SmartCentres Real Estate Investment Trust (SRUUN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to the SmartCentres REIT Q1 2022 Conference Call. [Operator Instructions] I would like to introduce Mitchell Goldhar. Please go ahead.

Good afternoon, and thank you for joining us on our Q1 conference call. I am Mitchell Goldhar, Executive Chairman and CEO; and joined by Peter Sweeney, Chief Financial Officer; and Rudy Gobin, EVP, Portfolio Management and Investments. Our commentary will refer mostly to the outlook and mixed-use development initiatives section of our MD&A, which is posted on our website. I refer you specifically to the cautionary languages on Pages 1 through 6 of the MD&A materials, which also applies to comments any of us speakers make this afternoon. Overall, we are pleased to report Q1 delivered solid performances in all areas of the portfolio. Operationally, the durability of our tenants once again revealed itself in the quarter, with strong performance and demand for space in nearly every tenant category. Retailers are experiencing a resurgence of customers to their stores and sales improvements. We're locking -- we're looking into new locations, extending lease terms and asking for more options to extend their leases. The latter is an important metric, engaging the future through the eyes of those on the playing field of retail. For the first time in nearly 2 years, we are experiencing competition for space with multiple players. This improvement is being seen in our stronger cash flow which approached 98.5% by the end of the quarter and is expected to cross 99% shortly. As retail and e-commerce continue to evolve, physical retail locations are clearly playing a central role in both platforms. At the end of the day, hyperlocality will be even more advantageous in delivering food, general merchandise and other categories to the public. Our regionally strategic locations, which are virtually all Walmart or grocery anchored, are perfectly aligned with this trend, and are increasingly becoming the origination for online fulfillment, quick pickup depots, expanded offerings and, of course, physical shopping. We believe Canadians need and more importantly, deserve a fair deal. We have always positioned ourselves with that belief. That's why we have always prioritized tenants who are like-minded, that is food and general merchandise at fair prices. This has and continues to serve us well. That's also why our portfolio comprised of nearly 95% strong national and regional tenants, provides the financial stability that has returned us to the near 99% rent collection and industry-leading 97.2% committed occupancy by the end of the quarter. This has allowed us to maintain full distributions to our unitholders through these unprecedented times, a defining feature that we continue to be proud of. Notwithstanding, these lean high-performance retail assets are merely a starting point for our ultimate vision of adding a mix of uses to our properties, including primarily residential density. In that regard, SmartLiving, our new, wholly owned, in-house residential brand, has been extremely active, unlocking embedded NAV to our unitholders in a number of highly accretive projects across the GTA, the MTA and across the country. Here are a few of the highlights of the quarter. Phase 1 of SmartLiving's ArtWalk launched last quarter and is already exceeding expectations. ArtWalk is a mixed-use neighborhood, representing 9% of our flagship 105 acres SmartVMC development in the TTC-oriented and connected Vaughan Metropolitan Centre. Located on the former Walmart parcel, when fully complete, ArtWalk will consist of 5 million square feet of density, including 5,000 residential units and up to 150,000 square feet of nonresidential buildings such as innovation and community engagement space. The Phase I release of over 320 condo units is sold out. It is worth noting that SmartVMC is within -- SmartCentres REIT owns 50% of these condos, twice as much as the 25% ownership in Transit City condos. As you may recall, in January, SmartCentres more than doubled its ownership in SmartVMC by acquiring a 2/3 interest in 53 acres within the 105-acre master planned SmartVMC city center. This acquisition united ownership across the property, making SmartCentres the largest owner in Vaughan's dynamic TTC subway-connected downtown. Following on the heels of this acquisition and in addition to ArtWalk, we commenced the presale activity 2 weeks ago, 1 month or so after ArtWalk, yet another VMC neighborhood, Park Place Condos. Park Place is 1,100 units across 2 luxury 56-story and 48-story towers, along with service retail in a podium of contemporary design. This million-plus square foot complex will be built on just 2 of the 53 acres recently acquired, and will overlook the VMC's 9-acre Central Park, which unifies, through green space, the entire SmartVMC. Initial presales in these projects has exceeded expectations, and we plan to commence construction later this year. Also within SmartVMC, we completed the remaining 192 condo unit closings in Transit City 3 tower in 2021, bringing the total to 1,741 units closed in the first 3 Transit City towers, delivering over $60 million in FFO to the REIT at 25% share. As part of Transit City 1 and 2, we also planned for the construction of 22 townhomes, all of which were presold and are now virtually complete, with delivery expected in the second quarter of this year. Finally, within the SmartVMC, Transit City 4 and 5 continue to be on schedule with expected closings in 2023. Transit City 4 is built out with a penthouse, and Transit City 5 is currently built to the 44th floor. The Millway, the first purpose-built rental tower in Vaughan, is built to the 34th floor of its 36 stories, and is now accepting applications to rent, with the first apartment units taking occupancy later this year. This is being leased out of our SmartLiving discovery center across from the subway station, right here in the heart of SmartVMC. These development updates are a small subset of our current commissions in place. 283 mixed-use projects have been identified mainly on lands already owned, which are expected to result in over 40 million square feet being added to our portfolio over time. As these come on stream, you will begin to see the NAV growth and fair value increments on completion of successful land use entitlements combined with a thoughtful commencement of each development initiative. We currently have over 3.3 million square feet under construction, which includes 6 rental apartment buildings, 2 in Mascouche, 1 in Laval, 2 in Ottawa, 1 in our flagship SmartVMC. In total, we have 65 projects either underway or for which work is currently being undertaken to start construction in the next 2 years. While SmartVMC represents our vision of the future, it is only 1 of 93 REIT properties currently slated for intensification. Pages 23 through 26 of the MD&A highlights over 20 mixed-use projects totally in excess -- totaling in excess of 55 million square feet of net incremental density to be built, some with partners, and mostly on undeveloped land within our existing portfolio upon approval of all. On the financial side, maintaining our conservative balance sheet is always a priority, with an unencumbered pool of assets in excess of $8.4 billion, a 42.5% debt level and significant liquidity, which Peter will speak to shortly. As always, we continue to only move forward with capital-intensive construction initiatives as market conditions warrant. Sufficient presales occur in the case of condos, and only when financing is in place. Lastly, in today's environment, businesses faced numerous challenges including competitive pressures, economic and inflation, to name a few. We have these challenges and associated -- we take these challenges and associated risks seriously. We are strategically planning, implementing, mitigating strategies and executing deliberately for the long-term success of the portfolio. This includes planning for other changes such as climate change, an aging population and inequality. At SmartCentres, we prefer to do the right thing and have the results speak for themselves. Our actions over the past 3 decades speaks to our commitment to the communities we serve. As we have said before, ESG is woven into the fabric of our organization. ESG is embedded in everything we do and how we oversee our business, engage with our communities and develop and energize our associates. Along with ESG -- although ESG is getting much more attention as of late, it is not something we just started talking about. It has been part of our DNA since the beginning. And when you assess our portfolio, you can see these principles applied everywhere. We have been working to formally improve our retail centers through BOMA BEST certification, through improved resource management, occupant safety and shareholder communication and continue to work towards an 80% certification by the end of 2022. Further, our $15 billion-plus predominantly SmartLiving-focused transformation plans to enhance Canadian communities are focused on Canadian's desire for transit-connected, pedestrian-focused homes with urban amenities, which contributes to the quality of the built environment and promotes sustainability. We are actively working on our ESG report, which will tell you more about our ESG priorities and rollout. Stay tuned. We are grateful for the exceptional work of our talented and dedicated associates, who represent the diversity of our community and the customers we serve. Given all of this and notwithstanding the current economic deployment, we see tremendous NAV creation being generated by our skilled development team, executing and focusing on intensification and center around the best fit for each community. But let's not forget our leasing team, our stable of existing retailers and industry-leading occupancy that has set the stage for all of this exciting growth. And with that, I will turn it over to Rudy Gobin for an operational update.

Thank you, Mitch, and good afternoon, everyone. Throughout the first quarter, we saw the underlying strength of our centers in driving leasing activity and customer traffic. Tenants in virtually every category were back seeking more space and locking up locations in our high-traffic centers. And with virtually 100% of the REIT's properties having a full-line grocery and near 70%, including a Walmart Supercentre, a wide variety of tenants were back, adding locations to our well-located centers, including dollar stores, the TJX banners, furniture, health and beauty, QSR, medical uses, full, organic and specialty grocery stores, distribution and logistics, home decor, pet stores and much more, all driving more traffic and improving our tenant mix in each community. So here are some highlights. We closed the first quarter with 97.2% occupancy. Virtually all of this change from Q4 was the result of one tenant, Home Outfitters, which closed all locations in Canada, 4 within our portfolio. You may recall that we negotiated a favorable buyout of a significant portion of the remaining 2022 to 2023 rents with this tenant in Q4. We received payment, and now we are close to renting 3 of the locations at the same or slightly higher rental rates. With this, we see occupancy improving in Q2 and throughout the balance of this year. At the quarter's end, we have already completed or near completed 3.7 million square feet of the 2022 renewals, representing 74% of the maturities in the year. Over 150,000 square feet of leases were executed in the quarter for build space. New entrants to the market in a number of categories have started with strong interest in our open format and resilient portfolio. We continue to work with our tenants, helping them to adapt any way we can and meeting their real estate needs, which gives them the flexibility they need in a valued partnership. We've been fortunate with no creditor filings in 2021 through to the first quarter of this year, which reflects the quality of our tenants and hopefully reflects that the worst is behind us. From a rent collection perspective, we ended the quarter at 98.5%. This is expected to improve throughout the quarter going forward -- quarters going forward, and again, demonstrating the stability and the financial strength of our tenancies. Regarding our premium outlets in Toronto and Montreal, both continued to improve on a 100% occupancy. With the pent-up demand, accumulated disposable savings and the returning tenancies, we have a solid start for '22 with near 100% cash flow. From all perspectives, 2022 is shaping up to be a strong year in retail and especially in the value segment, an area where we dominate. As we have said before, this portfolio was built for heavy weather. Our high-quality tenants are adapting, customer traffic is improving, occupancy and cash flows are back to near prepandemic levels and most importantly, all of this is happening concurrently with the extensive mixed-use development initiatives already identified or underway in over half of our centers, translating into significant NAV growth to come. And with that, I will now turn it over to Peter.

Thank you, Rudy, and good afternoon, everyone. The financial results for the first quarter reflect the continued steady improvement in our core business that Mitch had mentioned earlier. For the 3 months ending March 31, 2022, FFO increased by 9.4% or $8 million over the comparable quarter last year. This increase resulted principally from improvements in NOI, lower ECL provisions, lower overall financing costs and contributions from our total return swap initiative as compared to the prior year's results. On a per unit basis, FFO with adjustments increased to $0.52 per unit from $0.49 per unit for the same period last year, and this level for 2022 includes the impact of $200 million in new units being issued in December of 2021 to accommodate the REIT's purchase of a 2/3 interest in SmartVMC West. The results also reflect IFRS fair value adjustments in our investment property portfolio, representing $271 million for the quarter, resulting in the REIT's total assets now exceeding $11.7 billion. $241 million of this substantive increase is a result of progress in the zoning and entitlements process associated with several strategic properties together with improved market conditions, and is consistent with the approach to valuation for our development properties that we discussed on our last call. It is important to note that as we continue to advance additional properties through similar zoning and entitlement processes, we will be assessing the appropriateness of similar adjustments in the future. Given the cash flow generated by the business, our rolling 12-month ACFO payout ratio ended the quarter at a very respectable 91% level, and this level reflects the continuance of our annual distribution level of $1.85 per unit throughout the pandemic, as Mitch had previously mentioned. These financial metrics have followed a consistent trend over the last several successive quarters, demonstrating steady continued growth in the operating platform of our core business, and they support our growing development pipeline that is expected to provide unitholders with FFO and NAV growth for many years to come. We have also continued to focus on further fortifying the strength of our balance sheet. In this regard, we note the following strong debt metrics for the first quarter of 2022 as compared to the comparable quarter in 2021. Firstly, our debt to aggregate assets ratio has now improved to 42.5% as compared to 44.7% in the comparable period. Secondly, in keeping with our strategy to repay maturing mortgages and to grow our unencumbered pool of assets, unsecured debt in relation to total debt increased to 75% from 69%, and our unencumbered pool of assets has now grown to an excess of $8.4 billion. We continue to employ a strategy to repay most maturing mortgages. And accordingly, we expect these metrics to further improve in the future. This strategy permits us further agility when considering opportunities and alternatives for our portfolio of mixed-use developments. Thirdly, pursuant to our refinancing activity over the last 12 months, our weighted average interest rate for all debt continued to decrease, and at the end of the quarter, was 3.09% as compared to 3.26% for the prior year comparable period. While concurrently, our weighted average term of debt continues at approximately 5 years. This continued focus on both the weighted average term of our debt and fixing interest rates is deliberate and is yet another example of risk mitigation strategy that we have employed for several years now to insulate the trust from insulate -- sorry, interest rate volatility as we are currently witnessing in this rising rate market. As of March 31, approximately 85% of the trust's current outstanding debt is fixed rate debt, which provides tremendous stability during periods of interest rate volatility. And lastly, our interest coverage ratio net of capitalized interest, improved from the prior year level of 3.2x to 3.5x. This in spite of the impact that COVID-19 has had on our operating results over the last 2 years. And in addition, it reaffirms the foundational strength and stability of our core business, providing us with a substantive advantage from which to fund our pipeline of development activity and refinance maturing debt. From a liquidity perspective, for the first quarter, cash flows provided by operating activities exceeded distributions paid by $20.5 million. Notwithstanding the macro challenges that have resulted in tremendous volatility in the capital markets over the last 24 months, our business has continued to demonstrate its unique ability to generate sufficient cash flow to fund both operating needs and distributions to our unitholders. As we look to the immediate future and continue to manage through the current uncertain capital markets environment, in addition to the conservative debt metrics noted previously, consider also that when factoring in our cash on hand, together with our new $300 million facility that was established subsequent to year-end to support the VMC West acquisition, the $150 million new revolving line of credit that was completed last year and the $250 million recording feature associated with our existing $500 million operating line. Our liquidity position of an excess of $675 million provides appropriate flexibility for the capital funding requirements associated with our pipeline of development activity. In this regard, we anticipate our requirement for additional funding over the next 12 months to be limited to construction and any potential acquisition financing requirements that may arise as the next series of debentures in our debt ladder does not mature until May of 2023. And finally, it is important that we can confirm our unwavering commitment to our balance sheet. It has withstood the unprecedented challenges for the past 24 months have proffered. It has permitted the REIT's development plans to continue without delay or impediment, and it is in a position to serve as the backbone to fund and support the vast array of opportunities that lie ahead for SmartCentres. And now I will turn the call back to Mitch.

Thank you. As you can tell, the portfolio remains strong and continues to improve. Our tenants are our priority, and we will continue to strengthen our centers with new and exciting additions catered to each community. We also continue to focus on every detail of every project, and we are building our mixed-use intensification project through our new SmartLiving residential brand, a name that you will continue to become more and more familiar with. With that, I will now turn it over to the operator in addressing your questions. Thank you.

[Operator Instructions] We already have one individual queued up. Michael Markidis from Desjardins Capital Markets (sic) [ Desjardins Securities Inc. ]

I just want to start off -- I don't know if this was particularly new, but it did stick out to me within your commentary in the MD&A. I was just curious if you could provide us with a little bit more detail and color around the repurposing space for logistics comment that was in there? Are there any examples of that, that's in your portfolio today?

Yes. Sorry. Yes, no, I think -- Michael, thanks. I sort of was -- in a sense, referring to that in part when I was talking about how retail is and retailers are using the retail space. They are adding some of the e-commerce fulfillment through their physical spaces. As well as, interestingly enough, we've had entire spaces being leased for actual logistics and fulfillment. So yes, I mean, that's what I was referring to in my opening remarks. So it's kind of cool because we've leased some pretty big spaces to some logistics facilities right in our retail centers.

Okay. That's interesting. On the vaccination centers, I appreciate that's an addback of nonrecoverable OpEx, and rightly so, in your FFO calculations. What I'm more interested in is, are these centers counted as occupied space in your occupancy? Would be the first question. And are you receiving rent? I think the answer on the latter is no, but I'll just try to put that out.

Yes. We'll go in reverse order. No, we didn't charge the vaccination centers. It was really very much a -- we did that on behalf of everybody for the communities that we're in. Something we don't talk about a lot, it was mentioned today maybe for the first time, but we are in these communities and have been for decades. We don't talk about it much, but we're involved with so much in these communities. They don't just shop with us, but they know us, we're their shopping center that they grow up with. And we're involved with lots of community activities. So vaccination centers, when we do something like that, it's great for the communities that we serve. And no, it's -- in terms of -- it's not part of our occupancy, either.

Okay. Okay. Got you. Now I -- because I -- what I was trying to get to is I was wondering if it was in your occupancy and the actual upside on releasing would be higher as these, hopefully are not needed in the future. And then I guess, just to close off on that point, are they now shutting down? Will this be -- the space available?

Yes. But keep in mind also, Michael, some of them are actually -- they were available in part because we're redeveloping some of those buildings. So they were available for that reason. So yes, it was just also just -- yes, whatever. It was good that they were available for the vaccination center purposes, but they're actually redevelopment spaces.

Got it. Okay. And then the last one for me. I saw the note on the consolidation of the remaining 50% interest on the 3 properties. But just curious on the capital recycling side, if there are any dispositions that you've got planned for the rest of this year?

Yes, I mean, small, but it's not inconceivable that something will happen. But in terms of officially, I would say, at the moment, in terms of dispositions, we don't have anything imminent. But we are doing other things. I mean if this -- if you're really asking about capital raise, I mean, we're doing a lot of things for capital raise. But the dispo is not imminent, although it could happen before year's end. But lots of dealings with potential partners on a number of these developments. And you would understand, since we emphasized that we are developing on owned properties that partners [ come in ] at market. So that is very much an active area for capital raising, so yes.

Okay. Great. I have a few more, but I'm going to turn it back and requeue and if...

Or just, yes, call us back. Happy to take you if you want to call later.

The next question is from Tal Woolley from National Bank Financial.

Peter, maybe we can just start quickly. I appreciate you don't have any major refinancing to do for this year, but if you were speaking mortgage financing or unsecured financing right now, what sort of rates do you think you'd be getting shown?

Well, as you would know, Tal, it's a function of term, so anything that would exceed 7 years. Currently, we'll be looking at something in excess of 4% at least for now, Tal. And again, what we're thinking about for now is that we've got lots of runway available for the next almost 3 years when you look at our debt ladder. So to the extent that we've got any of our mortgages maturing during that time frame, there is an opportunity for us to fill in that debt ladder for the next 2 to 3 years with just essentially shorter-term renewals. And presumably, over the next several years, I think it's fair to say the market is expecting to find its way back to lower interest rates. At least that seems to be a consensus these days, especially on the longer-term stuff just because of some of the concerns that seemingly are out there currently vis-à-vis macro events. So we may find ourselves, by the time we have to go back into the major markets, 1.5 years or more from now, that we think more serious about longer-term financing options. But for now, Tal, anything that we're at least thinking about would be shorter term, and the rates that we would expect on those shorter-term facilities would be commensurate with the rates that would be in place on those maturing facilities. So we wouldn't expect -- my point is that we wouldn't expect a tremendous dilution of FFO as a result of any financing activity that has to take place over the next 18 to 24 months.

Okay. And then just from the DBRS, the trend watch, when do you expect to see a resolution on that?

That's a question that perhaps is better asked to DBRS, Tal. We're -- as you would expect, we're in continued dialogue with them and keeping them abreast of our progress at all levels. But I think with respect to how they view the world and certainly how they view SmartCentres's credit is really a question in -- their timing on assessing us is really a question that maybe we could -- we should be asking either of us.

Okay. That's fair. And then just on the self-storage joint venture, obviously, your partner's pursuing an IPO right now. Do you -- are their plans sort of changing at all with this evolution in their life cycle? Like do you expect the JV to sort of continue as planned? Or do you expect that, that could change going forward?

It seems like it's -- I would say, unchanged or even maybe more -- maybe a bit more aggressive, but definitely not slowing down.

Okay.

Lots going -- lots on the go with them on existing sites. And actually, they bring us -- we've got that kind of arrangement with each other. They actually bring us into some of their deals, at least give us the option to. So it's got great momentum.

Okay. And then just on the staffing side, there's -- with -- as we sort of come out of COVID, there's obviously been a lot of factors that have caused people to look at like different careers. I'm just wondering if you can talk a little bit about turnover and hiring for -- on the development side? And then your core leasing, how that's been over the last little bit?

Well, I mean, one thing about the -- we've always been a pretty strong -- like we've had pretty strong gravity for people in development, especially young people, because it's just a good place to be if you're interested in development. And development is a generic term. It could be a land use plan. It could be financial analysts. It could be even like a junior architect. It could be an MBA. Because you're thrown right into it here, and you do see things happen that you work out within a few years. So luckily, when it comes to development, we're -- I think we're considered a good place for a lot of people, so we do attract a lot of people interested in development. And it's a good -- and see, young, it is a young, very energized, cool kind of department divided into business units like regional -- regions across the country. And then with respect to leasing, I mean, we have a very stable leasing group. But in general, we're also seeing -- we're also experiencing turnover and the same challenge as everybody else is experiencing in all sorts of departments. But I would say those 2 departments that you specifically names, those are 2 areas of our very, very much our sweet spot expertise. We have very stable -- we have a stable -- we're stable when it comes to HR.

Okay. And then this is sort of a broader question, I guess, just about real estate markets in general and how -- I just -- I'm wondering, we're seeing some weakness on the residential side of the market now as rates have climbed up, I'm wondering if like either yourself or anyone else on the team there, like do you just talk about how you think about what that weakness in that particular slice of the real estate world? Is there any chance like that sort of bleeds into other parts of commercial real estate in a way that maybe we wouldn't immediately register, sitting here from the outside?

It certainly is a little weaker in terms of the residential, so -- but it's a good thing, I think. Ultimately, it's always hard to -- these things sometimes get overcorrected or whatnot, and so we can't know how that's all going to play out with residential. But a little bit softer for sure, which is good, and hopefully, construction prices will follow. A little bit of pressure -- downward pressure on construction prices will follow. But I -- we don't feel it in the other commercial sectors. Like retail's got a little bit of a tailwind, I would say, right now. And office -- believe it or not, I mean, we have some office deals going on that are not insignificant in terms of space. Like it would result in a new space being built for office. I mean we're going to inspect on a little office building actually up here in VMC. Don't feel it there yet, like it's -- I don't want to get into it maybe too much for right now, but -- and then the industrial seems to be coming off a little bit, but that was kind of sky high, so still strong. But I don't know. I don't see it kind of being -- there's going to be a general economic macro slowing down. But I don't think -- just off the trough, I don't think it's going to be like some kind of contagion.

Okay. And then just lastly, Phase 1 in Cambridge, what sort of size and scope will that be? Like is it 1 million square feet? Is it -- how are you looking at Phase 1?

Well, somebody earlier asked about the vaccination center. I mean that's where Phase 1 is going to be there. So yes -- I mean, no, I would say it's going to be a tower with some mid-rise like a 6-story -- 4 to 6-story product, which will be rental. And the tower will be -- likely the condo and then some townhouses. And so it won't get up to 1 million square feet, but it's just based partly on kind of the market -- what we think the combination of the absorption rate is, where we feel we've got the space available to knock down. And then slowly but surely, we're going to move tenants around and just continue that. But it's not small. I mean what I just described would be probably, goodness, 5, 6, 7 acres of land initially. And good demand for our markets like Cambridge. We are finding like the market -- there's all -- a lot of COVID-related things have played into the Cambridges and the Allistons and the Kincardines and the Owen Sounds and Carleton Place and Barries, some of these markets where we're doing residential. We started that long before, but the market's kind of come to us in those places, which is great.

The next question is from Dean Wilkinson from CIBC World Markets (sic) [ CIBC Capital Markets ].

Just one question for me. Peter, have you seen any widening of the spreads on unsecured versus secured debt? Or has it just moved up lockstep with the rate move and what mortgages are doing?

No, I think it's fair to say, Dean, particularly over the last month or so, we have seen a widening of spreads on the -- on our bonds. That's for sure what we've seen relative to what may be available to us in the secured market.

And by how much would that have moved, do you think?

Well, I mean if we're assessing it at the end of March, and granted March is now 1.5 months almost ago, but certainly, at the end of March, if we're looking at our 10-year term debt, the spread on mortgage would have been about 130 to 140 basis points. And the spread at that point on unsecured debt would have been about 50 basis points higher than that. So typically, as you probably know, we look anywhere from 20 to 40 basis points of the spread between mortgages and bonds for 10 year term-type facilities. So obviously, they're wider by at least 10, maybe even up to 25 basis points.

20 points. Right. Don't blink, that could change. That's all I had.

The next question is from Mario Saric from Scotia Capital.

Mitch, I want to come back to your comments that you made about accessing different sources of capital, including selling land at fair market value to potential JV partners and developments. Is that something that's kind of far along enough that you feel comfortable in kind of quantifying the range of those types of sales you could use here?

Maybe not yet, but it's moving along. There's interest from very -- we consider to be a very long-term minded, like-minded institutions. But we're not at the point of knowing exactly what the magnitude is yet. But various banks, including your own, have been involved with us on that, and it's going very, very well. I didn't mention, I guess, maybe I should have, but there's other initiatives going on. Like when we sell condos, we're in a sense de facto raising capital, creating capital. And we do have, always at our disposal, the ability to sell a parcel instead of bringing in a partner. So we hold that [ area in bucket ] as well if we want to execute on that, which is very quick and can be extremely lucrative. And by the way, just in terms of a nuance there, like what we're looking for in the partnerships are more the income -- the multi-res. Whereas if we were to sell something off, when we can sell something off for a condo, and I can -- I'm sure you can imagine the difference in terms of what that would mean in terms of equity raise. So we're not really looking for partners per se so much in condos, but more so in the -- in our multi-res portfolio.

Okay. Now that makes a lot of sense. Maybe an associated question and bigger picture. Clearly, you're very long-term in nature in thinking of things like division and strategy in terms of what you want to accomplish. There's been a lot of volatility in the public markets in the short term, saving down about 15% year-to-date, expecting you to outperform that, but you're still down as well. How, if at all, has kind of the short-term volatility in the public markets, which I think are essentially the same cap rates for private market, assets are going up at some point to in future. But how -- like does that change kind of the capital allocation decision for you in near to medium term? Like, for example, if you come into '22 with certain targets in mind and goals, is that influenced at all in terms of what you're seeing in the public market in the short term?

No and yes. I mean it's not changing. I mean the value creation is in the approval really, a lot of it. The exposure and risk is on the execution. So we will obviously weigh each time, like we say, before we go forward. So there will be a different market for each one of these properties in each one of these developments. And yes, I mean, cap rates may be going up on certain things and prices may be coming down, sale prices. But construction prices may be coming down, and it may just -- it just may pencil very nicely, and we'll proceed. If it doesn't, we won't. And that's to say nothing of the cost of debt. I mean we're going to weigh those things each time. But we're going to continue forging ahead, investing in their land use changes and set the stage. And it's not all long term, it's been going on for a long time. So it's short, medium and long term. But it is a long-term strategy, but it's been going on for a long time, so a lot of the fruit is starting to bear fruit. But yes -- and cap rates, yes, it doesn't -- it's all -- it doesn't -- like the capital markets rising or depressing our unit price is not going to affect our investment in the long-term strategy, it just will -- maybe it depends on how we raise capital and what the overall dynamics are influenced, whether we go or don't go over. We don't have to do anything, okay? Like our retail, our value retail, is doing very well. We don't have to do anything. I mean our company's value is based on our retail income. Like there's no value in our stock on all of this stuff that we spent time talking about. So like we don't actually have to do anything. We don't have to grow into some unit price based on future development profits. So if the planets are all misaligned, we'll continue to operate our value-oriented retail, collect our rent, and wait for the planets to line up. So I think we're in a very enviable position, but that's because we don't go around buying land at market and haven't. And we've got lots of great land, tons of surface parking, and we're -- we have development expertise. But we're not going to bet the farm on any of because we're not going to go forth blindly. We'll just operate our shopping centers and collect our rent, if that's what the right thing to do is.

Yes, understood. Have you seen any increasing -- any initial kind of cap rate changes for Walmart-anchored, high-quality Walmart-anchored malls to date? Like we keep hearing about this new capital that's coming up, but is there any indication whatsoever that actually happened?

No. We feel a resistance for cap rates going up on our stuff for our other -- our peers with this stuff. We feel a resistance. I think they value the -- I mean, the cap rates are not low on our stuff. I mean if you're talking -- you want to talking about low cap rates. I mean look at industrial, look at rents, I mean, we're at like close to 6%, 5.8% or something. I mean seriously. So I don't feel -- and we have -- we feel resistance for our cap rates to go up, but that's at the moment from our perspective so far.

Mario, just to finish, Mitch's thought here. Our appraisers, by the way, were of a similar opinion in assessing the portfolio's value at the end of the quarter as well. So when you speak to the major appraisal firms in Canada, I'm sure you'll hear a similar sentiment that we shared.

Yes. Well, for what it's worth, [ I've been like in Bowring to your South Oakville Centre a couple of weeks ago, and I have no doubt that the value of that excess land, that mall ] is very significant. So...

Well, I hope you went into the nearest -- in the metro and did some shopping as well while you were there.

I did it for my wife, [ too, so we're good ].

Perfect.

The next question is from Pammi Bir from RBC Capital Markets.

Maybe just coming back to the comments on stronger leasing. And we've heard actually competitive tension mentioned a few times over the course of this earnings season, I guess, with tenants. Does it feel like you maybe now have some better pricing power going forward? And did Q1 perhaps mark the turn towards stronger leasing spreads?

Pammi, the -- because of where we're located and because of the tenants that struggle during the 2020, start of the pandemic, and what's happening now with the new entrants coming in, everyone is searching for space that already exists as a starting point, and we're doing new build. So what we're finding is we're finding a -- competing uses from different categories even. Like we will have food in organic and food in specialty and mainline and discount food banners competing with the likes of the TJX and the Michaels and so on, furniture, so it's very interesting what's going on now. And all of them feeling a little bit more bullish about coming back, the physical retail coming back with customers coming into the market. [ I don't achieve this ] all the time. We talk to tenants all the time about their real estate needs. So that's the kind of competition we're seeing and a lot coming in even in the smaller spaces, the QSRs. Pet stores, you can't go anywhere now without seeing someone walking their dog. And all of the pet stores, PetSmart, Ren's Pets, Petland, Pet Valu are all -- health and beauty, very, very active. Health and beauty from the U.S., health and beauty here in Canada. All the discount categories, again, the dollar stores and so on, are all wanting to lock up spaces quickly in these -- especially in the unenclosed format, right? So when you add all of that up, we are seeing some very good activity and keeping our folks very busy, trying to figure out the best fit and -- for each of these centers because it's a little bit different.

No, that's good color. And yes, we've been -- visited a few more pet stores with the new pet as well. Just on the -- I want to maybe go back to ArtWalk, the comments you made there. It's the first, I guess, 320 units are sold out. And I apologize if this was mentioned, I don't know if it was mentioned on the last call or not, but what was the average price per square foot on that initial phase? And then I'm curious if there's been any signs of how you're thinking -- or maybe how you're thinking about Park Place once the sales actually start there?

Yes. No, you're right on, by the way, we did not mention it, and everything you said is totally accurate. Yes, ArtWalk was sort of in the $1150 range, average. And Park Place, as you said, we haven't actually gone to market. We put out a price sheet. I'll have you know, there are people walking in every day, giving checks without even having contracts to secure units in Park Place, so a good -- needless to say, a good prognosis there. The pricing there is a little bit -- on average between -- closer to $1200 so -- I mean, average, yes.

Yes, interesting, I guess. So it sounds like higher than ArtWalk, I guess, notwithstanding all the concerns around what's happening in the broader market and the macro environment and rising rates, et cetera?

Yes, a little bit. But also keep in mind, our average size at Park Place is a little smaller, that kind of influences that. But when you back that out, it's still higher in terms of ArtWalk. And -- but with that -- we deliberately sized -- our suite mix at Park Place was sort of geared around what we saw in the market. So we think we've got it right. And so that's one of the reasons we feel it's been -- the reaction has been strong. And for the price being kind of -- seems to be on point, but lower average size than ArtWalk, yes.

Okay. Maybe just one last one, as I think we've crossed the 60-minute mark here and earnings onslaught will continue tonight. Mitch, you mentioned -- you frankly don't have to do anything with respect to the developments. And I mean you can continue to collect the checks on the rents on the existing portfolio. But does that mean maybe the best place to put capital today might be back into the units at a high 6 implied cap?

Could be. I mean we believe in our income. We believe in our properties. So -- I mean I don't know. I'm way past the -- I think I'm way past the harping about our unit price. But I mean it's a bit of a joke, really. I mean you go try and buy these properties and -- especially with our entitlements. And then our income being so solid, we just came through the toughest test of all. We did not cut distributions and you can get a 6% return. Like you can go hire all the geniuses in the world to manage your money and tell me what you end up averaging. Like after all of the gesticulations and their fees, for that matter, versus just buying our stock. And that's just our yield, not to say anything about the potential of the appreciation of the units. So yes, I mean, we know the company, of course, better than anyone. So it's not inconceivable that we would invest their money in that. We're never going to do nothing. And obviously, nothing's completely black and white, but we do have that, for sure. I mean the world has priced their units where they are, which in a sense, is a bit of a blessing because we don't have to grow into some huge unit price based on a perfect -- whatever it's called, a perfect world. It's quite the opposite. So yes, it's just -- it's not going to be all or nothing, but we certainly can tone it down as much as we want because of those reasons. And we may very well be buying some of our units, yes.

And our final question is from Jenny Ma from BMO Capital Markets.

I just have a quick question on an update on your development pipeline. When we look at the deals that -- the numbers on some older disclosures, but you're yielding sort of in the mid-4s for multifamily builds, and anywhere from 6% to 8% on the self-storage and the -- on the seniors' housing. I'm just wondering if you can give us an update on the kind of ranges you're expecting for future projects and whether or not those ranges still hold or if you kind of take a bit off the top end and whether or not market rents are keeping up with increases in construction costs and financing costs.

Yes, the first -- look, multi-res purpose-built is not an exciting day 1 return. You kind of got a -- just kind of plug your nose a little bit and get started because the worst day is the first day. But thankfully, without much effort, really, in a way, I mean, your occupancies are going to be very high and your rent's going to go up every year. So we obviously are wanting to get started on that. But that's just sort of cash-on-cash returns. And in some cases, we're sort of putting it in at market, the land when we see those kind of returns, so they can be a little bit better with some leverage depending on where prices -- where unit price -- where interest rates are. And obviously, the intent is to use the profits from the condos. We're not doing so many multi-res-only properties. We're building condos and then we're building multi-res, and so we're looking at that at all times. Construction prices are -- have gotten almost sort of silly. I think it's kind of come off a little bit in the last couple of weeks, but they were getting silly. So given what's going on in the slight low slowdown, we sort of expect construction prices to come off. And obviously, we're going to be taking all that into consideration. At the moment -- sorry, for the last year, Jenny, as construction pricing went up, sale prices have been up disproportionately, like -- so we've actually done better. Our returns are better today, let's say, than a year ago, even though construction prices went up. But that obviously is liquid not a solid. What the heck did I want to tell you, though? Oh, goodness. Yes. Sorry, I just lost my train of thought. Our storage is leasing up faster though, which is great income. And we've got a fairly good -- got our arms around that -- those construction costs. And by the way, actually, this is what I meant to tell you, we've -- we're very close to signing a national framework agreement with a large general contractor, who will be part of our upfront process. So as to have some sort of inside track, let's say, on deliveries and pricing and value engineering in so many ways and preferred terms for them building our buildings. So that's something that's been going on off stage for a year or so now, and it's just about to be done. So we'll probably announce something about that soon.

Okay. So it sounds like those yield ranges are still holding, considering market prices are keeping up?

Yes.

Okay. Great. I won't stand between everyone and their afternoons or earnings for the analysts, so that's it for me.

There are no further questions at this time.

Thank you all for taking the time to participate in our first quarter call. Please reach out to any of us for further questions. Stay safe and have a good rest of your evening. Thanks, everybody.

Ladies and gentlemen, this concludes the SmartCentres REIT Q1 2022 Conference Call. Thank you for your participation. Have a nice day.