SmartCentres Real Estate Investment Trust

Good afternoon. I am Peter Forde, President and CEO.

Thank you for joining us this afternoon. Joining me on the call today are Mitchell Goldhar, Executive Chairman; Peter Sweeney, Chief Financial Officer; Rudy Gobin, Executive Vice President, Portfolio Management and Investments; and Mauro Pambianchi, Chief Development Officer.

Thank you, Peter and thank you all for joining us today. As most of you know we started with a vision some three decades ago to build retail centers with Walmart as an anchor, staying attentive to every detailed step just as we do today with our mixed-use plans.

This includes building a strong dedicated team with an operating company around it. Our entrepreneurial mindset and culture makes us unique, first and foremostly, in land development as well as operating a large shopping center portfolio and platform.

Our core competencies in land development make us very proficient in driving profitability through intensifying and repositioning many of our strategically located properties, almost all of which we know very well, because we developed them, in the first place. We didn't buy these properties finished, as managers or asset managers for that matter or with that mentality.

We are a culture of change. And we are always focused on change.

And we have the in-house capabilities of executing on that change. These great shopping centers with a strong tenant base and cash flows, outstanding access to and near highways and transit and most importantly -- most importantly, I have a phone call here, that's -- I'm sorry, and most importantly, in the midst of growing populations particularly now, providing a solid foundation, through the development of higher and better residential and other uses.

Some investors and analysts are just beginning to acknowledge this and seeing the planning applications and physical development that is now underway in so many of our centers driving significant value, which is also growing and is also here to stay. This prolonged and challenging time, has been difficult.

But we've learned a lot. We have learned about, the strength of our portfolio.

We've learned about, the strength of our people. And it has been particularly and peculiarly, productive as well.

Thanks, Mitch. As Peter mentioned earlier, the pandemic continued to affect our operating results through the first quarter of this year, albeit, to a lesser extent than last year.

Our operating shopping center portfolio remained added strong 97.3% leased as of March 31 and remains focused on essential services and value-oriented retail. It is well-suited for these turbulent conditions as evidenced by the following.

One, though 60% of our REIT's tenant base is comprised of essential services what may be less known is that this increases to 70% for the markets outside the Greater-VECTOM area where our occupancy is very close to 100% if not 100%. In these smaller markets our shopping centers are often the essential service hub of the area and all -- and are in all cases anchored by a Walmart supercenter.

With the pandemic and the lockdowns early indicators are that the demand for housing and therefore shopping in these somewhat smaller markets is increasing as people consider leaving the urban areas for the suburbs. This is good for our shopping centers and further enhances the opportunity to intensify in our existing lands in those markets.

Number two. Our tenants are quickly adapting by expanding their e-commerce, product lines, delivery models, pickup capabilities, space utilization all while striving to maintain customer loyalty and sales.

Three, walmart which anchors 75% of our properties and represents over 25% of our rental income along with our family of value-oriented tenants are well-suited to serving its community even during this pandemic. As we highlighted previously Walmart plans to spend $3.5 billion over the next five years to make the online and in-store shopping center experience simpler faster and more convenient.

This continued commitment to its retail operations in Canada speaks to this ongoing strength of Walmart and its growing ability to drive traffic to our centers. We are fortunate to have opened last quarter in Vaughan, a new Walmart prototype store as part of its SmartVMC store relocation and the first of its kind in Canada which includes a 10,000 square foot e-commerce omnichannel fulfillment center and a drive-thru pickup facility.

It will fulfill as many as eight times the online orders of an average Walmart store. Four, virtually all of our revenues from shopping centers are from open-format outdoor centers providing a safe and comfortable environment for customers to practice physical distancing while shopping for their everyday needs.

Five, for Q1 we completed nearly 157,000 square feet of new leasing even in these challenging times, which helped in maintaining our 97.3% leadership position carried forward from the last quarter. And sixth, that being said, to-date we have renewal experience for Q1 though relatively flat at 0.2% with 2.7 million square feet renewing was not unexpected given the current environment, but beginning to improve as existing and new retailers begin to see opportunities to expand their offering in different markets as populations begin to shift.

We recognize the importance of small independent retailers to the Canadian economy. Our rent relief program and focus to-date has been on supporting these non-essential small tenants, representing approximately 6% of our contracted rent.

As you know, in 2020, the federal and provincial governments put in place the Canada Emergency Commercial Rental Assistance program, otherwise known as CECRA to assist tenants. And we participated, providing relief to over 700 of our small and independent tenants.

While the federal program ended in September, it was replaced by the Canada Emergency Rent Subsidy program, which is assisting tenants directly those who are qualified. Many tenants are still suffering.

And with the continued shutdown and we are assisting where we can and prioritizing those most in need. Last year, there were announcements of several tenant restructurings during the COVID period, either through CCAA or bankruptcy filings.

Major names as you know, such as Moores, Comark, Sail, Reitmans and Aldo. Collectively and perhaps fortunately, less than a third of the stores of these tenants actually closed in our portfolio, approximating about 415,000 square feet or 1.6% of gross revenues.

The remaining two-thirds or 128 of the stores with these same tenants have continued to operate. For the most part, these tenants have expressed their strong interest in remaining in our Walmart-anchored centers.

Now with the 415,000, 145,000 square feet were two sale units, Etobicoke near Sherway Gardens and in Vaughan at our 407 redevelopment sites. We have now conducted site visits with interested retailers for both locations and have received an LOI for one in which we are evaluating.

Ultimately, the higher-value use is to convert to residential or other mixed use over time as we obtain appropriate municipal permissions. But we will continue to maximize cash flow in the interim with strong tenants wanting a presence in the market.

With the remaining 270,000 square feet of vacancy from the balance of the COVID-related bankruptcies, we will continue our routine work of filling up all of those with the best-fit tenants for each center. In addition, due to the growing resiliency of our remaining small tenants, there have been no further filings in 2021, affecting our portfolio.

As shown in our MD&A cash recoveries from our tenants continues to improve. For the first quarter, we recovered a full 94% of tenants' rents, an improvement over the prior quarter and showing signs of continuing to improve.

And to avoid any confusion, these gross billings used in these calculations are based on rent rolls, excluding that close during and through CCAA Regardless, our same-property metric did reflect the negative 3.7% over the prior period, largely due to the lower renewal rates, quarterly and the slight higher vacancy, albeit we maintain our 97.3%, as we closed the prior year. And with that I will now turn it over to Peter Sweeney.

Thanks very much, Rudy and good afternoon, everyone. We have encouraged the capital markets to focus on our commitment to the SmartCentres balance sheet: our unyielding focus on conservative capital management, our discipline in the deployment of capital on developments and acquisitions and our continued desire to match gearing and similar debt levels to the long-term nature of our assets.

This strategic focus on long-term viability and growth continue to allow us to manage through this period of uncertainty. In this regard, we note the following highlights for the first quarter of 2021, as compared to the comparable quarter in 2020.

Number one. 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 69% from 66%.

And our unencumbered pool of assets continued to grow, increasing by approximately $263 million to $5.9 billion. And as we maintain our strategy to continue to repay maturing mortgages, we expect these metrics to further improve in the future.

Secondly, our BBB-high credit rating from DBRS Morningstar permits us to continue to attract debt capital at the low interest rates for longer terms. And in keeping with our strategy to take advantage of lower interest rate environments, pursuant to our refinancing activity over the last 12 months, our weighted average interest rate for all debt continued to decrease.

And as at March 31, 2021 was 3.26%, as compared to 3.41% for the prior year. This 15 basis point reduction is expected to yield approximately $7 million in savings in annual interest costs.

And our weighted average term of debt was 5.1 years as compared to 4.8 years last year. And lastly, number three.

Our interest coverage ratio net of capitalized interest was a very strong 3.6 times multiple. This in spite of the impact that COVID-19 has had on our operating results over the last 12 months and it further confirms the foundational strength of our core business.

In addition, our adjusted debt to adjusted EBITDA multiple was 8.6 times, once again reflecting the business' strong and very stable ability to fund its obligations even during these most uncertain times. From a liquidity perspective, as we look to the immediate future and continue to manage through the current uncertain capital markets environment in addition to the conservative debt levels noted earlier, please also consider that at the end of the quarter, our liquidity position exceeded $1.1 billion, which is represented by approximately $400 million in cash, our undrawn line of credit, which stands at $490 million and our $250 million available accordion feature.

Note please the $323 million of this cash is earmarked to repay our Series T debentures that mature in June of 2021. And the balance is expected to be used to fund costs associated with our development pipeline.

Note also that we continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place to ensure project completion of our various development initiatives. And we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments, all of which are expected to begin construction this year.

And these include a large retirement home project in Ottawa, several apartment building projects in Ontario and Québec and lastly a large townhome project in Vaughan, Ontario. Our liquidity position was further strengthened in 2020 with total proceeds in excess of $53 million being received from the closing of over 11,00 units in the first two phases of our Transit City project.

Similarly, in 2021, we expect to receive approximately $25 million in total proceeds from the closing of the 631 presold units in the third Transit City phase. The cash flow generated from these closings further fortifies our liquidity position and supports our distribution strategy.

As Mitch mentioned earlier, what is important to remember is that the contribution levels experienced in 2020 and those expected in 2021 represent only a 25% interest in these respective Transit City phases. As we plan for the imminent launch of our next phases of residential development at SmartVMC and elsewhere, it is our expectation that SmartCentres' ownership share in these projects will be substantially higher.

Please also remember that we expect this recurrence of FFO and cash flow from the closings of condominium townhome developments to continue for many years to come. Notwithstanding the challenges associated with COVID-19, as we have seen since the third quarter of 2020, our collection levels continue to show improvement.

Also during the first quarter, our provisions for bad debts were significantly reduced from our experience in 2020. In this regard, our expected credit loss provisions in the first quarter totaled $2.3 million as compared to approximately $30 million in ECL provisions that were taken for the nine months ended December 31, 2020.

From a valuation perspective, the stability that we experienced in both the third and fourth quarters of 2020 continued into the first quarter with cap rates, discount rates and other modeling variables remaining substantively status quo and resulting values remaining relatively stable for our portfolio of investment properties. After the valuation erosion that was experienced during the first and second quarters of 2020 which was primarily reflective of additional vacant space and the additional time expected to backfill such space in the portfolio much of which resulted from the experience.

This first quarter's experience is directionally important, because it further confirms that the market continues to stabilize, which should further improve our credit metrics into the future. As we have said many times in the past, it is important to remember that we have not factored into our IFRS values -- any value that accrues from future development of mixed-use space.

And as Mitch had pointed out earlier, these future value increments that are expected to be derived from our proposed mixed-use initiatives are expected to have a meaningful impact in the growth of both FFO and net asset value. And with that, I will now turn it back to Mr.

Forde.

Thanks, Peter. So as you can tell, our organization remains focused on mixed-use intensification, while taking care of our tenants and properties.

With $45 million of profit last year from TC 1 and 2 we are now expecting a further $20 million this year from TC 3 in Vaughan. We have an improving rent collection picture and payout ratio and we are delivering on the 57 construction projects underway with more to follow.

We are maintaining and improving a leading occupancy level of 97.3% throughout the year and prudent and strategic acquisitions and with established partners, as well as targeted capital recycling, and a strong focus on cash flow management and our balance sheet, further enhancing our ability to fund all future capital requirements. And with that, I'll now turn it back to the operator to coordinate us in addressing your questions.

Thanks. Just a quick one for me and then I'll turn it back, is some of the NOI decline in the quarter was due to a decline in GLA, as properties are transferred into PUD?

Could you just tell us, for the rest of 2021, if you expect further GLA and any consequence to be transferred into PUD?

Yes. I don't know, Rudy or Peter?

Do you want to?

Yes. Yes.

The decline in the same property Sam, it's a result of much more than that. It was a result of lower occupancy -- general occupancy, because there were bankruptcies that I mentioned earlier.

It's a result of the lower rent from some of the remaining tenants who are renewing. And you saw the renewal rate being fairly flat, given the condition of the markets with some tenants, who are, again, the nonessential tenants.

And then a very, very small portion of that would have been redevelopment. For the balance of the year, we don't see much in terms of that, because, again, we have no sight of any bankruptcies or filings.

And as such, I think, you may see the opposite. You may see some stuff come out of redevelopment once we have identified the use -- the alternate use for such space.

So not much expected for the balance of the year.

Okay. Thanks.

I’ll turn it back.

Yes. I’ll turn it back for others to ask questions.

Thank you.

Thank you, everybody. A couple of questions on my end.

I guess the first one, I'm not sure if I heard you correctly Mitch during your comments, but did you mention that you had $100 million of additional deals in terms of strategic sales that were pending in this year?

Yes.

Okay. Could you perhaps give us a little bit more color just on what properties, what markets and maybe the price per square foot?

Well, first of all, I guess, I should, I mean, mention that this is something we may have more of, be already probably a fairly regular occurrence in the next number of years, not just a couple of non-strategic core assets, but maybe in some cases in some land. But those are looking at, I think, low 5s that I believe where we are with respect to the cap rate.

I mean, these are the things that are I believe, just -- we're just giving you some visibility on this. But they're sort of -- they're under contract right now.

Okay. And it sounds like there's not a wholesale bigger larger program.

It's just this is something that perhaps maybe is more of a recurring --

Yes. There's a couple of assets that are not our -- we just don't see the -- they're just not strategic for where we're going and they don't have the potential for -- we don't see the potential for intensification or repositioning or redevelopment.

So there's a few situations where at the right cap rate we will fill. And we're not – yes, we're not just sort of blanketing the market with a whole bunch of things.

We're just the selectively -- we're fine with centers holding them and managing them. But ideally, over the next few years we'll dispose off this -- dispose off the non-strategic ones.

Okay. Great.

Good to hear. Second, I think you guys have emphasized the point that with the current -- I guess the future phases of Transit City economies that haven't started just yet REIT will have greater than 25% interest.

Should we interpret that to mean that it would just be the two partners going ahead and you wouldn't have a condo developer involved, or would it just be that the condo developer would be involved and have a lesser stake?

I mean we've built -- you kind of remember for these three 55-story towers to basically be -- well they are done. two of them are completely closed.

One of them started closing yesterday. We made the deal with CentreCourt, what five years ago.

So in the five years since then -- by the way, they've been fantastic partners could not ask for better partners. But during that five years, we've built our own residential program.

Keeping in mind, this whole -- these initiatives go back six, seven years ago. It's not COVID, but I think it just gets blurred together.

So in that time we have built a residential department. We are now in a position to develop our own in-house condos and residential rental.

So we are doing that and we're going to do that. So when we did the deal with CentreCourt they were bought in at the market price.

And now we've enjoyed the benefits of our share of the profit, but at 25% it's still significant. But just imagine that back then we were selling Transit City 1 and 2 at like 700-and-something a foot -- maybe $705, $710 a foot.

Transit City maybe the average 1, 2 and 3 probably about $710 a foot. The market today across the road, I believe their last sales were over $1000 a foot.

And of course, we are a land price. So we were not -- we don't have to acquire the next phase and the next phase.

So you can just imagine on VMC alone, the subsequent phases like -- that we'll be building most likely without an outside partner will not just be at 50% ownership for the REIT, but also at higher per square foot sale price.

Okay. Great.

Thank you. And last one before I turn it back.

Maybe this one's for Peter Sweeney. In your MD&A you've got committed and uncommitted retail developments.

And I think if I add the total investment costs again for committed and uncommitted to be about $200 million dollars carrying the value of your property under development. And this is just the on balance sheet not joint ventures in Transit City and all the other group subsets.

Just curious if you could reconcile that $400 million differential?

Mike, it's -- thanks for the question. Unfortunately, I just don't have the information in front of me.

Perhaps I can undertake to get back to you after the call.

That'd be great.

Okay.

Thank you.

Mike, I wanted to also clarify something important tangible to your question. One is, we intend on proceeding with another VMC residential phase there this year.

I mean just going to market. So -- and maybe two additional phases in each phase of at least one, if not two towers each.

And secondly, I just want to point out of course, we always will evaluate the pros and cons of bringing in other partners. So if there were some -- if they had merit we might still do that.

But at the moment that's not what it's -- that's not how it's looking.

Excellent. Thank you.

I’ll turn it back.

Thank you. And good afternoon.

I wanted to ask about the leasing spread. And I apologize if you addressed this with Sam's question.

I got cut off. I'm not sure if you did.

But it looks like for Q1 it's gone flat and was actually marginally negative when you exclude the anchors. Can you give us some more color on what's driving that?

Is there some sort of slight changes in the lease structure or pushing out some rent steps in later years? Because it looks like on pretty good volume.

Anything would be helpful and any guidance on sort of how to think about that number going forward.

I guess Rudy?

Sure. Yes.

Hi, Jenny. The -- yes the spread that's happened in Q1 is really a result of the I'm going to say, 10 to 12, CCAA bankruptcy filings prior year where in those tenancies where they've closed, they've closed the one quarter.

But the other -- or the 1/3 and the other 2/3 or 3/4 that remained open, we reduced the rents a little bit because they wanted desperately to stay in our Walmart-anchored centers. So when you combine any maturities that are happening in this quarter in this COVID environment and because it got prolonged, you combine the two effects of a renewing tenant we had a small number of the fashion tenants.

None of these by the way were the essential tenants causing this, but the fashion tenants, apparel-type tenants just struggling through it and asking for rents that in the short term, we lowered. So I don't think this is an ongoing thing.

This is something that you see now. And because 2020 was negotiated by the way -- sorry 2021 was negotiated by the way mostly in the latter parts of 2020 because everybody would give their notice then and then we would negotiate.

That's the result of the pandemic and the bankruptcies and the maintaining the tenancies that are there in a shorter-term rental structure to get them back to full rent after that year. So I think you'll see a good recovery of that, but that's the cause of it.

It's a small number of tenants. Out of the three -- almost three -- I think it's 2.7 million square feet we renewed so far this year.

Yes.

Okay. So is it fair to say that if you ex out those tenants that the rate you've been getting on renewal would be consistent with that sort of low to mid-single digit you've been tracking prior to the pandemic?

Correct. Correct.

And we've done that. We didn't disclose it that way but that's correct.

Because again there were enough of them that we didn't want to say except for lease but that assumption is accurate.

Okay. And then the little growth that you got I guess from the anchors would that primarily be more grocery-oriented anchors in the portfolio?

Yes. It's the grocery.

It's the bigger guys as well to the entire Lowe's. Anyone as you know in our anchor list which is over 30,000 square feet is considered an anchor.

So it's all of those yes.

Okay. So it's fair to say sort of non-Walmart anchors?

Correct.

Okay. Great.

And could you just remind us just given the discussions about construction costs going up across the board in your developments that are currently underway could you comment on how much of those costs have been fixed already?

Well, everything that's under construction in VMC is locked in which is great. Actually, we didn't even experience increases.

We got in just early on TC 4 or 5 -- 4 and 5 which was great. Yes.

And -- but any construction -- anything that we haven't commenced construction on in the GTA has not been locked in. But the projects for example that are under construction in Québec are locked in.

So fair to say anything that's under construction right now is locked in. But I will say that construction prices in the GTA for sure are higher.

There's no doubt about it.

Okay. Great.

That's helpful. And then this quarter you guys have maintained your distribution and highlighted the strength of your balance sheet.

I'm just wondering your thinking sort of longer term about your development funding. Does it suggest that you're going to maybe push the leverage a little bit to fund that or sort of back up some of the dispositions you mentioned?

Which lever do you think is the one that you prefer to push?

Yes. We prefer to try to maintain our debt levels where they are.

So there's lots of other levers. We mentioned already the sale of noncore assets.

Obviously we can bring in some partners -- more passive partners into some of the developments or new developments. There's other levers.

But the other lever, we have is just to not actually commence the development, if it's going to move our debt levels into an area that we're not comfortable but really the driver is going to be the level of debt.

Okay. Great.

And with regards to the distribution like is that a lever that you have would push, or is that something that you're still evaluating at this point, or are you pretty committed to maintaining at current levels?

Well as you know it's a monthly decision. And so -- and it's a Board decision.

So obviously we've intimated in the past that we're more comfortable with our distribution based on everything that's going on right at the moment. But of course things can change.

And we'll monitor that. So, obviously we'll leave that decision to the Board every month.

Okay. Fair enough.

And then, my final question is with regard to the $2.3 million of expected credit losses. Does that number represent a real decline sequentially, which was nice to see?

And does it include any reversals of previous bad debts taken in 2020?

Peter?

No. I think Jenny it's fair to say that, it principally reflects the business' performance in Q1 and expectations for collections of remaining amounts outstanding.

And I think as I mentioned, it's a demonstrable improvement over the experience of last year. And you -- we have been trending this way.

You'll see in Q2 of last year, I think we provided for about $15 million $1-5 million. In Q3, it was closer to $10 million.

In Q4 it was closer to $5 million. And so, at least directionally, the Q1 experience $2.3 million sort of follows that trajectory that that we've been following through for almost now the last 12 months.

Right. That’s very nice to see.

That’s all for me. Thank you.

And I’ll turn it back.

Thanks, and hi, everyone. Maybe just sticking with the leasing spreads.

I'm just curious, how long are those -- you mentioned short-term rent reductions. How long would those be in effect for?

And then secondly, do any of these leases perhaps include rent bumps on an annual basis after the initial reduction?

Yes. I'll let Rudy answer that, but I would just want to point out, many of our renegotiations around that also included things to clear the way for development as well.

Keep that in mind. Rudy?

Yes. With regard Pammi, with -- for the tenants that did come to us and asked that question during -- when they were maturing, there were two categories.

The first category, are the tenants who say, we're struggling a little bit and we need some help. And when they renewed, we renewed them and that would be for a one-year term generally.

And then it would bump back up after the year. Some of them were even shorter term meaning even late last year when it came to the last part of the year.

And because the pandemic carried on we would extend that for a few more months. So generally, it's that.

Some tenants came to us and said, -- a fewer said, we would like to renew but can we renew for a shorter term? And we said we will need flexibility in that lease, because again -- and these are the small -- think of the smaller tenants the apparel-type tenants.

So, the combination of the two, both would end up being short-term and both gave the landlord the flexibility to either increase the rent or take control of the space after that initial year. Yes.

Got it, okay. And just maybe coming back to the comments around non-strategic assets and disposition, in that $100 million that you mentioned Mitch, would those transactions be relatively in line with your IFRS values?

I mean you mentioned low-five cap rates. Just curious on that.

And also, are any of those Wal-Mart anchored centers?

You're really interested in that. I -- yes, in one case.

But you'll understand better later on that one. I guess Rudy, I think they're probably in and around IFRS?

They are actually -- you may have one or slightly lower. But collectively, they are actually higher than our IFRS values that we currently carry in our books in terms of the value that we have contracted.

That's interesting.

Yes.

Got it, okay. And then just lastly, coming back to the other comments, I guess about the successful re-zonings that were completed in the quarter.

I'm just curious -- and you also mentioned sort of the Cambridge property. What do you think even at a low density value per buildable foot what that could be worth?

I'm just curious can you remind us, first of all was there any gain or a markup recorded on the successful re-zonings in the quarter? Which it doesn't appear to be the case.

But -- and then secondly, what is your approach to marking up the assets once successful zoning is achieved?

No. I don't -- we have not marked up our properties on re-zonings yet, including -- I don't think even VMC reflects full OP secondary plan and zoning permissions.

But they can land there, which is today extremely valuable. I mean it might be worth, who knows what $100 a foot probably if there's -- I'm just going off the top of my head if it's if there's total six million, seven million square feet to build yet, to be built at the -- on the REITs side there.

And you'd have to back out the existing IFRS value there, but just to unlock it, because REIT owns half of that. I'm not sure if you could even -- I don't know.

We could probably say there's virtually no value right at the moment, but we are looking at that. We have discussed it and we are contemplating at what point it is appropriate for us to adjust our values.

We want to make sure, we continue to be conservative switching a long-term approach to that, but we are discussing that internally.

Okay. And then just to be clear when you do, let's say, when you are involved in a transaction where you say sell an interest to a co-owner on a specific asset, would you then mark up your share of what you retained?

Yes. Yes, of course.

Right.

Thanks so much.

I’ll add just – Pammi, it's Peter Sweeney. Just for clarity we would only mark up to the extent that it represents that portion of a property.

So for VMC, for example, if it was a single phase with a partner, we would only mark up for that pro rata share of the entire VMC. It wouldn't be for the entire VMC space so to speak.

Right.

Right. So in that case you've got maybe three or four or five acres that's being used for the five towers four of which are in -- six towers or four -- five of which are in the partnership, and there's 50 acres plus or minus there.

So each one of those individual towers have been adjusted, but the vacant land all around it has not been.

Thanks so much. I’ll turn it back.

Hi. Good afternoon everybody.

Hi, Tal.

Yes, Tal.

Just wanted to start with the collection rates. When do you see those getting back to normal?

Well, Tal, first of all, I mean, obviously a lot of it's sort of probably more or less common sense. I mean, we normally would have collected 99%-plus.

We collected 94%. So we're talking about 5% here overall.

So -- but I mean indications are things are normalizing in that regard, and so -- and getting stronger -- steadily stronger. So, I guess, it will be somewhat probably back to normal when we are all more or less open, keeping in mind that so much of our stuff is essential and so it's really the 5%, 6% of our portfolio, which are smaller retailers that are disproportionately affecting that.

So Rudy, did you want to maybe also add some things to that?

Yes. I would say if you look back at the years pre-COVID what Mitch said is exactly right.

We're between 99% and 99.7% on $800 million of revenue in those prior years. We may have had $1 million to $2 million Tal of bad debt and that was it.

So as soon as this mess we're in is over, I expect that we will return to that because the tenants that don't make it through won't and the tenants who have adapted through this environment would have come out stronger as you've seen some of the retailers who are releasing results are doing very well and some still struggle because of the closures. So I expect to go back to the norm of the pre-COVID period.

And have you started to have thoughts about how -- like, let's say, we get past -- I can't remember the exact month when SARs starts winding down like if these rates don't improve what are sort of -- how are you thinking about how you'll deal with that issue?

Sorry, can you say that again?

I'm just saying like once we sort of get past say like when the rent subsidy -- kind of the rent subsidy starts winding down and if these rates maybe improve a little bit or maybe -- but they don't quite go back to where they were. When do you start thinking about these tenants -- like in terms of what to do with some of these tenants who have been lagging let's say on payments?

I mean, each one really is an individual, but it's an individual-by-individual case. If you saw the range of tenants like that would be included in what you said I mean, each one is going to have its own tailor-made kind of solution.

And remember, we're also developing. So in some cases we want to move things -- tenants around.

So there'll be a lot of things going into that decision. But I don't know Rudy, do you want to add anything to that?

Yes. I was going to say Tal, the other thing too that's happening simultaneously there will be I want to call it a trail-off of a very small proportion of that because everybody is adapting now.

But there are a large number of tenants that are calling us up, asking for space which is why the occupancy has stayed so high. So, when we look at the categories, the medical categories, the pet store categories, the dollar stores, the drugstores are calling us up the clinics the LCBOs and so on, Winners, HomeSense expansions, there are a lot of tenants that are still expanding their footprint into our centers.

And that's why we were able to do upward of whatever almost 200,000 square feet of re-leasing of space in -- just in our Q1. So there will be a churn like there is always every quarter.

And unfortunately tenants will adapt and they will get help from government and us. And some will struggle through it.

So, we will just keep introducing new tenants to the portfolio and keep our flexibility in our leases.

Okay. Capital spending for this year Peter, do you have like an approximate amount for maintenance development that you could offer for us to think about?

I mean on the CapEx spending for maintenance, I don't want to sound glib, but it's not a substantive number from the REIT's perspective, Tal. When we think about development spending, again, as Mitch said, this number is variable.

It really is a function of when we want to or not start projects. But at least for now, the expectation is for 2021 to spend in the area of about $200 million.

And that's on the balance sheet and in the JV?

Yes. Yes, yes.

Sorry, when I say spend what I really mean is commit to spending as our share of projects.

Okay. Got it.

And then just on the development side, I'm just wondering like where you announced Transit City 6 the launch of that last night that's going to be another condo building. How are you feeling about condos versus purpose-built rental right now?

Again, that depends on where -- I mean but good. I mean, there's lots and lots of places.

The answer would be good. And there's -- there are some places who would be on the condo that's so interesting.

But it's interesting usually most of the places where the condo is not particularly necessarily interesting, it is interesting from a rental res point of view. And generally speaking, wherever the rent in the condo is viable so is the multi-res so -- but yes, I mean even in places 10 years ago, you wouldn't have thought condo was viable there's interest.

A lot of our centers are in these communities just outside core, where they're now becoming very desirable. They were already desirable just the Toronto world doesn't necessarily brush up against the Cambridges of the world.

But we have very strong positions in those places and we've noticed a strong increase in demand for our residential there before we even started and that's from the residential development community. And you can also see some of the other launches in these communities as well.

You can see some of the strength in some of these markets. So some -- in these places, we'd say there wasn't much of a condo an interesting condo opportunity, are now looking like there is.

Okay. And I guess my last question, I think like when I thought about how development would unfold at SmartCentres that it was going to be really focused on intensifying the existing properties.

And certainly there is a lot of that going on. There also has been, however, like some projects that you guys have taken on that have been outside like I'm thinking about the Barrie project with Greenwin.

You've got another one in Downtown Toronto I believe with them. How -- like can you just talk to me a little bit about like why choose -- why commit to those kind of projects versus the stuff where you're sort of staying closer to home on as you said earlier the land you developed and the land you know the best.

Yes. Well, it's not so much just that we know the land the best.

It's just we don't want to pay a market price to -- our growth is not going to be, kind of, give us and take us away. I mean, it's just an exercise and just exercising.

So that's along with we do know our properties intimately. But we know those markets intimately.

I mean we've been in Barrie for example, first of all I grew up in the summers in Barrie on Kempenfelt Bay. And secondly, first Walmart that ever opened was in Barrie and then we went on to do numerous other developments in there.

I mean we know that market intimately. So the location the property in downtown on the Waterfront and Barrie we know that.

We were also looking at a seniors home around there. So that's an easy natural kind of -- sort of expansion of what we're doing there.

And that's probably true with most markets across the country that are over say, 5,000 or 10,000 people its principal population. But it's a very -- it's a valid question why would we buy in that market.

That's really to me the issue and we won't be doing a lot of it just won't be but those were really fantastic opportunities. One, Barrie the price was right.

And the property was right and we believe Barrie is going to be very interesting. So keep an eye on it.

Widening the highway the goal is increasing. It's all the things that happen with COVID.

There's a lake. It's going to be an interesting market in the next 10 years and beyond.

And then Balliol that's the other one we bought in the market and it was an opportunity that Greenwin had unique to them to buy it from partners. They go back 50 years.

They had it right after so many -- I can't remember how many decades. They called us and said do we want it?

Otherwise it would have gone to the market and truly who knows who would have gone for it but it was a unique opportunity. So those are the sort of stories behind those two.

But there's a million things of course that we say no to. So we are very, very much -- we are very much sticking to our knitting like you were saying.

Okay. Thanks very much, gentlemen.

Have a good day.

Thanks, Tal.

Okay. So we'll just close.

And again thank you all for taking the time to participate in our first quarter 2021 earnings call. And please all of you continue to stay safe.

Thanks.