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631-7650 for SmartCenters Real Estate. Great. Thank you, ma'am. Just one moment while I load that call. Thank you.
And may I have your first and last name with spelling? First name Tiffany, t I f f a n y, last name Cruz, c r u z. And may I have your company name as well, miss Cruz? S&B Global. Just to verify, that's s like Sam, n like Nancy, b like boy?
S for Sam, and then the ampersand sign, p for papa, global. Perfect. Thank you so much. I'll place your line on hold with music for the SmartCenters Right Q3 2019 conference. Just one moment.
Thank you. Good day, and welcome to the SmartCenters 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 Ford.
Please go ahead, sir.
Good evening. Welcome to the SmartCentres Q3 2019 conference call. I'm Peter Ford, President and CEO of SmartCentres Meeting. Joining me on the call today are Mitch Goldhar, Executive Chairman Peter Sweeney, Chief Financial Officer Mauro Pandianchi, Chief Development Officer Rudy Gobin, EVP, Portfolio Management and Investments and Alan 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, and then we will take your questions.
Our comments will mostly refer to the first ten pages and Page 24 to 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 material, which also applies to any comments any of the speakers make this evening. First, some overall comments. SmartCenters REIT remains a highly stable portfolio in excess of 34,000,000 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 SmartVaughn Metropolitan Center, SmartDMC, we commenced construction of a purpose built 35 storey, 451 Unit Residential Rental Tower Adjacent TO the 5 Sold Out Condominium Towers, bringing the total residential units under construction on the site to 3,218. In SmartVNC, 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 acre lakefront property in Barrie.
It is planned to be a multi phase rental apartment community comprising over 2,000 residential units. Phase 1 building of 4 21 units is expected to be under construction by mid-twenty 21. 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 $11.75 per square foot. High overall portfolio tenant retention with 80 3% of 2019 maturing tenants already renewing.
And then going forward, for 2020 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 continue to lead the industry at 98.2 percent leased, inclusive of all executed deals. And as has always been the case in our business, a few retailers come and go.
And in that respect, good news on the releasing of premises vacated by bankrupt tenants. We had 12 term leases with Bombay and Bowering in our portfolio, along with a few temp deals, representing less than onethree of 1% of our portfolio. All locations are in shopping centers that are anchored by a Walmart supercenter. And Payless closed all locations in Canada, including all locations with us early in the Q2. All but one of our locations are in the 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 or higher than the previous rents. The Toronto Premium Outlet Centre expansion of 144,000 Square Feet opened last November. It was 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 3 banners, Winners, Marshalls and HomeSense, Dollar Stores, quick service restaurants and fitness. And several new retailers are coming to Canada and we are working with them on several locations, Jollibee, F-forty 5, 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. And 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 34,500,000 square feet built on approximately 3,500 acres of land, with less than 24% utilization and primarily all of that at ground level, we have over 100,000,000 square feet of land within our shopping center to accommodate mixed use growth throughout the country, and that is only at grade and does not include the nearly 14,000,000 square feet of undeveloped lands we also own, for much of which we have plans for building out mixed use.
Retailers under 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 this all together in one location. The new uses 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. Rivera, SmartStop, CenterCourt, 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. And 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. I'll have 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, and good evening, everyone. Our financial results for the Q3 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 $198,000,000 was $3,000,000 higher than the $195,000,000 rental revenue recorded in the comparable quarter last year. Number 2, net income, excluding fair value adjustments, increased by $3,400,000 or 3.9 percent to $91,500,000 from $88,100,000 in the comparable quarter.
And 3, 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 $3,000,000 increase in FFO to $97,300,000 representing a 3.2% increase over the comparable quarter last year. On a per unit basis, FFO was $0.57 which is a $0.01 lower than the comparable quarter last year, and this decrease can be principally attributed to the dilutive impact of our $230,000,000 equity issuance in January of 2019. From a cash generating perspective, ACFO increased to $87,200,000 and exceeded both distributions declared and distributions paid by $10,000,000 $28,000,000 respectively, again, representing the business' 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 near completion of renewing approximately 3,000,000 square feet of tenancies, which represents approximately 83% of our 2019 lease maturities as 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 3rd 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 earnouts and other developments.
Number 3, our portfolio of mortgages continues to provide unsecured fixed rate refinancing opportunities at lower rates than the outgoing maturing rates and number 4, 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 to 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 related debt metrics to appropriately accommodate future levels of expected development financing 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 quarter, we note the following further improvements.
Number 1, our unencumbered pool of assets increased by 15% to $4,700,000,000
from $4,100,000,000
Number 2, our debt to aggregate assets ratio was reduced to 41.8% from 44.3%. Number 3, our weighted average interest rate for secured and unsecured financing decreased further to 3.66% from 3.73%. Number 4, our adjusted debt to adjusted EBITDA multiple was further reduced to 7.8 times from 8.2 times. Number 5, our interest coverage ratio improved further to 3.9x from 3.8x. And finally, number 6, our secured to unsecured debt ratio has now improved to 55% to 45% from 47% to 53%.
Furthering our strategic pursuit to increase SmartCenters' overall unsecured debt and unencumbered asset levels. This is a key strategic initiative that we've been working on over the last 2 years as we continue to pursue an enhanced credit rating. Recall that when we embarked upon this strategic initiative, 2 thirds of our debt was sourced from secured lenders. For our payout ratio distributions, our ACFO payout ratio for the 9 months ended September 30 increased to 86.6% from the comparable year's level of 82.6% and has been primarily influenced by the equity issuance 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 $36,000,000 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 $88,000,000 Our financial and operating results for the Q3 reflect our strong and stable business model that we believe positions us to continue to provide our unitholders with stable and growing distributions as further evidenced by our Board's decision for the 6th consecutive year to approve an increase of $0.05 a unit in annual distributions to $1.85 which took effect in October 2019. The very successful BAW deal that was completed in January 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 smart centers 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 Q1, together with our partner, Rivera, we announced 3 specific senior residence projects on REIT owned sites, 2 in Bonn and 1 in Oakville, and we are in the very final stages of documentation and announcing 3 additional GTA locations, another reedown site, another part of site owned by my company. And today, our Board approved the development of another project with Rivera in the GTA on lands already owned by Rivera. In addition, we also have entered into a partnership with Ciletschangu for a seniors' complex of 2 towers in Ottawa. For our 120,000 square foot plus self storage initiatives, we will be opening our first in Leaside in January.
And we're under construction in Brampton, Oshawa and Vaughan. And we have announced 3 additional projects: Scarborough, a second location in Brampton and Markham. We are in the planning stages for many additional re owned sites in Ontario and the Greater Montreal area as well as in cities in Western Canada with SmartSpot. In addition, we recently, as part of a continued strong relationship with SmartSpot, purchased jointly with them a 7 35 Unit Self Storage Facility on DuPont Street near Dufferin in Toronto. Now a quick update on the VMC project.
Things are advancing quickly with the subway commuters and more than 1300 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 is 100% leased in the office component. 2nd, 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. And the YMCA will open in the first half of twenty twenty. An additional 600 employees and an estimated 1200 daily visits to the YMCA on our VMC.
Thirdly, the 3 previously sold out 55 storey Transit City condo towers scheduled for delivery in 2020 2021, 1741 units in total are under construction and costs are below budget. These sold at an average price of $7.10 per square foot. 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 1, 23 respectively. We are now projecting the REIT's 25% share of the profits from these three towers to be approximately $65,000,000 $30,000,000 higher than the original projections.
And 4th, as Peter mentioned, we commenced construction of 2 additional residential condo towers, 10 15 units, 45 and 50 storey condo towers, again sold out in less than a month. The 45 storey tower had an average of $8.35 per square foot and the 50 storey tower sold next at $8.65 per square foot. These two towers are in our partnership with CenterCourt 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 Bonn at the site of our former office. Once the new location is open in July 2020, Walmart will be moving from its current location and 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 allow 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 BMC to include a 600,000 square foot office tower and additional residential towers. Overall, we now see 9 to 11000000 square feet being developed on 50 acres of BNC 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 Ball Metropolitan Center Subway Station and the KPMG Tower.
We are reviewing and planning for residential, rental condos and or townhouses on all our sites over time. That's the planning and active participation with the various municipalities are underway on most of these sites. Today, our Board approved 2 additional residential rental projects in Ontario, a master planned project of 400 to 500 units in 4 to 5 storey buildings and a 21 storey 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. The potential intensification development program continues to grow as we further review our portfolio 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, up from 82, comprising some 12,400,000 square feet, and that's our share, the REIT 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 being over $5,500,000,000 In addition, another 151 projects and towers, 15,500,000 square feet our share have been identified on which we will commence rezoning, design and site plan approvals and marketing during the same 5 years with construction commencing after that. So a total of 256 projects, 27,900,000 square feet per share of mixed use space and the review continues.
A breakdown of these projects by asset type is provided on Page 9 of our MD and A. And 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 at Highway 7, Pointe Claire in Quebec, which we've spoken about in the past, which is an estimated 2,000,000 square feet of density. Oakville, our South Oakville Center will become a reconfigured 180,000 square foot shopping center anchored by Metro Shoppers, LCBO, Good Life, Winners and other strong retailers with an adjoining Rivero 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 square foot shopping center to be surrounded by 1,700,000 square feet of new development. Townhouses in our joint venture with Fieldgate, self storage with SmartStop, 2 senior residence towers with Rivera and 2 condos and 2 apartments are underway to be developed on our own. Westside Mall in Toronto on Edmonton is our 12 acre site, which is 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 2,000,000 square feet of mixed use development. Laval Center, 43 Acres, is anchored by 160,000 foot Walmart.
Construction of our new 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, Allison, several Mississauga locations, Markham at Highway 7 in Woodbine, Maribel where we have the outlet center, Laval East, Beaujeuil, Bauschouche 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 and British Columbia. We estimate that in 10 years from now, we will be generating recurring NOI from these new rental businesses, seniors 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.
You. Thank As 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 Q3, and 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.