a number of the sort of recent development announcements, albeit residential rental storage or senior housing have been on land that the REIT had not owned, so being acquired from the partners or jointly acquired from third parties. How do you balance with all of the potential on the existing SmartCenters land, investing in new land to do development versus just building on existing SmartCenters properties? Yes.
Well, first of all, we have the development horsepower in house as is. So that in terms of balancing is not an issue. You have to look at each and every one of these developments. Barrie, it depends on your take on Barrie. We are bullish on Barrick.
This is a city that's always been sort of mid sized city that we think is going to become more significant and is a strategic property. The price was right. The municipality's interest in seeing density there is strong and the partner is an experienced developer and owner of residential rental. So I won't go through each one, but each one is really a thoughtful decision, a unique opportunity. We look at a lot of things and we say we pass on 99% of things we look at.
But these are compelling. Each and every one of them is compelling. If you look at each one, I mean,
we can talk later offline.
We see them as being high standard. In the case of Davisville, sort of even a jewel in the crown of our future portfolio. So yes, there is the creme of the creme and they're coming through relationships. So it's not a bidding exercise per se and it's not a high pressure situation. So it's not to say we wouldn't look at we don't look at everything, these had all the right ingredients for us.
And that's how these very specific properties ended up in joint ventures.
Okay. And just to follow-up for the first question on the call, the acquisition of the land at the VMC, I think the math is correct here, dollars 7,000,000 an acre. Any reason that is not fair to apply to the rest of the lands for future development at the BMC?
Well, we're looking at that now, as Peter mentioned. When we look at it, we are going to be looking at from the point of view of what we could achieve in the marketplace based on the market value of land on each of our properties. And then we're going to be conservative because we're talking about a lot of properties. So it is possible. It's conceivable, but we haven't done that yet.
But we are now putting our minds to updating our NAV across the portfolio. And yes, of course, that will be taken into consideration, of course. As we'll look at, I mean, we sold land in the VMC
to San
Antonio, they bought into VMC lands. But we'll take every variable into consideration and then we'll present that in the near future.
And your next question comes from the line of Tal Woolley of National Bank Financial. Please go ahead.
Hi, good afternoon or good evening, I guess.
I just wanted to
ask, your annual run rate NOI that you offer in the MD and A, it's about $510,000,000 I think is what you're quoting. And if I look at like what you're putting up right now on a proportionate basis, it's obviously closer to like $525,000,000 $530,000,000 Is there a reason why the number would be that much lower than sort of where you're kind of tracking right now?
I think so, Tal, it's Peter. I think it's just the way we took the math at Q4. Unfortunately, the annual run rate is a function of the current quarter's metrics and just applying it there from. And your point is well taken. When you look at the 12 month ending December, you get sort of a much higher number.
And it really is just math. It has nothing else to do with that. And also, maybe just to one of the earlier points that was made, the annual run rate numbers in the MD and A do not reflect any of the development income that's anticipated from the condominium closings later this year. So I wouldn't place too much reliance on that annual run rate number.
Okay. And then you flagged a couple
of leases that really started, I believe, to come on in the last half of twenty nineteen that helped drive NOI higher. I think there's a second office building at BNC and I think
you mentioned PPO as well. When did those like release, when were those
sort of like fully occupied and like contributing to FFO? And was that mostly
in Q4, mostly in Q3, that started in Q3? It really depends on the lead. So the way that we include for revenue recognition purposes income, Tal, is we take a building like the PWC building and we take the tenants, in this case, PWC, and we determine when we commence the number of leases. And I think in PWC case, that might have been in Q3. Q2?
Yes. It was earlier than Q4, at least, Tal. So it wasn't Q4. So we were recognizing income from PWC lease prior to Q4, part of their opening because their lease commenced formally, if you will, prior to that. They just had a fixed rate period of X months prior to their opening in November, I guess.
So the reality was in December, we did pick up, however, some new earn outs and developments. I think there was perhaps some other tenants in the PWC building, probably Scotia, in the PWC power that was lease commenced. That also affected positively that measure.
Okay. And then just last quickly, an accounting question.
The transactional FFO, the $2,800,000 you recognized in the FFO walk back, Where is that $2,800,000 on the balance or sorry, on your income statement when
you report the quarter?
Is that in the fair value gains?
The transactional FFO, I guess the reality is it's partially over time reflected in unrealized gains for IFRS purposes. But keep in mind, the way the transactional FFO is calculated is it represents the difference between the purchase price that a third party is paying us for their share of an interest in a joint venture with us and our cost. And so that difference between essentially sale value and cost represents the transactional component that's being sold to that third party.
Right. And so I guess I'm going to say that,
that number is within
the equity account of JV? Is it in I'm sorry. Yes, yes. It would be
in the equity account of JV. In this case, it's the Transit City 45 projects that closed earlier on.
And we have an additional question from Mike Markidis of Desjardins Capital Markets. Please go ahead.
Thanks. Just a last one here. Peter, in the FFO reconciliation, there's been an amount that was pretty small, but it's starting to grow pretty materially. It's the adjustment for supplemental contribution. Can you remind us what that relates
to? Yes. I mean, it's funny. Accounting is it's a wonderful art that sometimes doesn't hold a lot of weight in reality. And so what that represents are costs that are incurred that would ordinarily might be capitalized to the projects involved that we're equity accounting for.
But because of the restrictions in equity accounting under IFRS, were precluded from adding them to the balance sheet. And so they are, in effect, expensed for accounting purposes. And then just to be able to sort of balance the scorecard from a reporting point of view and not to penalize groups like ourselves that have a tremendous amount of activity in these equity accounted initiatives, we then get the opportunity to add them back for FFO purposes.
Got it. So I guess it'd be stated alter how similar to the indirect interest, just other costs, other than interest that you Yes.
That's probably one way of looking at it. It's just an equity in the accounting for equity investments, if you will.
Is there any thought to perhaps as this the pipeline grows a month to month JVs growth, structuring this even a minute, which would qualify for proportionate consolidation? Or is it just not feasible?
Great question, Mike. And I have to tell you, it's a discussion that has taken place at both the audit committee level and the Board level with our group over the last few days. We're going to spearhead an initiative both at the Real PAC level and perhaps other levels with our auditors as well to see if there is a way that we can potentially find a way to proportionally consolidate these types of initiatives. So you may not have had a chance to see it, but if you look at our MD and A for the quarter, we have actually taken the approach of proportionally consolidating anything that is equity accounted in the accounting statements. Hopefully, with the intent of giving you and others like you a better picture, a better perspective on what's actually taking place as opposed to trying to understand equity accounting.
Got it. I'll have a look at the MD and A. And if you need some support in your efforts with Realtek in terms of the cheering session, let us know.
And it appears there are no further questions at this time. Mr. Ford, I'd like to turn the conference back to you for any additional or closing remarks.
Okay. Good. Again, thank you all for taking the time to participate in our Q4 call. And again, thank you for your continuing interest and investment in REIT. Good night.
This concludes today's call. We thank you for your participation. You may now disconnect your lines and have a wonderful day, everyone. Take care.