Good day, welcome to the SmartCentres REIT Q3 2019 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Peter Forde. Please go ahead, sir.
Good evening. Welcome to the SmartCentres Q3 2019 conference call. I am Peter Forde, President and CEO of SmartCentres REIT. Joining me on the call today are Mitch Goldhar, Executive Chairman, Peter Sweeney, Chief Financial Officer, Mauro Pambianchi, Chief Development Officer, Rudy Gobin, EVP Portfolio Management and Investments, and Allan Scully, EVP Development. The agenda for the call will 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 Mitch speaking about some of our exciting project developments. Then we will take your questions. Our comments will mostly refer to the first 10 pages and page 24-25 of our supplemental information package and the outlook section of our MD&A, which are posted on our website.
I refer you specifically to the cautionary language at the front of the supplemental material, which also applies to any comments any of the speakers make this evening. First, some overall comments. SmartCentres REIT remains a highly stable portfolio in excess of 34 million square feet of well-located, value-oriented shopping centers with tremendous mixed-use intensification opportunities. Regular and growing positive results from our new mixed-use initiatives are about to commence next year. Towards this end, we achieved the following. For SmartCentres Vaughan Metropolitan Centre, SmartVMC, we commenced construction of a purpose-built, 35-story, 451-unit residential rental tower adjacent to the five sold-out condominium towers, bringing the total residential units under construction on the site to 3,218. In SmartVMC, the KPMG Tower office space is fully occupied, and the PwC/YMCA Tower is also now fully leased. PwC opens for business next week.
We announced that we entered into a co-ownership agreement with Greenland and closed on the purchase of the land to develop a 7.8 acres lakefront property in Barrie. It is planned to be a multi-phase rental apartment community comprising over 2,000 residential units. A phase one building of 421 units is expected to be under construction by mid-2021. As you will hear from Peter Sweeney, we had another strong and stable quarterly performance from our existing retail portfolio, with notable mention going to the strong results from the Toronto Premium Outlet expansion, which opened in November last year. Average tenant sales for the center are at CAD 1,175 per square foot. High overall portfolio tenant retention, with 83% of 2019 maturing tenants already renewing.
Going forward, for 2020 and 2021, profits from the first of many recurring residential developments and from the variety of new business initiatives and developments, some of which are described this evening and in our quarterly report. Our core open-format retail portfolio remains strong, and with its value-oriented, nationally focused tenant base, is well-suited to the changes taking place in the retail marketplace. On executed leases, our shopping centers continued to lead the industry at 98.2% leased, inclusive of all executed deals. As has always been the case in our business, a few retailers come and go. In that respect, good news on the releasing of premises vacated by bankrupt tenants. We had 12 term leases with Bombay and Bowring in our portfolio, along with a few temp deals, representing less than one-third of 1% of our portfolio.
All locations are in shopping centers that are anchored by a Walmart Supercentre . Payless closed all locations in Canada, including all locations with us early in the second quarter. All but one of our locations are in a center anchored by a Walmart store. We are pleased to report that we are in advanced discussions and/or have executed deals for approximately 70% of the Payless locations and approximately 50% of the Bombay/Bowring locations, with rents equal to or higher than the previous rents. The Toronto Premium Outlet center expansion of 144,000 sq ft opened last November. It is fully leased and exceeding expectations. The expansion and high-caliber tenant mix makes this center one of the top-performing premium outlet centers in the world. Several successful retailers in Canada are taking advantage of the opportunities to expand their platform across the country.
Retailers such as TJX with its three banners, Winners, Marshalls, and HomeSense, dollar stores, quick service restaurants, and fitness. Several new retailers are coming to Canada, and we are working with them on several locations. Jollibee, F45, Wahlburgers, and others yet to publicly announce their arrival. Our strong and stable retail portfolio provides a solid base upon which we will grow income and NAV through our mixed-use intensification. We are seeing signs of a strengthening market and tone from retailers for our brands of value-oriented tenants and shopping centers. A few general reminders about our development pipeline and capabilities. Most of the development initiatives we are planning are on land we already own, unlocking value and not requiring us to buy very expensive land to develop this density.
We use our in-house development team to drive the initiatives, all contributing to enhanced yields and profits over the long term. Remember, this in-house development team developed 86% of our current retail area. We know the markets, the municipalities, and the properties. With 34.5 million sq ft built on approximately 3,500 acres of land, with less than 24% utilization, and primarily all of that at ground level, we have over 100 million sq ft of land within our shopping center to accommodate mixed-use growth throughout the country. That is only at grade and does not include the nearly 14 million sq ft of undeveloped lands we also own, for much of which we have plans for building out mixed use.
Retailers and the new users we are bringing to the centers, residential, condos and apartments, seniors residences, office and self-storage, are aware of the synergistic benefits of bringing this all together in one location. The new users benefit from the great locations, the great 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 have stated before, we carefully select our development partners, looking for like-minded partners for a good cultural fit with complementary skills. I'm pleased to report that all our new relationships are going extremely well. Revera, SmartStop, CentreCourt, Selection Group, Jadco, Greenland, and of course, our long-standing relationships with Walmart and others. A reminder that virtually none of the additional land value associated with the density we are creating is reflected in our IFRS values.
We generally reflect this increase in land value when we sell an interest in the land to a JV partner once it's zoned, at which time we recognize the uplift on our retained portion as well, or for retained properties, when zoning is obtained, tenant permissions are in place, and we have a project ready for implementation. Also, as a reminder, 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, and all internal fees and capitalized costs are included in cost. More about the developments from Mitch in a few minutes, but first, I'm going to turn it over to Peter Sweeney.
Thanks very much, Peter Forde, good evening, everyone. Our financial results for the third quarter of 2019 reflect the continued strength, stability, and security of our 34-million-square-foot, predominantly Walmart-anchored shopping center portfolio. During the quarter, this portfolio generated the following strong results. Number one, rental revenue from investment properties of CAD 198 million was CAD 3 million higher than the CAD 195 million rental revenue recorded in the comparable quarter last year. Number two, net income, excluding fair value adjustments, increased by CAD 3.4 million, or 3.9%, to CAD 91.5 million from CAD 88.1 million in the comparable quarter. Three, net operating income as a percentage of net base rent was 100%, which is consistent with our previous quarterly results in 2019. These continued strong operating metrics are indicative of our portfolio's unique ability to demonstrate steady growth even in uncertain times.
These stable operating results contributed to a CAD 3 million increase in FFO to CAD 97.3 million, representing a 3.2% increase over the comparable quarter last year. On a per-unit basis, FFO was CAD 0.57, which is CAD 0.01 lower than the comparable quarter last year. This decrease can be principally attributed to the dilutive impact of our CAD 230 million equity issuance in January of 2019. From a cash-generating perspective, ACFO increased to CAD 87.2 million and exceeded both distributions declared and distributions paid by CAD 10 million and CAD 28 million, respectively, again representing the business's continued ability to produce steady and consistent cash flow. Same property NOI growth was flat for the quarter, which was principally caused by the 2019 bankruptcies previously announced. Excluding the impact of these bankruptcies, same property growth would have exceeded 2% for the quarter.
We renewed or are near completion of renewing approximately 3 million square feet of tenancies, which represents approximately 83% of our 2019 lease maturities at average rental increases, excluding anchor tenants, of 4%. This is consistent with the improving growth rates that we've been experiencing over the last three quarters, and as Peter mentioned earlier, is indicative of an improving retail leasing market. These improved third quarter results can be attributed to the following primary factors. Number 1, the incremental NOI now being generated from the new tenants at both the KPMG and PwC office towers. Number 2, the incremental NOI now being generated from both the 144,000 square foot expansion of space at the Toronto Premium Outlets, which opened in November of 2018, and most recent earn-outs and other developments.
Number three, our portfolio of mortgages continues to provide unsecured fixed rate refinancing opportunities at lower rates than the outgoing maturing rates. Number four, additional percentage rent, parking revenue, and other miscellaneous revenue. Now let's focus on our balance sheet. From a financing perspective, we began 2019 with a strong reminder to the capital markets of our conservative management of capital. We applied the proceeds of our very successful issuance of CAD 230 million of equity against some of our credit facilities to reduce our overall debt levels and related debt metrics to appropriately accommodate future levels of expected development financing. 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 quarter, we note the following further improvements.
Number one, our unencumbered pool of assets increased by 15% to CAD 4.7 billion from CAD 4.1 billion. Number two, our debt to aggregate assets ratio was reduced to 41.8% from 44.3%. Number three, our weighted average interest rate for secured and unsecured financing decreased further to 3.66% from 3.73%. Number four, our adjusted debt to adjusted EBITDA multiple was further reduced to 7.8x from 8.2x. Number five, our interest coverage ratio improved further to 3.9x from 3.8x. Finally, number six, our secured to unsecured debt ratio has now improved to 55%-45% from 47%-53%, furthering our strategic pursuit to increase SmartCentres' overall unsecured debt and unencumbered asset levels. This is a key strategic initiative that we've been working on over the last two years as we continue to pursue an enhanced credit rating.
Recall that when we embarked upon this strategic initiative, two-thirds of our debt was sourced from secured lenders. For our payout ratio and distributions, our ACFO payout ratio for the nine months ended September 30th increased to 86.6% from the comparable year's level of 82.6%, and has been primarily influenced by the equity issued earlier in 2019, and continues to reflect the healthy level of cash flow generated by the retail portfolio. Our year-to-date surplus of ACFO over distributions declared of CAD 36 million reflects the continued strength and core stability of our business model. When factoring in our highly successful DRIP program, the year-to-date surplus of ACFO over distributions actually paid totaled CAD 88 million.
Our financial and operating results for the third quarter reflect our strong and stable business model that we believe positions us to continue to provide our unit holders with stable and growing distributions as further evidenced by our board's decision for the sixth consecutive year to approve an increase of CAD 0.05 a unit in annual distributions to CAD 1.85, which took effect in October of 2019. The very successful bought deal that was completed in January of 2019 will dilute our growth expectations in 2019 by approximately 3%, thus resulting in limited FFO growth per unit in 2019. 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 SmartCentres, as these initial closings are expected to result in growth in FFO per unit exceeding 10%.
I'll 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, Peter. In the first quarter, together with our partner, Revera, we announced 3 specific senior residence projects on REIT-owned sites, 2 in Vaughan and 1 in Oakville. We are in the very final stages of documentation and announcing 3 additional GTA locations. Another REIT-owned site, another on a site owned by my company. Today, our board approved the development of another project with Revera in the GTA on lands already owned by Revera. In addition, we also have entered into a partnership with C. Latendresse for a seniors complex of 2 towers in Ottawa. For our 120,000 sq ft, plus self-storage initiatives, we will be opening our first in Leaside in January. We are under construction in Brampton, Oshawa, and Vaughan. We have announced 3 additional projects, Scarborough, a second location in Brampton, and Markham.
We are in the planning stages for many additional REIT-owned sites in Ontario and the greater Montreal area, as well as in cities in Western Canada with SmartStop. We recently, as part of a continued strong relationship with SmartStop, purchased jointly with them a 735-unit self-storage facility on Dupont Street near Dufferin in Toronto. A quick update on the VMC project. Things are advancing quickly. With subway commuters and more than 1,300 employees working out of the KPMG building already, our project is quickly becoming a metropolitan area. This will only increase in intensity as we have now completed the office leasing for the KPMG tower, and it is 100% leased in the office component. Second, we've completed the mixed-use tower, in which PwC opens for business next week, and recently leased to Scotiabank, an office floor and a ground-floor retail, which will open in early 2020.
The YMCA will open in the first half of 2020. An additional 600 employees and an estimated 1,200 daily visits to the YMCA on our VMC. Thirdly, the three previously sold-out 55-story Transit City condo towers scheduled for delivery in 2020 and 2021, 1,741 units in total, are under construction and costs are below budget. These sold at an average price of CAD 710 per sq ft. You can see a current picture of the construction on page 11 of your supplemental information package. Construction activity has reached the 55th floor, the 45th floor, and the 20th floors of the towers one, two, and three, respectively. We are now projecting the REIT's 25% share of the profits from these three towers to be approximately CAD 65 million, CAD 30 million higher than the original projections.
Fourth, as Peter mentioned, we commenced construction of two additional residential condo towers, 1,015 units, 45- and 50-story condo towers, again, sold out in less than a month. The 45-story tower at an average of CAD 835 per square foot, the 50-story tower sold next at CAD 865 per square foot. These two towers are in our partnership with CentreCourt and are connected to our 451-unit residential rental tower that my company and the REIT are developing, constructing, and operating together. We are commencing construction of a new Walmart store in Vaughan at the site of our former office. Once the new location is open in July 2020, Walmart will be moving from its current location, this will free up 15.5 acres of additional development lands on the SmartVMC site. Many of the new roads within the SmartVMC have now been completed and are open.
The ramp off the Highway 400 has been redesigned to allow access directly into our road network and allowing easier movements to the office buildings, and the condos, and the new Walmart store once it is open. We are already designing the next phase of the VMC to include a 600,000 sq ft office tower and additional residential towers. Overall, we now see 9 million-11 million sq ft being developed on the 50 acres of VMC lands that the REIT owns with my company as partner. Another recent testament to the growing sentiments of a downtown community feel of SmartVMC is that it will soon be showcased to millions of Canadians on January 12th next year, this coming January 12th, with Rogers Hometown Hockey festivities and broadcast from our Transit Square directly adjacent to the Vaughan Metropolitan Centre subway station and the KPMG Tower.
We are reviewing and planning for residential, rental condos, and or townhouses on all our sites over time. Master planning and active participation with the various municipalities are underway on most of these sites. Today, our board approved two additional residential rental projects in Ontario, a master-planned project of 400-500 units in 4- to 5-story buildings and a 21-story, 241-unit building. Details to be announced later next quarter. As you can see, our significant mixed-use development plans extend across the country in all types of markets where we already own real estate and where we are generally already the dominant center in the market. We have been in discussions with potential residential partners for many of these sites and will be developing many of them on our own. Potential intensification in development program continues to grow as we further review our portfolio for opportunities.
The number of potential projects and towers to commence construction, in addition to our retail development pipeline within the next five years, is currently estimated at 105, up from 82, comprising some 12.4 million square feet, and that's our share, the REIT share, of mixed-use space. This development will have an estimated cost of CAD 12.1 billion on completion, with SmartCentres REIT's estimated share being over CAD 5.5 billion. In addition, another 151 projects and towers, 15.5 million square feet our share, have been identified on which we will commence rezoning, design, and site plan approvals and marketing during the same five years, with construction commencing after that. A total of 256 projects, 27.9 million square feet our share of mixed-use space, and the review continues. A breakdown of these projects by asset type is provided on page nine of our MD&A.
As the table shows, we have planning entitlements for 65 of the 105 active projects and for more than 50% of the 256 projects. Some specific examples of the current projects in addition to SmartVMC is the 407 project on the west side of 400 and Highway 7. Pointe-Claire in Quebec, which we've spoken about in the past, which is an estimated 2 million sq ft of density. Oakville, our South Oakville Centre, will become a reconfigured 180,000 sq ft shopping center anchored by Metro, Shoppers, LCBO, GoodLife Fitness, Winners, and other strong retailers, with an adjoining Revera seniors residence building and townhouse development. A rendering of the plan of this project is included on page 13 of the supplemental package. Far Northwest, 178,000 sq ft shopping center to be surrounded by 1.7 million sq ft of new development.
Townhouses in our joint venture with Fieldgate, self-storage with SmartStop, two senior residence towers with Revera, and two condos and two apartments are underway to be developed on our own. Westside Mall in Toronto on Eglinton is our 12-acre site, adjoining the LRT station being built, which is actually being built on our land, and a pedestrian bridge connecting our site to the new GO train stop. This site is now designated for just over 2 million sq ft of mixed-use development. Laval Centre, 43 acres, is anchored by 160,000 sq ft Walmart. Construction of our first two apartment towers is underway. We expect to develop the remaining lands with primarily residential rental apartments and condominiums.
Other sites for which residential plans are evolving include Oakville North at Trafalgar and Dundas, Pickering, Hamilton Stoney Creek , Hamilton Mountain Plaza, Alliston, several Mississauga locations, Markham at Highway 7 and Woodbine, Mirabel, where we have the outlet center, Laval East, Beauharnois, Mascouche in Quebec, and with a lot of interest in joint ventures, and Langley, just outside Vancouver. Maple Ridge, Chilliwack, New Westminster, a suburb of Vancouver in British Columbia. We estimate that in 10 years from now, we will be generating recurring NOI from these new rental businesses, senior homes, apartments, office, and self-storage, in excess of 20% of our total rental NOI, plus significant profits in the tens of millions every year starting in 2020 from the sale of condominiums and townhouses. With that, I will turn it back to the operator to coordinate us in addressing your questions. Thank you.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Once again, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. And one last time, if you'd like to ask a question, please signal by pressing star one. If there are no questions, we'll go ahead and give the floor back to the moderator.
Okay. Well, again, thank you for all taking the time to participate in the call tonight for our third quarter. Thank you for your continuing interest and investment in our REIT. Good evening.
This concludes today's call. Thank you all for your participation. You may now go ahead and disconnect.