Good day, and welcome to the SmartCenters REIT Third Quarter 2018 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Mr. Peter Ford. Please go ahead, sir.
Good evening. Welcome to SmartCentres Q3 2018 conference call. I'm Peter Ford, President and CEO of SmartCentres REIT. Joining me on the call today are Mitch Goldhar, Executive Chairman Peter Sweeney, Chief Financial Officer Mauro Panbianchi, Chief Development Officer Rudy Gobin, EVP, Portfolio Management and Investments and Stephen Champion, EVP Development. Peter Sweeney will first talk about our results for the quarter and our funding activities, followed by me and Mitch speaking about our operations and exciting project developments and then we will take your questions.
Our comments will mostly refer to the first seven pages and Page 2223 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 Thanks
Thanks very much, Peter, and good evening, everyone. The development initiatives that Mitch and Peter Ford will speak to in a few moments are heavily dependent upon having a strong and stable cash flow generating operating platform. In this regard, our financial results for the Q3 of 2018 reflect the continued strength, stability and growth of our shopping center portfolio. During the Q3, this portfolio generated the following improved results: a, net base rent was $126,300,000 representing a 6.5% increase over the comparable quarter. B, rentals from investment properties was $194,900,000 representing a 9% increase over the comparable quarter.
C, net income before fair value and similar adjustments was $89,000,000 representing a 6.8% increase over the comparable quarter. DFFO per unit increased by $0.02 to $0.58 representing a 3.6% increase over the comparable quarter. E, a CFO exceeded both distributions declared and distributions paid by $16,400,000 $30,900,000 respectively And finally, F, our same property NOI growth rate increased by 0.6% over the comparable quarter and was adversely influenced by net reversals of bad debt amounts taken in the prior year. If adjusted for these reversals, the same property NOI growth rate for the quarter would have been approximately 1%. For the Q3, our improved results can be attributed to 5 primary factors: number 1, the 12 properties that we purchased as part of the One REIT transaction last year continue to provide tremendous operational and FFO growth, which is consistent with our expectations and further reaffirms the appropriateness of our purchase decision for these assets.
Number 2, our portfolio of maturing mortgages continues to provide refinancing opportunities at lower rates than the outgoing maturity rates. Number 3, the KPMG tower continues to experience the commencement of new tenancies, which are providing incremental NOI and FFO. Number 4, our lease renewal program is beginning to reflect some modest improvement whereby year to date lease renewal initiatives, excluding anchor tenants, reflect a 3.5% increase in average net rental rates, which is substantively improved over the prior year. And lastly, number 5, onetime benefits attributed to lease termination fees of 2,700,000 dollars net of anomalous professional fees and public company costs of $1,200,000 have improved our 3rd quarter results. From a financing perspective, our goals with respect to our funding strategy remain: firstly, to ensure that we have ready access to funding for our extensive proposed development pipeline.
Our approach is to maintain as flexible a balance sheet as is possible well within our relevant debt covenants. Each development project typically carries construction level debt provided by a syndicate of financial institutions for the construction period. Our experience to date has been that our syndicate members have been both supportive in terms of providing financing and also very competitive in terms of the pricing that we are being provided. Once a project is finalized, we will then term out the funding as appropriate. With the inclusion of multiple well capitalized joint venture partners in our program, this further mitigates a significant portion of our funding needs secondly, to lower the costs of our future funding requirements by achieving a ratings upgrade to BBB high.
Our conversations with DBRS had indicated that we need to both, a, balance our secured and unsecured funding portfolios and B, demonstrate a plan that will result in an increased EBITDA level. We are well on our way to achieving both of these objectives. And based on our funding plan for 2018, we still expect by year end to have approximately 50% of our debt funded in the unsecured market, which is a significant change from just over 2 years ago. For the year to date, we have repaid approximately $400,000,000 in mortgages that carried a weighted average interest rate of 5.1% with substantively lower cost financing alternatives despite a raising interest rate environment. Also, as a result, our unencumbered asset pool has now grown to an excess of $4,100,000,000 supported by income from many of our high quality assets.
Also, we recently completed the following financing initiatives: number 1, we arranged an $80,000,000 5 year unsecured credit facility at favorable pricing. Number 2, we arranged a $122,000,000 25 year term mortgage for the KPMG tower, once again at a very favorable interest rate. Number 3, we arranged for the early redemption of $36,000,000 in 5.5 percent convertible debentures that were assumed by SmartCenters as part of the 1 week transaction last year. And finally, number 4, subsequent to the quarter's end, we completed a $95,000,000 first mortgage on an investment property with varying maturity dates ranging from 3 to 7 years, once again at a favorable interest rate. Each of these initiatives will contribute positively to FFO growth in the future.
For our payout ratio and distributions, we experienced slightly lower maintenance CapEx, tenant improvement allowances and leasing commissions in the 1st 9 months of 2018, which are expected to normalize over the balance of the year. Annualized for 2018 2019, we do expect somewhat higher tenant allowances and related leasing commissions based on the commencement of new tenancy and the need to rework space to maintain occupancy. But our expectations are that our payout ratio will remain in the 75% to 85% range. For the Q3, our surplus of ACFO distributions declared of $16,400,000 shows a continued healthy level of cash generation, reflecting the unique strength and core characteristics of our business model. When factoring in our highly successful DRIP program, the surplus of ACFO over distributions actually paid during the quarter totaled almost $31,000,000 And so for the 5th consecutive year, we announced a $0.05 per unit increase to $1.80 per unit in our annual unit distribution.
Our financial 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 while concurrently supporting our existing business, funding our growing development pipeline of retail and mixed use initiatives and lastly, remaining us to consider appropriate acquisition opportunities as they become available. And with that, I will turn the call back over to Peter Fuller.
Thanks, Peter. All in all, a strong and stable quarter's performance from our existing retail portfolio as the development pipeline fills and prepares to deliver results in many areas, namely in late 2018 and all of 2019 as the Toronto Premium Inlet expansion opens. In 2019, as the PWC tower is completed and the occupancy of the remaining office space in BMC's KPMG tower, which is now 100 percent leased. In 2020 2021, as the first of many future residential developments are completed, and it is our expectation that there will be a regular annual cash flow from such residential projects. And also on a go forward basis from the variety of new business initiatives and developments, some of which are described this evening and in our quarterly report.
Our core 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. The shopping centers are 98.1 percent occupied and 98.2 percent including executed leases. Representing our 53rd consecutive quarter, that is into our 14th year with occupancy more than 98%, an average during that time of 98.9%. The middle class in Canada continues faces continuing financial pressure, and that group has always wanted to shop for good value, but does so even more now. And our value oriented retailers are performing very well in this environment.
More and more, there is an acknowledgment that online retail and bricks and mortar retail need each other. Those retailers that can do both well will clearly outperform. Bricks and mortar retailers that utilize their well established locations can offer consumers convenient e commerce options that pure play online retailers cannot, things like convenient pickup, showcasing projects, shorter home delivery times from stores, convenient returns, etcetera. As an acknowledgment of this, many traditional pure play online retailers are now turning to brick and mortar as well. Examples Amazon, Casper and Eyeglass retailer, Warby Parker.
Given the importance to retailer success of the combining of this bricks and mortar with the online, we assessed our retailers and can report that of the top 50 tenants in our shopping centers, excluding restaurants and fitness, all but 8 of them have complementary e commerce businesses. And I'm sure even for some of those, an e commerce platform is in the works. Retailers that provide their customers with various alternative means to purchase are often referred to as omnichannel retailers. I like to think of SmartCenters as the only omnichannel landlord. Not only do we facilitate our tenants' delivery of sales via drive throughs and their truck and collect facilities, but we also offer through an affiliated entity Penguin Pickup, convenient pickup locations for customers to pick up packages ordered online from any retailer, all types including fresh and frozen groceries and currently with 91 locations across the country and growing.
Recently, Penguin Pickup has added several downtown locations co branded with Walmart. These downtown locations offer a convenient way for people to have greater access to Walmart's lower prices for all types of merchandise, including food. Speaking of Walmart, we have 115 Walmart stores in our shopping centers. Walmart store traffic in Canada continues to grow with the value focus I mentioned. With the departure of Target, Sears and Zellers, Walmart has become the only large discount general merchandiser in the country.
In addition, Walmart's focus on expanding its food business continues and its market share in this area continues to grow. In many of the markets which our shopping centers reside, our center is the only significant value oriented center, and therefore, the center dominates the market. Many other retailers are attracted to our centers because of the increasing traffic that Walmart is bringing. Many of our more value oriented retailers continue to expand. Dollar Stores, Dollarama and Dollar Tree, TJX with its Winners, Marshalls and HomeSense banners, Canadian Tire with its main store, Mark's Sport Chek and other sporting good banners, Indigo Food Stores, Restaurants, Beer and Wine, along with a host of other service uses.
As part of its ongoing strategic reassessment and part of a normal healthy pruning of underperforming stores, Lowe's Canada recently announced that it would be closing 27 or 4% of its 630 Canadian locations. None of the proposed store closings are in our portfolio. Bombay and Bauer in Canada recently announced its insolvency filing and will decide on disclaiming stores in January after liquidation sales. We have 12 term leases with Bombay and Bowering in our portfolio along with 9 TEMP deals. All locations all of those locations are in shopping centers that are either anchored or shadow anchored by a Walmart supercenter.
Because each of these locations are just over 5,000 square feet in size, they represent units that are highly desirable by prospective tenants. Accordingly, we anticipate that if new tenants within 12 months of their vacancy. And the Toronto Premium Outlet Centre expansion of 145,000 Square Feet is on schedule to open next Thursday and is expected to be virtually fully leased at that time. The new 1600 car parking garage has been opened for most of this year. The expansion will include the addition of several new exciting luxury brands including Gucci, Montblanc, Prada, Zadig and Voltaire and will allow it to continue being one of the top performing premium outlet centers in the world.
This strong and stable retail portfolio provides a solid base on which we can grow income and NAV through mixed use intensification. A few general points about our development pipeline and capabilities. Virtually all 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 the density. We are unique in that we are developing a diverse selection of new real estate types, not just 1 or 2, taking advantage of the opportunities while dispersing the risk and driving customer traffic to the existing shopping centers. We have very strong JV and consultant relationships, but more importantly, a large in house team of development specialists.
This is a team that has executed the development of 200 plus shopping centers, and these transferable skills are now also delivering results in these new development types. Most of the development team comes from a very disciplined private company and entrepreneurial mindset, watching every dollar like it is our own, with a strong long term perspective, while following any additional governance practices appropriate for a public entity. A few updates in the development area before I turn it over to Mitch. We are often asked about construction cost increases. Most of the increases come from steel cost increases and specifically the tariffs.
Directly for structural steel and reinforcing steel and less directly in other products containing some steel such as rooftop units or ductwork or steel studs, We are at a good point on existing projects. For example, we have firm prices for 82% of the construction costs of the 355 storey condo towers at the Long Metropolitan Center and 100% of the construction costs of the YMCA PWC mixed use building. All these projects are on schedule and on or ahead of budget. And going forward, we are revising our performance for new projects, rents and or sales prices to cover these increases and maintain acceptable yields. Our development teams are also planning for alternate land use permissions on most of our shopping centers, allowing for greater flexibility down the road.
And we continue to work with our partner Simon Properties on 2 specific sites in Canada for new premium outlet centers. And now a quick update on some of our previously announced new business initiatives. Seniors residences partnering with Rivera and Self Storage partnering with SmartSouth, both relationships where SmartCenters will develop and construct the buildings and our fifty-fifty partners will operate the facilities once complete. We expect each of these owned sites before the end of the year, all in the GTA with an additional 5 in the early planning stages for 2019 in the GTA and Western Canada. And for self storage, we are moving forward with projects in Leaside, Brampton, Oshawa and Vaughan.
We are in the planning stages for 8 additional REIT owned sites in Ontario and have toured the Greater Montreal area and cities in Western Canada with Smart South and proposed locations in each of those markets. Decisions on sites in those markets are expected in the next 2 to 4 months. Now I will turn things over to Mitch to tell you more about some of the other development initiatives.
Thanks, Peter. We continue to plan and review for intensification and mixed use on virtually all our sites and centers. Let me first start with our Long Beach Ballroom Center project, our downtown. Things are advancing quickly. The subway line extension, 45 minutes direct from Union Station, opened on-site last December.
We added 900 surface parking stalls on our lands close to the sub reservation to facilitate a smooth commute for new TTC patrons and simultaneously get them accustomed to the BMC being the center of their universe. These 900 stalls are full before 8 am each weekday. We could fill more. When you add to that, the busy pickup and drop off area, the bus commuters transferring to and from the subway and more than 1300 employees working out of the KPMG building currently, our project is quickly looking and feeling like a metropolitan area. This will only increase in intensity as we have completed the leasing of the KPMG tower now.
Most recently, we leased the 8th floor to Marc Anthony Cosmetics, which will open for business in 2019. We've complete the internal and surrounding road networks and York Regional Bus Terminal, which will open early in the New Year. We will complete the mixed use tower to be occupied by PWC and the YMCA in fall 2019, an additional 500 PWC employees and an estimated 1200 daily visits to the YMCA. We are in negotiations with a couple of potential tenants for the 1 unleashed floor in this building. This will increase when we complete the 3 sold out 55 story Transit City condo towers in 2020, 1716 units.
All three towers under construction are scheduled sorry, are on schedule or and ahead of budget, as in under budget. It is expected that we will top off each of the 3 towers by this time next year. A site plan application was submitted in September for 3 new residential towers, 1560 units, 45 and 50 storey condo towers and a 35 storey rental residential tower. We refer to it as our East Block, east of the bus terminal in the northeast corner of our site. An artist rendering is included on Page 8 of the supplemental information package.
Overall, we now see 9,000,000 to 11,000,000 square feet being developed on the approximate 50 acres of VMC lands The REIT owns with my company Penguin Investments as partner. In addition, the REIT owns a retail site currently operated as a retail site on 20 acres on the west side of Highway 400, Fronting on Highway 400 for intensification with a potential 2,500,000 square feet of redevelopment, including residential, office and retail. The site is a primary site under Bond's official plan and hence, contemplated for high density and it's just east of the 34 storey tower sold out and occupied next door at Westin and Highway 7. Currently, the bridge over 400 is being widened to accommodate additional traffic as well as expand the Viva dedicated bus lane connecting the 905 to the subway station. And then just west of that site, across Weston Road, the REIT owns an interest in another 430,000 square foot retail center with potential for significant residential intensification over time.
As long retail and intensificationconversion node is by itself enough to keep those companies busy for a long time. We are reviewing and planning for potential residential, rental, condo and or townhouses on all our sites. Redevelopment plans for the following shopping centers are well underway: Pointe Claire in Quebec on the island of Montreal a 385,000 Square Foot Walmart and Home Depot anchored shopping center we purchased in 2016. We have in the works we have been working closely rather with the city of Pointe Claire on a new master plan and have now obtained zoning for 1,520,000 square feet of density. Detailed planning is underway for the 1st residential rental tower expected to be completed in 2021, 2022.
South Oakville Center, this center is in Oakville and it's anchored it was anchored by a Target store. We have now initiated discussions with the municipality, with tenants and with a potential partner. If things go according to plan, this site will become a reconfigured 180 1,000 square foot shopping center down from 330,000 and it will be anchored by a Metro Food Store, Shoppers Drug Mart, LCDO, Good Life Fitness and other strong retailers with a new Riveras seniors residence building and a townhouse development. Negotiations are well underway with a residential developer to jointly develop the townhouses on the site with us. Westside Mall in Toronto, our 12 acre property on Eglinton West, will benefit from the LRT station being built on our lands and a pedestrian bridge connecting to the new GO train stop.
With indicated city and provincial government support, this site is now designated for over 2,000,000 square feet of mixed development uses. Laval Center. This 43 acre site is anchored by 160,000 Square Foot Walmart. Construction of an office building, hotel and seniors building on the land we have sold on the site and apartments we will own on the site will soon commence. We expect to develop the remaining 15 acres with primarily residential rental apartments, condominiums and retail complementary retail.
Weston Road and 401, a 167 this is Smart Center's share, 167,000 Square Foot Retail Center is now under review for a major reconfiguration and a retenanting of the retail on the site and longer term for residential rentals. This site has great visibility and access to and from the 401, the busiest highway and the busiest intersection on the busiest highway in the country. Chilliwack Mall, 173,000 Square Foot Shopping Center purchased as part of last year's OneReach transaction, is in the developed planning stages of a demalling of the existing enclosed portion, plus the addition of a seniors' home on-site. Other sites for which residential plants are evolving, including Oakville North, a fantastic site at Trafalgar in Dundas Vaughan Northwest and Mackenzie and Reston Road nearby the new hospital, which is under construction Hamilton Stoney Creek Hamilton Mountain Plaza Mississauga on Burnham Fork, just west of City Center Markham, Highway 7 and Woodbine, just west of Markham City Hall and in front of the new Viva bus dedicated bus line. Mirabelle, next to our outlet center, Laval East, Beaudroy, Brampton, Kings Point, another site purchased in the One Reef and it fills site on Highway 10, just north of downtown Brampton.
We have been in discussions with potential partners for many of these sites and may even consider developing a few on our own. In the residential space to date, we have partnered with CentreCourt for condos in Vaughan, JADCO for apartments in Laval and Fieldgate for townhomes in Vaughan Northwest. We are careful in the selection of our partners. We look for the right fit, cultural and work ethic. Until recently, we have not had that many partners, but the ones we have evolved into many properties, the largest relationship, of course, being Walmart, with which we developed as in developed real estate in over 100 properties with Walmart.
We have a great relationship with our existing partners. We For as we further review our portfolio for opportunities. From this ongoing review, the number of potential projects, towers to commence construction within the next 5 years is up from our estimated last quarter of 67 projects to 76 projects. These projects will have an estimated value of $9,500,000,000 on completion, with SmartCenters' estimated share being $3,400,000,000 In addition, another 82 projects or towers have been identified on which we will commence rezoning, design and site plan approvals and marketing during that same 5 years, with construction commencing after that. All of these projects involved 72 of our centers and sites as some sites will comprise multiple projects, and the review continues.
We estimate that 10 years from now, we will be generating recurring NOI from these new rental businesses, seniors' homes, apartments, offices and self storage in excess of, and I say this as a conservative number, an estimated 20% of our total rental NOI plus an additional $20,000,000 to $40,000,000 of profit per year starting in 2020 from the sale of condominiums and townhouses. With that, we will turn it back to the operator to coordinate us addressing your questions. Thank you.
Thank you. And we'll take our first question from Brennan Abrams with Canaccord Genuity.
Hi, good evening, everyone.
Good evening,
Brennan. Peter, in your opening remarks, you touched on the construction costs and you're seeing some inflation in some areas and that you're advising some pro formas, I guess, on projects in some instances.
To this
point, have your yield or return expectations
changed
for many of your projects or assumptions? And I guess secondly, has it altered your decision to proceed with any of the projects?
No, Brendan. Really, with what we've done with our pro formas, we're in the case of condos assuming that and by the way, I should say that those increases even with this deal and the tariff, probably in terms of total cost, we're talking 6%, 7% overall cost inflation on the project. And so that's something that in terms of future condos, not the existing ones we're building because there we've pretty much tenured all the construction costs. But in terms of future towers, we're building that into our pricing model in the pro form a. And the same would apply in terms of self storage and apartments and so on.
We're building that into the pro formas, and no, we're not seeing any decline in the profits anticipated over the yield.
Okay. And is this something you're seeing in the GTA or Southern Ontario specifically or across the country more generally? It's more the construction cost is more
a general thing because it's really the steel and the tariffs, the extra tariff, which may go away, depends on how things work out. But for now, we're not making that assumption that it's going to go away. And so it's that's more of an across the country thing.
Okay. And then just shifting gears to the retail or the leasing environment. I know you've had no direct impact from the Loews or the RONA closures. But just from your experience with other big box retailers, things like Target, Sears, do you see this having any indirect impact or in terms of your ability to release space?
It's probably I mean, based on what I've seen of the ones that are in the portfolio that they've closed, I'm not sure that that's going to be a lot of direct competition for what we would put in our shopping centers and do in our shopping centers. There's a number of older stores, stand alone stores with significant amount of lumber yard that goes with them. I'm not sure that it's going to be something.
I think we see it, Corinne, obviously, as a good thing. I mean, there was a period of time where there was some irrational expansion, you could say, maybe not irrational, but maybe a little bit too aggressive. So you had 3 home improvement do it yourself home improvement retailers growing at the same time competing. And that needed to be correctly rationalized. So this is overdue, which happened after, of course, the consolidation.
We think that it will make our centers stronger, concentrate the traffic even more so on fewer sites. And the sites that they do continue to operate their business will be directed to the remain to the sites that remain open, of course.
Okay. That's great. I'll turn it over. Thanks.
And we'll take our next question from Tal Woolley with National Bank Financial.
I just wanted to
speak quickly on the BMC towers. Tower 3 and Tower 4 is just looking at the pipeline, the cost disclosures, those last few projects do seem to have gone up by about 20%. So just given that this is such an important development for the firm, I was wondering if you can just talk about what triggered those revisions?
You're talking about on towers, you said 34?
Yes, 34.
Or you're looking at Page 22, like you're talking of the supplement.
Yes, Page 22, just versus last quarter, those have come up about $310,000,000 to $375,000,000 and $175,000,000 to $210,000,000
I'm just trying to catch up to where you are.
The office towers, Peter.
Oh, we're talking about the office towers, not the condo towers.
We call it the condo towers once.
Yes, we just modified our numbers based on what we're seeing. And again, it's early stages. We have no specific tenants or we have preliminary building designs for those towers at this stage, we're kind of the future office towers at B and C.
Oh, the square footage?
Yes. Just the size of them and the cost and
the one. Yes, yield it.
Got you.
At this stage, we're just lowering the yields down to what we're seeing.
We're being conservative. We don't actually have a design. We don't know what the materials. I mean, we don't know whether we're building 2 levels or 3 levels of underground. We're just being conservative placeholders when we have an anchor tenant.
I mean, obviously, we'll be able to put more specific numbers, but I think we wanted just in the meantime to be conservative. But obviously, to build any of those buildings before we did anything, obviously, it would be an anchor tenant and the rent be negotiated based on the then estimated construction costs of the day.
Okay. And just to like when you're you've sort of taken up kind of the value of your overall big picture pipeline for the $7,600,000,000 to $9,000,000,000 and change $1,000,000,000 That's being solely driven by number of projects. Is there any sort of cost inflation component to that increase as well?
No, that's really that's just numbers of projects.
And we'll take our next question from Michael Smith with RBC Capital Markets.
Thank you and good evening. I just wanted to clarify, so $9,500,000,000 of developments and of which $3,400,000,000 is Smart Center share. Is that over the next 5 years?
That's construction starting on those projects during the next 5 years.
During the next 5 years. Okay. And so I see the photo of the Transit City, each block, the rendering, I should say. Which one is the can you remind me which one is the resi, the rental tower? Is it the one in the front on the left?
Yes.
Okay. Yes. All right. Thank you.
They're all
going to be different architectures.
They're all going to be different design?
Well, the 3 towers under construction now are all the same architecturally and obviously intentionally. These 3 will all be slightly different in the architecture.
Okay.
And
was Walmart doing so well and more traffic at your sites, I realize it is a somewhat, I guess, tougher retail environment. I'm not sure how to phrase it or how to characterize it, I should say. But you're getting more traffic at your properties at the end of the day, more traffic will eventually spill into higher rent, I would think. Any comments on that?
Yes. The I mean, the traffic just because of the Sears and the other vacancy in the market and that all of that CRU and those other centers, obviously, are looking for places to go and being in our centers will certainly drive traffic. Right now with all of the things going on as you've seen with Lowe's and so on, we'll go through that transition, but we ultimately believe that, yes, that will have a positive impact on our rents and our CRU rents and the occupancy for that matter because there isn't that many more places to go where you're going to find large shopping centers with the dominant mass merchant and all of the amenities being food, restaurants, business, medical and so on. And when you combine that with our mixed use in those same centers or adjacent to it, it makes very compelling place to be for our retailers that we're talking to every day.
And what's the mood of the of your retail leasing team?
The mood of the retail leasing team? Like you said, like you said, we just had our ICSC in Toronto, as you all may know. The ICSC in Toronto, which was very well attended by everyone, I will tell you that in the last 10 years, I've never seen it and other people came and commented to us at our booths from other landlords about how busy we were and the number of of and the amount of interest that we're just having at our centers. So the mood is strong. There's lots of calling.
As you know, this is a time of the year where we're doing lots of deals. People want to get deals done. They're signing up. They're opening up before Christmas, tenanting. So it's again, owing to the 98.2%, you can see that it's never been as busy as it is now.
And again, with other anchors and other centers not being there, it only offers us the opportunity to offer a center with significant traffic generation.
Okay. And just switching gears. So your strategy with the Tesla charging stations, you have 6 open, plans for another 15. So even the Model 3 is a pretty expensive car. So I presume if you could just give us some color on that strategy in terms of are there a lot of Tesla owners, Ricky, shopping at your properties?
Or do you see that number growing? What are you thinking?
I mean, look, this is a long term thing. I mean, you're putting in Tesla charging stations, but we are going to I don't think there's any reason not to say or tell you that we are planning to put in charging stations that aren't Tesla specifically as well. I mean, we'll be announcing that shortly because we believe that it's relevant to offer charging stations to a growing trend of electric cars. And it sends a good message whether you drive 1 or not. When you come into a center and you see charging stations, you know the owner is alive and kicking and their price is relevant.
You may applaud it and not drive 1. You may eventually buy 1 and know that's where you can charge it. And I can tell you that on the limited number that we do have, we've been told by a couple of our retailers that the ones that are certainly very nearby the charging stations, the people come into the stores while their cars are charging. So it's actually there's no downside. It takes up so little space.
There's a certain percentage of people that do drive them. And it keeps providing additional services to our customer. And by the way, we're not going to stop at charging stations. Those charging stations are going to evolve into other things, so you can stay tuned. So it's really very much a starting point that we think is a must for smart sellers.
That makes sense. And just last question. Do you have like a split of the transactional FFO for 'nineteen 'twenty? You've given some guidance in terms of growth
overall growth.
Yes. We don't have it available for this call, Mike. We can certainly provide that in the future for 'nineteen and 'twenty.
Okay. Thank you. That's it for me.
And we'll take our next question from Pammi Bir with Scotiabank Capital.
Thanks and good evening. Just on the Bombay Bowering situation, the exposure overall does seem pretty small, but what is the overall gross revenue impact? And would you say that there's an opportunity to raise rents on re leasing? Or would you expect that to hold relatively flat?
Hi, Benny. The overall like there was only 12 term deals we had with them and those 12 term deals and the rest were 10 deals. It's less than $0.01.5 in terms of gross revenue. And again, all of the locations, all of them are in Walmart Supercenter anchored shopping centers across the country. All of them are what we call our sweet spot for leasing in 5,000 square feet a little bit higher.
And yes, the rents were because they were done a while ago, the rents were at or below the current market for those spaces. So we don't anticipate there being much difficulty at all in leasing, releasing these spaces. Because as you know, when we're adding services and restaurants and other services, the rents they would pay for 5,000 square foot spot is much higher than a Bombay of our own would pay for that similar spot given their use at the time when we did these deals. So we expect very positive outcome. Again, once the space has turned over.
Depending on what they turn over, again, they may come back and keep their strongest sites and do a restructuring on some of them, not all of them. So we don't know yet.
Thanks. No, that's good color. I guess the tone on leasing does overall seem to be positive, I guess, from the recent ICSC event. And I guess particularly as we approach the holiday season, but anything on the radar that might concern you for Q1, which typically is when we do see some of the closures and failures post the holiday season?
No, I think it's the
same thing we thought about last year and the year before. We worry a little bit about the and whether or not as you know, some have moved, as Mark said, the Dannier letters, some of the Reitmans, the Pennington's are moving back into malls. So that we're always keeping an eye on. Again, most of those are in a good size space for us. And because we're in the unencosed space, the operating costs to operate in those spaces aren't expensive.
So releasing them has not been significant for us, hence the occupancy being above 98% for as long as Peter mentioned earlier. So we're keeping an eye on those kinds of retailers, and there are a lot that are not on our door to bring in other uses, which we're a little bit excited about in terms of whether it's fitness, QSRs, restaurants, daycare, medical. So a number of services that we are finding very attractive in some of our centers that we typically didn't have before are now finding its way to us, which we're a
little bit excited about. So
we're going to keep our eyes open for that.
As well as cannabis stores, which are net new square footage as well.
Right. Okay. And then just last question on the 2019 guidance of the 4% to 5% FFO growth. Is there any real difference in the overall same property NOI growth that your guidance reflects? And meaning, is it kind of in that 1% range?
Or has anything changed in your outlook there?
Yes, Pammi, it's Peter. So we would not expect our same property guidance to change. So typically or historically at least, we've always said that our same property growth levels range from 0.5. To 1.5%, and we would expect that historical range to continue into 2019. Just maybe backing up for one second, Mike Smith is still on the line.
He'd asked a question earlier about transactional FFO for 2019 2020. We're able to pull up this information if Mike's still on the line. So we see transactional FFO for 2019 as basically being flat. It will be approximately a penny, so virtually nothing. And then in 2020, we see it being approximately $0.04 However, and maybe this is something that we should make sure the group understands, when we think about the proceeds that we're going to realize from the sale of condos and townhouses upon their completion, those completions for us begin in 2020.
And so we do see with the initial completions of the condos and the townhouses in Vaughan Northwest that for 2020, the incremental FFO from those closings will be in excess of $0.30 a unit. So it's a substantive increase. And I think we've said historically that in 20 20, we expect the FFO per unit growth rates to exceed 10%. So clearly, that growth rate is being supercharged, if you will, by the commencement of closings of some of these development initiatives that we've now had underway for approximately
1.5 years.
And does that answer your question, Fanny?
Yes. Thank you. Sorry, I'll turn it back.
And we'll take our next question from Sam Damiani with TD Securities.
Thanks and good evening. Just wanted to pick up on the comments you made, Peter Sweeney, at the beginning about potential upgrade to credit rating. And just wondering what the threshold is there. I think you mentioned there's a size threshold you have to get to. I'm not sure if you mentioned that.
Yes. I think it's public knowledge. DBRS' current report on the REIT, Sam, has suggested that they'd like to see us find a way to reduce our debt to EBITDA levels from where they are currently at about 8.4x to something in the 7.5x range. And so aspirationally, that's what they're at least proposing. So to get there, clearly, we're going to have to find ways to reduce overall debt levels while concurrently finding ways to increase EBITDA.
And as far as increasing EBITDA, do you see increasing the size of the company as a priority way of achieving that? Or how are you thinking about that?
I wouldn't consider it, and I don't think my colleagues around the table would consider it to be a priority. It's certainly always an option, Sam, to consider that. But we're more than comfortable with the current credit rating. We're going to take our time to find ways to organically, if you will, given the portfolio that we have and the development initiatives that are currently underway and in the planning stages. We're going to take our time to find ways to grow EBITDA on a moderated and conservative basis without perhaps undue risk.
It's also fair to say that the additional FFO and earnings that we expect to commence in 2020 from the condo and townhouse initiatives, those earnings will contribute substantively to EBITDA. And we don't consider them nor should they be construed by anyone to be either anomalous or onetime. So they once they begin in 2020, we expect moving forward year after year an enormous contribution from the condominium sales, townhouse sales and other similar initiatives. It will be perhaps difficult to repeatedly demonstrate levels of growth of that consequence year over year. But as we've said many times, and again, just to emphasize the point, these types of initiatives have now become part of our day to day business.
So we are, as an organization, fundamentally committed to doing condominium and townhouse development. And so when we think about EBITDA, ensure that when you're doing your models that the proceeds that you're modeling from condominium and townhouse and similar developments that those proceeds are included in your models. And so when we think about our debt rating and improving that debt rating, certainly, I think it's fair to say that DBRS expects to be in a position to include the proceeds from Townhouse and condo developments in those EBITDA levels.
Okay. That's helpful. And I didn't catch that you mentioned it, but who paid the lease surrender fee in the court?
There were 2 tenants that paid the amounts. 1 was Rexall Drugs, who closed a location in British Columbia in one of our shopping centers And Barron Sports, which is a subsidiary company to sale, closed their location in Pointe Claire, Quebec.
Thank
you. At this time, I'd like to turn the call back to Peter Ford for any additional or closing remarks.
Again, thank you all for being part of our Q3 call. Thank you for your interest and interest in Good night.
Good night.
And that concludes today's presentation. We thank you for your participation. You may now disconnect.