SmartCentres Real Estate Investment Trust

Huw Thomas - President & CEO Rudy Gobin - EVP Asset Management Mario - Interim CFO John Darlow - VP Leasing Greg Bowman- VP Development

Alex Avery - CIBC World Markets Mike Markidis - Desjardins Capital Market Sam Damiani - TD Securities Heather Kirk - BMO Capital Markets Michael Smith - RBC Capital Markets Pammi Bir - Scotia Capital

Thank you very much Mitchell and good morning everyone and welcome to our Q3 call. Its Huw Thomas here and it’s my pleasure to be leading the call.

Joining me on the call today are Rudy Gobin, our EVP Asset Management; Mario, our Interim CFO; John Darlow, VP Leasing; and Greg Bowman, who is our VP Development. I'll make some opening remarks about the quarter overall and then we'll open it up to questions and my comments will mostly refer to the first four pages of our supplemental information package, which is posted on our web site, and I do refer you specifically to the cautionary language at the front of that material, which applies to any comments that any of us may make this morning.

Overall, if we look at the quarter, we were pleased with the results, considering general economic climate and the overall retail market conditions. FFO increased 6.3% to 66.4 million and 4.3% to $0.487 on a per unit basis compared to the Q3 of last year.

There were no material onetime items that influenced the quarter's results, so I do estimate the negative carry on the long-term financing we put in place in the quarter to take advantage of the low rates did cost us about $0.5 million the quarter. The increases in FFO reflect contributions from all of our growth initiatives, and I think a very solid performance overall.

I would note our same property income in the quarter was affected by lower expense recoveries and higher bad debt versus a recovery on bad debts a year ago. And the quarterly year-to-date same property NOI growth slipped a little to 0.9, but I do see this as an issue for just this quarter as the Q4 properties like the Toronto Premium Outlets will be in our numbers.

While after maybe five consecutive years now, it may continue to appear easy to achieve our market leading occupancies’ level at 99%. The reality continues to be that this takes a great deal of hard work and is also a continued reflection of the quality of the assets.

Renewals completed for 2014 lease maturities are now at 75% with over 1.1 million square feet now renewed despite ongoing minor rationalization by a select few of our tenants. So far, we’re close to a 7% increase in this year’s renewal rates and expect overall will be slightly higher than that by the end of the year.

For tenants who haven’t renewed, 51% have already been fully replaced at a significantly higher average rental rate than the previous tenants. And looking forward for 2015 renewals where we only have about 1 million square feet coming due, we’ve already renewed about 37% of our square footage at an average increase of around 8%.

Weighted average rent per square foot excluding anchors is up to $21.33 per square foot at the end of Q3 and that’s versus $20.77 at the same time last year. So overall if I look at all of that data, I think we’ve done well despite what I see at least the somewhat tougher market conditions.

I know I said previously it’s becoming a little harder each quarter to maintain exceptional occupancies level and I think in part that’s a reflection of the overall retailer concerns about the Canadian economy, about increased competition, and unemployment which still do exist. However, as we continue to show the quality of our centers allow us to maintain very high occupancy levels.

And going forward, I still see any variances from 99% as being very minor. With respect to CIU, we continue to see demand from retailers such as Winners, Sport Chek, Toys R Us, Michaels and continued category growth in categories like pharmacy, beer, liquor, fitness and so on.

And all of those provide reasonable demands for space in most categories across the country. And the Dollar Store industry of course continues to be quite strong.

Our core business proposition has been always to provide dominant retail centers anchored by major retailers and in particular Walmart and then obviously all of that drive significant traffic to our centers. With respect to challenge retailers, the recent Jacob bankruptcy will have almost no effect on portfolio with only one location affected.

We continue to expect Staples and Best Buy to look for ways to improve their business performance. But to-date, there has been no further adverse effects on our portfolio, again, I believe owing to the strong growing power of our newer and larger centers.

And with respect to Bowring and Bombay the reorganization proposal and CCAA has only two or three scores on our sites affected, so again only minor potential impacts. So if I turn to future growth my comments by now I suspect maybe coming somewhat repetitive but this is because our philosophy and growth is unwavering.

We’ve demonstrated over multiple years that the Calloway platforms can deliver stable income stream with market driven increases and rents based on strong tenant demand and quality assets. And so we’ve been building momentum on a suite of initiatives to look drive accelerated growth while closely managing obviously the risk, and to do that is a complex balancing act.

But I certainly continue to believe that Calloway has excellent building blocks to achieve this. No one initiative will either dramatically drive growth or overstress the business but collectively we’re looking for over time our growth drivers to provide unit holders both that stability of income but also an improving distribution stream and the building blocks that I see for 2014 and beyond would be consistent as we have talked about in the past.

So same property rent increases, ongoing efforts to capitalize on intensification, continued benefits on refinancing and I will touch on that in a moment. The ongoing development in our pipeline where we still have close to 3 million square feet excluding Mezzanine loans available.

The growing portfolio of mix use opportunities and then obviously selective accretive acquisitions as they may occur. And as always I am conscious that any discussions that we have about growth need to balance very stable performance and our strategy intact will always continue to respect that stability which our unit holders have come to demand and appreciate but also recognized that the business conditions both generally and particularly in retail are changing and therefore the model has to adapt if we have to remain amongst the most respective and attractive REITs.

If I look at specific initiatives now, the extremely successful opening of the premium outlet in Toronto last August obviously demonstrated how residents in the DTA feel about outlet shopping and to our delight the strong sales performance has continued every day since the opening. And to ensure that we are relevant consumers we continue to bring new design or another high-value label so Armani opened in September and ECCO Shoes opened just last week.

And so based on updated sales numbers stabilized yield on the sites still ultimately would be at least 9% as the properties performing close to or sometimes in excess of a mature property in major markets in the U.S. rather that still really being in its startup phase.

As you can imagine Simon Property Group is extremely pleased with the performance today, and we have continued our preliminary discussions on how future expansion on the site will work, what site changes will be needed et cetera and as you can imagine it would be extraordinary early to be having discussions about expansion of a site when it’s only been opened just over a year. Our next venture is in Montreal and that opened very strongly on October 30.

We had approximately 85% of the project list on opening and we have a further 8% to 10% of tenants committed to open later in the year or early in 2015. Preliminary sales numbers were very positive and consumer traffic on the opening weekend was exceptional with traffic count is very consistent with the Toronto opening.

And once again we had traffic jams on Highway 15 at least up an unfortunate five kilometers in length over the weekend. And not surprisingly we see this is as another very successful value driven outlet location with healthy returns.

And we also have expansion space available in Montreal over time and as we have mentioned in the past the further 75 acres available in conjunction with Simon and SmartCentres where we can develop an associated retail path. And I should note that we are also continuing our search for additional outlet sites with Simon to continue to build on the success we have achieved so far.

When I think about acquisitions, we added two Walmart anchored super centers in Edmonton and Montreal totaling about 601,000 square feet and that would be at 100% ownership with an additional around 112,000 square feet of future development space available. We have acquired a 50% interest in both sites along with investors’ real property fund consistent with some assets we acquired last year.

And in my mind these represents two excellent sites in major markets and they have very strong tenant rosters, and good growth potential. For development and earnouts, we brought on 63,000 square feet on stream in the quarter healthy yield of 7.3 and the committed pipeline was grown to just over 430,000 square feet and within expected yield of 7.5%.

And then that together with obviously a significantly pipeline of future and add some development means Calloway can continue to deliver high quality space of healthy yields for a number of years. The VMC continues to move forward and as a number that you saw a few weeks ago construction of the 360,000 square feet office complex with KPMG as the lead tenant is progressing very well.

Site conditions for the development are good and we had completed now the parking levels and the ground level. We are in the final stages of negotiating the project financing with the consortium of lenders for the initial tower and the associated infrastructure.

And we are actively moving forward to lease-up the balance of the office and retail space available in the first phase and we have a lead broker now supporting us on the office leasing, and significant interest created after we had nearly 110 brokers attend our kick-off presentation which happened a day after our investor and analyst presentation in mid-October. So, not surprisingly, we continued to be excited about the long-term opportunities at this site and continue to be very pleased that the level of support we are receiving from all levels of government and we were delighted to host the premier at the ground breaking ceremony that we held in the afternoon after our presentation to yourselves.

As we continue to look at the master plan for the site we are looking to preserve the largest range of options that we can, as you would have heard -- those that were able to see the presentation. We are looking at the next component of the project and we’re looking REITs in the market for further office space, potential residential building, the best location for large scale, retail because we will at some point relocate the Walmart premises and looking at the development of the Vaughan bus terminal and of course optimizing access to the site from Highway 400 so as you can imagine there are lots of activities still going on.

Consistent with the focus on creating a number of growth opportunities for the team with support from SmartCentres have identified several opportunities within our portfolio to identify existing sites and the size or the number of those opportunities continue to grow as we focus on that concept. And we see the ability to significantly increase the value of certain sites through more mix-use development as oppose to pure retail.

And the good news is, I think between tenant demand, municipalities being more flexible and some tenant rationalization we have been able to identify specific opportunities just on the intensification side of about 300,000 square feet of new retail space and the largest of these sites is currently in North Montreal where Zellers bought out their lease in the first quarter of the year and we’re now moving forward to repurpose the space and at least signed with Canadian Tire to build a much larger, new format store which will be more than double the existing size of the store in the market. And along with that we’re developing about 32,000 square feet of CIU space within the mall and have the potential for a further 35,000 square feet of space on pads on the site.

And I told the site last week when I was up in Montreal for the premium site opening and the mall will look totally different once we have completed the refurbishing all of the exterior walls of the mall updating it and over time we expect to align the site with our existing adjacent Montreal north property so overall we have about 0.5 million square feet of retail space with Walmart, Canadian Tire, two food stores the Super C and IGA as well as the full range of supporting retail. So in addition to BMC, we have identified a handful of what I will call large scale sites with mix-use potential as total about 3 million square feet at this point with a mix of retail, office and residential space.

Those are still in the early stages of zoning and thankfully the recently completed municipal election should mean that the work now can speed up in terms of all of the various approvals that will be needed to move those forward. We’ve said before that the largest of these is the Westside Mall location on Eglinton in Toronto and as I’ve highlighted before the site will contain a new LRT station as well as a new GO immediately adjacent.

So the significant increase in transit capability is supported by a densification study by the City of Toronto and I think it was interesting to see the sort of overall response in the recent global trends in real estate publication where densification associated with transit notes is certainly I think everybody’s pick in terms of opportunities and the fact that the City is designated outside as one of only six major growth notes along the LRT line and then with the particular sub-designation for the tall buildings obviously bodes very well in terms of the potential. So preliminary estimate show incremental in excess of a million square feet of mix-use density for that site and as I said we’ll continue now that the elections are over to move that opportunity forward in the coming months.

We also have two other opportunities in both Toronto and Ottawa to provide in excess of 2 million square feet of additional density. And again those are in the early stages of approval but importantly getting very good support from the relevant levels of government.

So if I add of all that combined opportunities together with our existing pipeline then we are well over 6 million square feet of future development and I’m certainly being conservative in terms of my assessment with that number. Now, I talked earlier about our need to continue to innovate in our centers and we’re very pleased to be participating in SmartCentres’ existing new venture Penguin Pick-Up on a selected number of sites.

In addition we are moving forward with testing free Wi-Fi on sites in Western Canada and also moving forward with digital signage on select sites. So in my mind these are just the beginning of a program to ensure we provide the best possible experience for our tenants and shoppers into the future.

Overall we’re in a comprehensive process to identify a number of opportunities which will help move Calloway from a business that simply was known for owning and operating Walmart anchored shopping centers to a business with a broad set of short, medium and long term growth initiatives principally in major markets, often associated with transit infrastructure and based on either existing locations or in exciting new developments and including retail office and way relevant residential space. So notwithstanding the high quality of the overall portfolio we certainly won’t fall in love, we’ll stay in love with every piece of real estate we have and as I previously indicated we see the ongoing review of both existing assets and future development lands as a component of the strategy.

We’ve identified a few properties that we have targeted for disposition or restructuring and then obviously using those proceeds to reinvest in higher quality growth assets. So after the end of the quarter, we completed our transaction to sell seven smaller properties in secondary markets or proceeds of approximately 111 million and we’ll continue to look for further capital recycling opportunities.

But I would say, given the high quality of our assets, I am not expecting a significant asset disposition will occur, at least in the near future. But I do believe there will be selected opportunities to continue to recycle assets.

So I turn to the balance sheet for a minute, we’re certainly well positioned to take advantage of growth opportunities as they arise. The unencumbered pool of assets now has grown to over 2.2 billion, certainly the largest in our history.

Debt-to-total assets is at 43.5% and interest coverage has now climbed to 2.7 times. So this is a result of all of our capital market activity and in fact over the last 12 months, we’ve been able to reduce the average interest rate on our total debt by 43 basis points and then clearly I would view that as very positive.

Essentially through the last 12 months, we’ve continued to look for opportunities to refinance the various debt obligations to take advantage of the low interest rate environment which has continued obviously contrary to most people’s expectations. So we were certainly active in Q1 and Q2 and Q3, we had two further transactions.

We opened up the Series One Unsecured Debentures on a private placement basis for $50 million transaction and we repurchased $50 million of the Series B 537 Debentures. And the second was where we issued 150 million of unsecured to finance sales acquisitions I just noted and reduced the balance to repay maturing mortgages in the second half of the year.

At the end of the third quarter, we further upgraded our financial flexibility with a new unsecured operating line of 350 million at rates more attractive than the outgoing lines. And then just to look forward briefly at 2015, in total, we have about 169 million of mortgages.

That will mature and those are at an average rate of 5.68%. So clearly given both secured and unsecured rates at the moment that will provide further benefits to FFO and we’ll certainly over the next few months look at the best way to maximize that refinancing benefit.

So, overall as I said I think all of our capital markets’ activity certainly has positioned us very well to both improve earnings but also give us all the flexibility we need to execute on our development strategy. Just distributions for a moment, our payout ratio continues to decline we’re now at 83.9% and that’s versus 86.4% in 2013.

So a substantial decrease. And clearly well within our updated target range of 82% to 87% and I expect that trend will continue.

And our current preference is to continue to look to maintain that payout ratio in that lower range. But over time as we’ve said we do expect Calloway to provide a balance of regular modest distribution increases while still retaining a certain amount of our cash flow to fund future growth.

And obviously the platform we’re building I believe will allow us to do both. So overall I’d say we continue to be excited about our future and certainly I look forward to spending more time with you and our investors as we continue to discuss our future growth.

I will close by thanking Mario for all of his good work as our interim CFO over the last 18 months. And by adding how pleased I am to be adding Peter Sweeney to the management team.

And I can now confirm that Peter will be with us effective November 17. So with that I’d be pleased to open things up for questions.

Thank you. Huw, just on couple of the points early on in your presentation, could you just give a little bit more color around the lower recoveries which you achieved in the quarter?

As you mentioned that there were some like as caps built into leases?

Those are simply just recoveries on expenses Alex that we would have…

Mainly realty tax recoveries?

And the recoveries were lower than they were in previous periods?

Totally, previous year anyway.

Yes, so no specific reason it just how things worked out in the quarter basically.

So will that I guess revert in a future quarter?

Yes, I mean, as I said, I thought this quarter in the low level of same property it was very unusual. We think the numbers will be much more consistent next quarter and we will have properties like Toronto Premium Outlets which obviously will have cycled now for over a year.

So I think our same property will be up at a more normal level. Simply a year ago we had a recovery in our bad debts because we had been exceptionally successful in collections.

This year we had an expense, so that alone probably slowing the number by 5.6%. So when you have as relatively a smaller numbers as we have it really doesn’t take much to appear to have a significant effect.

So as I say, [literally along] the bad debt number is more than half of the movement from what I will call normal to the number we ended up with.

So the bad debt that you experienced in the quarter was consistent with other quarters, but just perhaps not Q3 of last year.

Yes. So the next…

And then just on the Penguin Pick-Up, two of the three initial locations are going to be at Calloway locations. Can you I guess talk a bit what kind of an investment Calloway might be making, who's responsible for operations and how you see it playing out in terms of Calloway?

These are pilot sites, so Calloway is making no investment at all in this venture at this point. We are simply providing the vacant space on our side.

So SmartCenters and Mitch the investor in the new venture and he is putting up all of the expenses that will be needed to move the business opportunity forward. Overtime we would participate as being an effective landlord on that space and have the concept of percentage rent or rent.

And obviously that reflects the fact that we are unable because of the concept of that income to participate in the business opportunity for say but it allow us I believe to as I say be both the landlord and also participate to the extent that it’s an incentive or value add benefit for our tenants and also clearly if the concept is successful or customers coming to the site.

So is the revenue model for Penguin Pick-Up to charge the retailers?

Initially it will be free to both the consumer and to retailers, overtime I would expect that Mitch would look to have discussion with the retailers, because if you understand the dynamics of the retailer equation in terms of their cost to delivery and if they can substantially lower their costs instead of sending goods to multiple locations of homes often where the product can’t be delivered because the resident isn’t actually at home to a single delivery or a very small number of deliveries to Penguin Pick-Up locations, then their economics clearly can be improved. So discussions with retailers would be ongoing.

They have been signing up a significant number of retailers to the concept and obviously are moving forward as fast as they can to get the initial sites opened.

Okay. And then just turning to the Vaughan Metropolitan Centre, you mentioned exploring -- in the MD&A exploring what the next developments might be there beyond the KPMG tower.

Can you give us a sense of what you're thinking on that front and perhaps what kind of timeline we should be expecting there?

Anybody who -- unfortunately, I don’t think you were able to be there on the morning Alex but we did tour everyone who came up around and the people who came would have seen condominium developments to the east at Jane and 7 and, to the west at Weston road and 7. So clearly the area showing a support significant amounts of residential development.

Obviously as a REIT we wouldn’t be able to participating in condominium development as an owner but obviously we would realized on the land value inherent in the land that would be passed over. A discussion -- so we have had preliminary discussions with the number of groups around the idea of rental accommodation and we could obviously participate in that.

And with nothing firm in place at the moment but those thoughts would progress. With respect to office, we are continuing review and having discussions about other tenants who might be interested in another form of development over and above the VMC tower.

So I would say that the increased awareness that the events of a few weeks ago and particularly the level of broker interest that was provoked. So it gets very well in terms of what we are be able to do.

So nothing specific announcible at this point but lots of discussions going on both about the VMC tower other opportunities and also the associated retail with the VMC site.

Thanks and good morning. Huw, maybe just a little bit further on the Penguin Pick-Up concept.

Could you just refresh our memories? It's two of the three sites are actually Calloway-owned properties?

Yes, they are.

Okay. And is there an expected opening date?

I don’t have that at this point. As you can imagine they are working hard to get the sites open as fast as they can.

The way that the sites are being constructed what I will call more temporary I supposed to permanent so that will facilitate a faster opening but don’t have a specific date at this point. Clearly I would expect as soon as the sites available that they will be publish as the available and there would be a press releases and other things highlighting the availability of the sites and so on.

Okay. And it sounds like, just to recap, you said zero investment on the Calloway side and then you would just collect the rent for the space that you provide to that venture.

Yeah that’s the model that moving forward at this point. And we receive benefits as being the landlord it helps our tenants and it also will I think value-add for consumers.

Those are at least that I have talked to that understand the concept and they find that very interesting one and one that potentially could save their both time and effort. And those are valuable commodities in the world you live in today.

Great. And then just maybe moving to the tenant side, have you had any discussions with the tenants at those two properties as to what their feedback would be on that service?

No negative feedback that I’m aware at this point I mean my sense both if I think my old retail hat and my obviously current real estate hat, most retailers are trying to figure out the e-commerce model. There are very few significant size retailers that have profitable e-commerce businesses and that the delivery components of the e-commerce equation is a very, very expensive piece of the puzzle but in essence you’re matching the prices that you have in a physical store but you’re delivering for free sometime very substantially sized product to a consumer.

So you can imagine that cost implication that growing the business. So figuring out the optimum infrastructure to support an e-commerce business I’ve said I think to a number of you I look to Europe where obviously I have more background as a formal resident a long time ago in terms of understanding and the model that evolving in Europe is moving away from home delivery a much more to click-and-collect.

So the more established retailers are recognizing that the only way to develop an economic business model for e-commerce is to try to get the consumer to pick up the product either its store or some other physical pick up point. And you look to most of the European countries then they have much, much more well-developed infrastructures in terms of customer pick up.

So I think the Penguin Pick-Up strategy to be at least very much place to where the model is going in other countries in terms of fulfilling the needs of the retail of the consumer and satisfying the cost equation.

Okay. And just maybe turning to the operating side, I think in your earlier comments you mentioned Jacobs and that there may be only be one site that would be affected.

Was that correct?

Yes.

Okay. So how many sites do they have and what was the resolution on that front?

I’m not aware with the total number of sites; I thought it was a fairly significant number but as far as I’m aware in that file for bankruptcy I believe so --

We don’t know how many locations they have but with Calloway they have just a one.

Just one location with Calloway?

Yes.

Okay, great. And then just lastly, you did mention that you would get a pick up on the same-property NOI growth side from the inclusion of the premium outlets in Toronto.

Do you just have a sense of where that asset itself would be running from the same-property perspective currently?

I don’t specifically but I do know that we’ve seen as the business was ramped up more and more percentage rent flowing through our numbers. So clearly as what the dynamic that has occurred over the last year is every one of Simon outlet centers when they open have a number of temporary tenants on typically short-term leases to ensure that the site opens as full as it can do, then over the next year they typically replace those tenants with more permanent.

So you’ve seen Burberry move to Toronto site, you’ve seen Tory Burch and then as I indicated more recently Armani and Ecko. The rents with those more permanent tenants will pay and the traffic that they will drive overall to the site clearly contributed to the success of the site.

So and obviously we have step up rent here in terms of the site as well. So I believe overtime there will be at least a strong contributor notwithstanding it’s a relatively small amount of square footage to our overall profitability and also rental growth.

Okay. And just lastly on the delivery of the Montreal Outlet Centre, with the grand opening on October 30th is the contribution going to start in Q4 or does that actually move into Q1?

No it will start in Q4.

And that would be reflected in the committed development in the supplemental for the Calloway development side?

Yes, it will.

Just on the Toronto Premium Outlets, you said that that's going to be into the same property stats. Is that in Q4 or Q1?

Q4.

Q4, okay. And the two sites for the Penguin Pick-Up, did you identify those locations?

No, for a competitive reasons they haven’t actually been identified but same that the two of the Calloway location is correct.

When do you think those locations will be confirmed?

They would be clearly hoping I think open before Christmas if they can Sam, but if that’s possible then I think the e-commerce phenomena is obviously not just a seasonal business it is growing and so they will get them open just as soon as they can and then be looking for further sites.

And how close are you to finding a third outlet center or site with Simon Property?

Again sensitive issue from a competitive standpoint, but we’ve made very good progress to this point let just say.

Alright. And just finally on the VMC, there's a lot of -- I didn't actually make the tour, unfortunately, but there's a lot of infrastructure build out going on there, obviously.

Is that going to preclude you from announcing or confirming sort of the next development on that site for a few years or a couple of years, or are you -- are there parts of the site where you could launch for example a condo right away or a second office tower right away?

There are parts of the site where you can develop straightaway Sam, so the infrastructure isn’t an issue. And you’re right that there is a lot of activity both on Highway 7 because of the [Viva] and the subway itself and then soon the bus terminal work will start.

But it’s a big area. And there is plenty of opportunity to open something notwithstanding that infrastructure investment.

And so is the site plan kind of finalized and you're just deciding which part to focus on next or are you still finalizing what types of uses are going to be where on the site?

What we’ve tried to do is maintain the maximum amount of flexibility so we have some mental models on what would be good sites for things like let’s say the relocation of the Walmart or the best opportunities with respect to condominium and so on. But the plan has been deliberately designed to maintain flexibility the sort of absolute commitment.

So the idea of the Central Park to create that more urban park environment which we think is an important component. And the nice thing is as we highlighted in the presentation it is extraordinarily unusual in a side of the sites between our site and the site that Mitch owns with two private partners.

And have a 100 acres in a major urban environment controlled in effect by three or four different people is almost unheard of. So therefore our ability to maximize the flexibility in terms of what we do is clearly a great advantage both in terms of the development but also the look and feel of the entire site.

So the next sort of phase, if you will, it doesn't sound like its imminent, but probably a 2015 announcement?

I mean given where we are maybe the middle of November practically speaking I think you’re right Sam, yes.

Okay. And just finally, I did miss the first few minutes of your opening remarks, unfortunately, but were there any specific tenancy issues that would cause the occupancy rate to slip a little bit in the fourth quarter?

No, I wouldn’t say so. I mean our sense is and obviously we would have as broader sense as virtually anybody in the market.

There are -- everybody is trying to be responsive to economic conditions, competitive conditions, the potential implications over the long-term of what ecommerce means. But in the end it comes down to who has the most attractive sites, who has the long-term relationships, et cetera.

And clearly because of the age of our portfolio, the draw if Walmart, the long-term relationships that have been built over multiple years with all of the retailers in Canada and those are looking to come to Canada then we’re as well positioned as anybody to continue to drive strong occupancy.

Can you comment on what kind of impact any delays with this subway opening might have? There's been some talk by the head of the TTC that the 2016 completion date is at risk.

I'm just wondering whether that's sort of in the market and people -- whether that would have an impact on leasing in any way.

I don’t believe so Heather I mean we’re obviously planning a long term development that we’ve recognized will take 10 to 15 years that if there are some short-term and we know no more than you do at this point I mean we have ongoing conversations in terms of what will happen. And I saw obviously the head of the TTC’s commentary about he doesn’t know either as to what may happen and he’s been very clear that they will do everything that they can to open the subway on time even if that means some creative solutions around drive-throughs of certain stations and so on.

But we’re in active discussion with the principle tenants at the moment KPMG they will make some decisions as to what’s the best thing for them as to whether they obviously we opened on time as it will or whether we would have any minor delay. So we’ll continue to work through that find the optimum solution on everybody’s side.

And obviously monitor things very closely. But in the great scheme of the development of the size and scale we would only as a minor bump at best.

And it doesn’t change it online at all obviously the attractiveness of the site and the long term potential and so on.

Okay, thank you. In terms of the transfer, the development transfers, they've been a little bit lower this year than they've been in the past and I just wanted to get a sense of how the outlet malls, etc., will affect Q4 and 2015 in terms of your expectations for transfers.

And I apologize if this was answered already. I also missed the front end of the call.

The Montreal outlet will come into our numbers in Q4. The potential expansion or Toronto obviously won’t physically occur in 2015 so I don’t expect any outlet space to be included in our development or earnouts next year.

The pace of earnout and development fluctuates year-over-year depending obviously on a variety of different factors the nature of the sites, tenant demand, everything else like that. So we work closely with smart tenant try to drive the highest possible level of activity that makes sense along as that the yields are there and the tenants are there and so on.

So I would view that just as an ongoing exercise and just be glad that we have the size of pipeline that we have and obviously we moving forward as fast as we can on that and then all of the other opportunities that we’ve identified. So you won’t see major changes overnight clearly because the nature of some particularly the larger projects are they are long-term builds.

But you can rest assure that we’re moving forward all of the initiatives as fast as we can to trying to bring them into income as class as fast as we can.

So I think you've got a 34 million number for the outlets in your disclosure. Will that fully be transferred in Q4?

As we say, that number would certainly flow into Q4 so all of the investment in Montreal will come in Q4 we’re at 25% owner at this point in that site so that certainly will flow in.

Thank you. Huw, could you just remind us of what's space rent and net effective rent you're looking to achieve for the subsequent tenants in the KPMG tower, the office tenants?

I mean we haven’t provided specific numbers Michael we believe from what we’ve seen from the initial anchor tenant that the ranks that we’re able to achieve are very competitive. As we highlighted at the presentation this will be the first A Class building in the entire Vaughan metropolitan area.

So, clearly the availability of premium space means that the rents will be at the upper end of what you might expect. And relatively because of the subway access and the quality of the build et cetera then we believe that we’ll be able to continue to demand rents at the obviously the high end of the office rental spectrum.

Okay. And then just switching to Montreal, I don't know if I missed this or not, but how many temporary tenants went in the Montreal Premium Outlet on opening?

We had about eight or nine, Michael, so a consistent with what you would have seen in Toronto. I think we’ve said or I’ve said on a couple of the calls that there is no doubt that Quebec was seen particularly by some of the overseas and/or U.S.

tenants as being a new venture for them and that operating in Quebec was seen as a little more complex with obviously the language demands et cetera. So our sense was in discussions with Simon that there was more what I will call holdback over the site but the traffic numbers as I said last weekend were clearly an indication and there were a number of retailers that have record numbers even -- that hit their weekend targets by the end of day on Friday never mind Saturday and Sunday so traffic was very strong and as I said at least as strong as Toronto.

We know there are number of follow on tenants. There is one in particular that we’re not allowed to announce at the moment that I believe will be a game changer with respect to the site.

And we believe that once they come that that will be a massive endorsement in terms of the attractors of the site at the higher end. And our experience in Toronto was certainly been that those higher end tenants where Simon has really stronger relationships than any of our competitors our particular draw for consumers.

So we have no concerns about the long term viability of the Montreal site. And as I said, we’re actively building the book in terms of the expansion for Toronto again leveraging Simon’s relationships and so on.

Okay. I'm not sure if you'd be comfortable saying this, but that game-changing tenant, would that be the first in Canada for that game changer?

You made it too easy me to say Michael no I am not comfortable saying it.

Thanks. Good morning.

Just in the past, if we look -- going back to the earnouts and development in the past you've done probably somewhere between 150 million, in some cases a little more, even up to 175 million annually in some of your prior years but, as was sort of earlier mentioned, the leasing velocity has been slower. So I'm just trying to get a sense of whether that pipeline, if you exclude the premium outlets, whether your more traditional earnouts and developments are expected to sort of be in that range going forward, or are you getting perhaps less interest from some of the tenants at the existing sites?

Hey, Pammi. Yes, we're finding that starting probably middle of last year there were a number of tenants that were starting to rationalize their space, they rationalize look at market they’d go into, look at the size of the approvals and really trying to figure out this whole e-commerce back to their business and we found that even the likes of Toys R Us who were 50,000 square foot traditionally and looking at 35,000 square foot for those winner as marshal to typically of duty looking at 25,000 and 20,000 brand with automation of slow utility figure it out I think what’s happened is the whole market has just pause a little bit, the retailer have paused a little bit to figure out where they’re stronger where they’re weaker and where we want to be the bigger portal, smaller portal.

So I think back with what’s going on right now and I think this slowdown is temporary and obviously they figure it out they will be moving on again but I think that’s what we’re seeing in the marketplace right now. And given some of the bigger brands the Penningtons, the Reitmans, the Mark’s they’re also looking at whether in markets, whether week and trying to figure out should they’d be in those markets at all and as you know our sites are almost all Walmart anchors and we’re finding that is not affecting us as much but there whole retail rationalization is affecting their rollout.

So there is a slow it down a little bit I think fourth quarter we’ll see a lot of leasing finding picked up as it normally does for Q4.

The only other thing I’d add is I think about again I’ll put my all retail app on for a moment, some of the market dynamics $0.87 clearly is very supported Canadian retail that is going to be less cross broader shopping. Don’t underestimate at all the impact of gasoline at multiyear loads, every cent reduction in gasoline prices means a very significant inflow of funds to consumers and so that increase in disposable income potentially is a major contributor.

As retailers are thinking about the offset for that which is the unemployment market at the moment is obviously not vibrant and they’re considering as Rudy said the implications of long-term retail strategies in the world of e-commerce -- so I was interest to see the recent comment yesterday that they’re looking to open more new stores. So I think it is more, how do you be successful and how do you plan the most effective omnichannel strategy that people are trying to figure out.

So I don’t believe the age of physical stores at all, they will clearly play an important part in the most ongoing strategy, it’s just what’s the right mix, what’s the right size, what’s the right design of what I’d call hub-and-spoke, whatever it might to move forward in the most affected way and I think we’re in that kind of inflection point at the moment as people are thinking about all of those dynamics.

So I guess if you look at some of the other opportunities that certainly Calloway has, whether it's with VMC and the premium outlet side, some of these other initiatives, and I guess the intensification as well, could in the interim replace what may be a slower earnout and development period, at least for this year and perhaps next year. But there are other initiatives certainly to backfill what traditionally has been a fairly good contributor to growth.

Yes, absolutely and as I say, no necessary things to slow down, there is a permanent change I think it’s a take a breath and figure out how things are going to evolve but the model that we’re trying to build is absolutely multi facility so that we’re not relay on any one income stream and any one type of business to drive growth and we’ll balance all of the initiatives together to try to build this portfolio that will provide steady growth and steady distribution increases in over multiple years.

Well, thank you very much obviously for everybody for participation I know how busy this time of year is for all of you. So we very much appreciate your interest and obviously look forward speaking again to you.

Have a good day. Bye, bye.

Thank you very much operator.