SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Transcript 2024-Q1

[Operator]

Good day, ladies and gentlemen and welcome to the SmartCentres REIT's Q1 2024 Conference Call.I would like to introduce Mr. Peter Slan. Please go ahead.

[Peter Slan, executive]

Good afternoon and welcome to our first quarter 2024 results call. I'm Peter Slan, Chief Financial Officer; and I'm joined on today's call by Mitch Goldhar, SmartCentres' Executive Chair and CEO; and by Rudy Gobin, our Executive Vice President, Portfolio Management and Investments.We will begin today's call with some comments from Mitch. Rudy will then cover some operational item. And I will review our financial results. We will then be pleased to take your questions.Just before I turn the call over to Mitch, I would like to refer you specifically to the cautionary language about forward-looking information which can be found at the front of our MD&A materials. This also applies to comments any of the speakers make this afternoon.Mitch, over to you.

[Mitchell Goldhar, executive]

Thank you. I'm Mitchell Goldhar. Good afternoon, everyone, and welcome to our call. I'm pleased to report a strong start to 2024, building on the momentum of last quarter and indeed last year.Before I get into some details, an invitation. If you haven't been to a SmartCentres, Walmart-anchored location recently, I encourage you to visit. Anyone. There surely is one near you. And that is, no matter where you are in Canada, there will be a SmartCentres in proximity. What you will notice and feel is something new and obvious; increased activity, traffic -- consumer traffic, brighter lots, easier access, more stores, and a wider selection of retailers such as daycare, fitness, clinics, pick-up locations for your click and collect. And of course, great value, especially if saving money is your thing, which is everybody's thing.Now for a few details. Lease extensions, which a lot of people refer to as renewals, are providing strong rental increases of 8.9% excluding interest on 4.4 million square feet already extended in Q1. Same-property NOI is up $4 million or 3% in the quarter over the prior year. Cash collections remained strong at 99%.Portfolio occupancy was temporarily reduced in the quarter as you have seen in our disclosure. This was almost all the result of 2 unrelated tenant vacancies in the quarter, which we fully expect to release in the next quarter or 2 on current negotiations, advanced negotiations with strong covenant tenants. And on completion, will not only result in a 9.84% in place in committed occupancy, but we expect that those will be done at higher rents as well.With stronger leasing interest for both existing and new build, we expect our occupancy rate to improve even more and relatively quickly. And much of it with higher -- with stronger covenants and higher rents. For the first time in a while, we have executed over 200,000 square feet of new build leases, which will further expand our footprint across the country in the coming quarters. Growth is coming fast and strong from recognizable names such as TJX banners, Dollarama, Shoppers Drug Mart, LCBO, Banks, Canadian Tire and some national grocers and general merchandisers.Built on our stable cash-generating platform, we continue to build and secure significant mixed-use permissions with 56 million square feet already zoned. And remember, on lands we already own, which creates great value and expansion value of our NAV. We will, of course, be prudent and strategic in executing these projects. That is when market conditions permit and with appropriate financing in place. Here are some specific highlights briefly.Site works are continuing for our 40-story artwork project comprising 320 sold-out units right here in the VMC. Two; through our SmartLiving department, our 458-unit Millway apartment rental project was fully completed during Q4 last year. And at this quarter end, we were 76% leased and now expecting to grow to 88% in the next quarter and into the mid-90s before year-end. We have exceeded our lease up occupancy expectations as well as our rental assumptions with this project in the heart of the Vaughan Metropolitan Center, VMC.Three; construction of our Vaughan Northwest town homes with our partner is progressing well, with 2 closings taking place this quarter and nearly all presold units expected to close on schedule by year-end. Four; in Leaside, we continue with our site work for a 224,000 square foot retail center, comprising primarily of the anchor tenant of Canadian Tire of 200,000 square feet.Our new Whitby storage facility opened in March, adding to our operating portfolio with 5 locations remaining under construction. This portfolio continues to expand with 2 new locations in the process of obtaining municipal approvals, one within SmartCentres Laval East Center and a new strategic site that was acquired with SmartStop, our partner, subsequent to the quarter end in Victoria B.C. just off downtown.Lastly, we continue to be strategic with our portfolio development. We will execute on some limited capital recycling in unutilized lands to assist with debt reduction and development costs funding, the pace of which would depend on the market.As you can tell, we remain active in creating value in our retail operations and strategic in our significant development pipeline. We also take great care in maintaining our conservative balance sheet, which remains a high priority for us, along with maintaining a significant unencumbered pool of assets now standing at $9.2 billion. We will continue to manage our debt carefully and maintain ample liquidity, which Peter will speak to shortly.But before that, let me pass the call over to Rudy for some operational highlights. Rudy?

[Peter Slan, executive]

Thanks, Mitch. And good afternoon, everyone. The MD&A, along with our press release provided some expanded disclosure on the operations side of the business, but let me give you a few highlights. As you have read, leasing was strong in the first quarter for both vacant space and lease up of new builds, as Mitch mentioned earlier.New build leases have been executed with tenants such as Shoppers Drug Mart, Winners, HomeSense, Dollarama and Scotiabank. This momentum in demand has been building with our existing retail partners and also by some new entrants in categories such as furniture, specialty foods, health and beauty, fitness, and a number of service-oriented retailers.Our portfolio is in strong demand. Notwithstanding the 2 or so independent and unrelated tenant departures, which created a data point this quarter, which we expect to revert shortly. We continue to monitor tenants for any risks as well, risks of business restructurings or interruptions and are pleased to report that except for the 2 independent tenants just mentioned, there is virtually no impact to our portfolio in the quarter.Given our high-traffic centers, strong leasing demand and value focus, the REIT is able to release space quickly, maintaining our high occupancy levels. Various strong national tenants continue to expand across the country. And with the expanded -- and with expanded store sizes and new build locations. In the quarter, we completed deals in Carlton, Halifax and Bracebridge for new build locations for TJX banners. Also national grocers, such as Sobeys, Loblaws and Metro are somewhat active, exploring their opportunities for banners and customer reach.Our premium outlets continue to excel in driving traffic and improving sales, leading to meaningful increases in EBITDA and value to the REIT. Tenant sales places our Toronto Premium Outlets in the top 3 highest performers in Canada and for the first time, also in the top 3 of Simon's portfolio. Our Toronto and Montreal locations remain fully leased. Even with the 1 or 2 small tenants in financial difficulty, because there is a lineup of interest, which, by the way, is causing some discussion with our partner about expansion.Overall, Q1 has delivered a great start to 2024 in nearly every operational metric; NOI growth, cash collections, tenant retention, and rental rate increases, all while providing a larger and broader array of tenants.With that, I'll turn it over to Peter.

[Peter Slan, executive]

Thank you, Rudy.The financial results for the first quarter once again reflect the strong performance in our core retail business and the continued contribution from our mixed-use development portfolio. For the 3 months ended March 31, 2024, FFO per fully diluted unit was $0.48 compared to $0.54 from the comparable quarter last year. The decline is primarily due to the fair value decrease on our total return swap as a result of fluctuations in the REIT's unit price, which amounted to $0.04 per unit and the condominium closings that occurred in the prior year, which did not repeat this quarter, amounting to $0.02 per unit.As a result, FFO with adjustments, which excludes both the town home and condo profits and the TRS loss was $0.52 per unit for the quarter. This is an increase of $0.01 from the comparable quarter last year and was due to higher rental income driven by increases in base rent from our shopping centers, primarily due to contractual rent step-ups and lease-up activity as well as incremental rents from new self-storage and apartment properties, all partially offset by higher interest expense.Net operating income for the quarter increased by $5.9 million or 4.7% from the same quarter last year, largely due to higher rental rates, lease-up activities, and continued strong performance at our shopping centers. Same-property NOI, including equity accounted investments, increased by $4 million or 3% compared to the same period in 2023. Leasing activity remained strong during the quarter with 4.4 million square feet of lease extensions with a compelling average rent growth of 8.9%, excluding anchor tenants. Our occupancy level, including committed leases, was 97.7% at the end of Q1, as Rudy and Mitch already described.In terms of distributions, we maintained our distributions during the quarter at an annualized rate of $1.85 per unit. The payout ratio to AFFO with adjustments, excluding the TRS and the town home sales for the 3 months ended March 31, 2024, was 94.5%, an improvement from 99.9% for the same period a year earlier. This progress was mainly attributable to the increase in NOI and lower capital expenditures.Adjusted debt to adjusted EBITDA was 9.8x in Q1, representing a slight improvement from 10x in the prior year, but an increase from 9.6x last quarter due to additional development spending and fewer condominium and townhome closings, as I mentioned during our Q4 call. Our debt to aggregate assets ratio was 43.8% at the end of the quarter, a 60-basis point increase compared to the same period a year earlier. Our unencumbered asset pool remains unchanged at $9.2 billion in Q1. Unsecured debt, including our share of equity accounted investments was $4.4 billion, virtually unchanged from the prior quarter and represents approximately 82% of our total debt of $5.4 billion.During the quarter, we recorded a fair value reduction in our investment properties portfolio of $118.9 million. This adjustment was mainly attributable to softening market conditions in a number of -- a small number of properties under development in noncore areas. From a liquidity perspective, we are comfortable with our current liquidity position of approximately $448 million of undrawn liquidity as of March 31, 2024, including our share of equity accounted investments and cash on hand, but excluding any accordion features.The weighted average term to maturity of our debt, including debt on equity accounted investments is 3.4 years. Our weighted average interest rate was 4.17%, a slight increase of 2 basis points from the prior quarter. Our debt ladder remains conservatively structured where the most significant aggregate maturities are in 2025 and 2027. Approximately 81% of our debt is at fixed interest rates.Just before we open up the call to questions, I want to touch briefly on our development projects that are underway. Once again, we have updated our MD&A disclosure focusing on those development projects that are currently under construction. We have also added new information around our development pipeline this quarter on Page 16 of the MD&A, including the amount of square footage in each stage of the development cycle. We have approximately 86 million square feet in the pipeline currently, including, as Mitch mentioned, approximately 6 million square feet of zoned lands at the REIT's share.As you will see on Page 17 of the MD&A, there are currently 10 projects under construction, down from 12 last quarter. There were 2 projects that were completed in Q1, namely the industrial project in Pickering and the self-storage project in Whitby. As noted, we also closed on the first 2 units of our Vaughan Northwest townhomes project, we expect 95% of the presold units to close this year. The REIT's share of total capital costs on these 10 development projects is approximately $512 million with the estimated cost to complete standing at $352 million.And with that, we would be pleased to take your questions. So operator, can we have the first question on the line, please.

[Operator]

[Operator Instructions] We'll go first to Dean Wilkinson at CIBC.

[Dean Wilkinson, analyst]

Maybe just more of a strategy question for Mitch. If we're in a world where it's high 3s, maybe low 4s on the interest rate spectrum, does that change your longer strategic view around all of that excess density? And what would cause you to either bring stuff forward or push stuff out? And how are you thinking about sort of the cost of capital around that?

[Mitchell Goldhar, executive]

Yes. I mean, if we got to low 5s, high 4s, it would be good. I mean, as like putting a developer head on, you really should be able to make things work at those, kind of, cost of capital. Yes, they're not there at the moment. And most of our residential entering into the residential space are high-rise buildings. They take anywhere from 30 to 40 months, depending on the buildings to build. So we just have to be super, super careful. I mean, we don't have to do any of it.So the way I look at it is like it's ours to screw up. I mean, we're just not going to take any chances if it's borderline. Luckily, we're very lucky that these are properties that we already own. We don't have to buy properties at market for the majority of what our plans are to get significant traction in the residential space, but we're just not going to play it. We're just not going to play it close to the line. So I think it's down like in those -- in that range, and we feel that the outlook is stable, then we might initiate some more in densification projects.We may hedge with bringing in some partners and selling to capitalizing on sort of 25% to 50% of those projects. We're just not going to take any chances. We do not need to do any of that, but it is an enormous amount of embedded value. I will say that it is really just being patient and not being twitchy and not being cowboys, but it's real value. It really is just finding the right moment in time, whether it be rates, cost of capital or be it sale price or be it construction prices, a combination of that. It's massive, massive amounts of value that will be ultimately extracted.If done properly extracted to returns that are just far in excess of anything you see normally in the regular internal growth types of internal growth, it will far exceed the types of internal growth you see in typical REITs.

[Dean Wilkinson, analyst]

Yes. I mean, it's -- unfortunately, the capital market is kind of -- sort of quarter-to-quarter and as a developer, you can look out 10 years. Would there be circumstances perhaps where you might look to just all right, get to the zoning, get to the entitlement, which as you pointed out, is kind of where the big lift is and then maybe just sell that off? Or would you just want to keep the patients and hold those back and say, it's -- we don't want to leave anything off the table here?

[Mitchell Goldhar, executive]

No. Absolutely, the former. Just no way. We are not going to try and hold out for the last dollar and stay in and develop it all and everything like you are seeing in the latter. If and when the market in it will come back, you can put it in your diary. It will happen. It will come back. And when it comes back, depending on to what extent we will willfully willingly sell lands to third parties, that density that you're referring to with leaving things on the table for sure. You need to leave things on the table. You want to leave things on the table because then you can do another deal and another deal, another deal.And we have so much density because that is our gig. That is our -- one of our differentiating factors. It's not going to mean that we're going to leave everything on the table in every deal. We'll leave lots on the table for others to develop out on some of these zoned properties, but we'll have plenty to develop out ourselves and move the needle in terms of our own footprint, residential footprint and the recurring income. But with the benefit, of course, of the capital that selling some of those will generate.So, I think it's an enviable position. In the meantime, our retail is strong, so we can hang out until that day comes, but we are absolutely not going to insist at all holding out to develop it all and get to the last dollar.

[Operator]

We'll move next to Sam Damiani at TD Cowen.

[Sam Damiani, analyst]

Great to see the leasing come together on the new build on the retail side. That was something you guys talked about, I think, maybe a couple of quarters ago, so 200,000 square feet. I'm just wondering, I guess you mentioned 2 or 3 locations for TGX, Carlton, Halifax and Bracebridge. Are there any other locations that are particularly represented in that 200,000 square feet? And I guess more important question I had is what kind of return on asset, like what kind of yield on cost are you anticipating on these incremental -- these expansions into these shopping centers?

[Mitchell Goldhar, executive]

I'll answer the first part of this, Sam, and then I'll turn it over to Rudy. But we just named a few. We think that over the -- whatever it is now, 20 years, 19 years, it was actually 20 years, 21 years doing this, something like that, that you and others would pick up on the fact that we are a little bit understated a little bit conservative with our choice of words. So -- and we will continue to be because it's probably just probably -- probably the better way to do things and it's a way to do things, but those are really just a few examples of markets and tenants.There's other things going on, let's you say, leasing-wise, in many different markets with strong tenants. There was, for sure, 10 years ago, there was 5 years of investment in e-commerce and making sure that -- retailers making sure that they don't slip with the Amazons and the others in terms of online shopping. And then there was the -- and then there as COVID and the pandemic. So the population continue to grow every year. But there was really no retail growth. And you can also layer in a lot of retail sites card redeveloped for residential.And if you put that all together, put that all in a pot and stir it, you've got a real reduction in square footage per capita. And so what's your -- what we're feeling and observing now is a little bit of sort of resurgence and with strong tenants. We're a bit of a go-to for certain types of national retailers, strong national returners, they want to now make deal catch up. And so we've got a lot of them. Those are just examples. So I'll turn it over to Rudy. Rudy, if you don't mind expounding it a little bit.

[Peter Slan, executive]

Sure. Thanks, Mitch. Sam, yes, the -- we started talking about this a couple of quarters ago, like exactly what you said. And those locations with TJX are new build, brand-new build, and you can see the markets is very interesting in those markets where they're putting in those banners. Also, we're doing some expansions in existing banners where they're doing the combo stores. So we didn't want to list all of that. But some of the other tenants that we have been doing deals with is, for example, Scotiabank and Mark's and LCBO and Golf Town. I think I mentioned that in Quebec.So it is not -- like it's -- we're doing things from BC in Vancouver and Chilliwack all the way off through Ontario all the way through in Quebec as well. So those are some of the names, and you can well imagine why we're so excited is because there's lots more discussions and negotiations currently happening that we'll be talking about in future quarters.

[Mitchell Goldhar, executive]

What you're not -- what Rudy was not naming were also some other types of tenants, which are very basic food and general merchandisers, which are also -- have also been holding back in the last 10 years, so. And of course, retailers have learned, everyone's learned that everyone loses money on home delivery. So, the emphasis is on not just -- it's on physical shopping by the retailers, they're motivated, but also the consumer who -- the novelty of home delivery is over. It's very, very much here to stay, but people are social creatures. And it is more efficient and cheaper to shop, ultimately is cheaper to shop physically as you will see over time.And so that's a lot of emphasis in the investment is going into that from the food and general merchandisers. We are a bit of a go-to for that. We have the larger sites. We have the -- we have lower coverage. We can always fit somebody -- pretty much any prototype into an existing center. So in addition to the intensification program of residential, we are being asked to accommodate a demand for intensification of retail because we do have the lowest average coverage of pretty much anybody on site. And of course, retailers are just much more flexible with respect to parking ratio.So yes, the retail is steady, let's just say as an understatement and from across the board, including food and general merchandise.

[Sam Damiani, analyst]

Just as a follow-up…

[Peter Slan, executive]

I was going to say on the second part to your question, which I didn't answer. Yes, with regard to the yield, each of these deals, by the way, as and when we do it, and given that construction costs are where they are, you can well imagine that the rents we're getting are higher than our average rents in the category. So, you can well imagine with construction cost, we're making sure that every deal we do because we're going to be very close to starting construction in all of these. They're not long timelines to get going that we're looking and making sure we're accretive on all of these deals. So I will tell you that all of these deals are accretive for us given our then cost of capital when we make these decisions and when we negotiate the rents we need to make this happen.

[Sam Damiani, analyst]

And I just have a couple of quick follow-ups on this is, is 1; I'm not sure if the sites that you're pursuing here in the near term, would they be sites where that were subject to sort of a earnouts from prior years where the return that the REIT gets is kind of predetermined a little bit, is more -- is it like that? Or is it more like this is really on the REIT's account purely enjoying all the upside?

[Mitchell Goldhar, executive]

It's hard to answer that off the cuff, but I'd say mostly it's the REITs on their own mostly. There are some [indiscernible] for sure. And yes, these markets that we named, I guess, they sort of highlight the fact that in those markets where 20 years ago, 25 years ago, nobody really gave much or didn't pay much attention to Bracebridge or Carleton Place or whatnot, these are places that have seen significant growth, injection of economic activity. It's probably partly related to pandemic, partly because the proximity to larger markets.But we are very strong in those markets, occupancy-wise, it was really no -- there's no -- we're strong in those markets, let's just say. So, when certain retailers decide that those mines have sufficient populations and sufficient economic strength to enter such as TJX, we're there strong -- with the dominant site. And our earnings and the other metrics are quite sensitive to adding 20,000, 30,000, 40,000 square feet of new square footage as Rudy says, accretive rents in multiple locations. So that's without buying any more land. I'm just fitting them in. Some of them are out, I'd say most of them are really 100% REIT, I'd say the majority of them.

[Operator]

[Operator Instructions] We'll go next to Lorne Kalmar at Desjardins.

[Lorne Kalmar, analyst]

I think Rudy might have alluded to it earlier, but is there any desire for Walmart to expand? And if so, is that something that SmartCentres would participate in?

[Mitchell Goldhar, executive]

I would always -- I'd prefer Walmart at this moment in time, speak for themselves if they're going to make any public statements about their plans. But I will say that the relationship -- we are Walmart's largest landlord in Canada. So that's technical. But intangibly we have very, very good relations. We are constantly and continuously in contact with each other. The relationship that goes back to the original Walmart entry and expansion in Canada and continued growth in Canada was done in a way between us that developed a very strong partnership, if you will, small P partnership, actually a capital P partnership as well in the real estate, and that has continued. It really has not changed.I was at Walmart 2 days ago, spent many hours there. It's normal sharing with each other sharing our information and strategizing. So I'll leave it to Walmart to comment on any of their plans in Canada. But I would think and I would like to think that the former we're interested in expanding in Canada that we would be a part of it.

[Lorne Kalmar, analyst]

And would -- I know you talked about all the density on existing sites, but for Walmart expansion, would you actually have to go out and acquire new sites theoretically? Or would that be something you could accommodate on certain sites?

[Mitchell Goldhar, executive]

I would say -- it's really a good question. Maybe there's more to the question than you really meant, but let's just say that -- I mean, Walmart and the likes of Walmart, they haven't expanded lockstep with the things I mentioned earlier, population growth, changes in demographics in various types of markets, medium-sized markets because of various reasons that I mentioned. So the short answer would be they would probably be new stores, a lot of it. There probably have to be new stores. So on-site expansions will happen and on-site renovations to stores will happen. But I think there's a chance that there'll be net new stores. And so we would be -- if it was including us, it would involve acquisitions of new properties and a total expansion of our footprint in markets that we're not currently in.

[Lorne Kalmar, analyst]

And then maybe just a last one. The self-storage portfolio, you've got 9 now and another bunch under construction. How big are you comfortable growing this to?

[Mitchell Goldhar, executive]

We're very nervous. Like everything we do, we're kind of always thinking about the worst-case scenario. I don't know how much you know about my just history or whatnot, I mean. So it's really -- it's almost too good to be true, to be honest. So, I know our self-storage program is a wonder one child. I mean, so yes. We don't believe in everything working out, everything makes just too good to be true. We don't believe it's too good to be true. So we're constantly looking at the storage segment carefully.But I will say that even with that, passing through the prism of being super, super careful and cognizant that you can overbuild and you can commit a folly. At the moment, it really seems like there is still a little bit of runway there. And so we see it continuing. I will say that SmartStop are also excellent operators. Some of you should just take out a storage unit in there and just see because you want to do analysis. It's another level of analysis because they're really outstanding operators.Operating today is probably one of the biggest really kind of challenges that people gloss over, running a retail store, running a storage facility. So we're really lucky to be with some -- with the companies who are excellent operators. But we're cognizant of storage and supply/demand per capita, all the rest of it. So we'll probably if ever, we think there's any potential for any erosion of rental rates or supply-demand metrics, we will be conservative.But I will say that we take that -- we've taken that into account with every one we've done so far. And fingers crossed, we'll continue this trend of having exceeding our lease-up timeframes and our rental rates. But we're quite sober about it, and we'll be watching it, continue to be watching on very, very, very closely. But so far, it's been -- it's really been quite a wonder child for us.

[Lorne Kalmar, analyst]

And maybe one quick one for Peter, just on capped interest. Is sort of the Q1 number a decent run rate for the balance of the year?

[Peter Slan, executive]

Yes.

[Operator]

We'll go next to Pammi Bir at RBC Capital Markets.

[Pammi Bir, analyst]

Nice to see that pickup in the same property NOI growth this quarter. But I was a bit surprised by maybe the size of the growth given the occupancy drop. Can you maybe just provide some more color around that? And then secondly, should we expect that to maybe drop off a bit until maybe some of that space from a re-leasing standpoint is cash flow producing?

[Mitchell Goldhar, executive]

I'll start and then Rudy, you can jump in. I mean, look, 2 units, completely unrelated units just happen to become vacant during this quarter, have led to an occupancy drop. But there really are really -- it's anomalous and it is not a reflection. It's sort of, in a sense, almost ironic because our leasing is steady, if not strong and steady across the country. And I think there's some, I would say, potentially good news with respect to our overall occupancy and leasing and even portfolio expansion.And then this quarter, we happen to have had 2 large vacancies that generate a number that is just not a reflection of what's going on at all at our shop. With respect to those 2, there's actually a third that's smaller, but it doesn't really move the needle on its own. Those 2 have -- there's interest in those 2 units from companies that are significant -- very significant credit worthiness and additive to traffic generation and at rents that are higher than what we were contracted when they were occupied. So it's just a moment in time.I really -- I don't want to -- I don't want to say anything too strongly, but I really would not obsess or focus on that. It just happens to be a moment in time. It is just not reflective of what's going on. So stay tuned [Technical Difficulty] context take a little while, but the interest is real. We've negotiated a few leases in our day. So I say that they're likely happen. That's based on what we know from experience and likely very strong tenants, higher rents. So, I wouldn't get shown of course by those data points at this moment in time. Rudy, did you want to add something?

[Peter Slan, executive]

Yes. Nothing to that part, Mitch, but the other part, including the independentness of those tenants. And Pammi, the -- you asked about the rental growth. We've been reporting these kinds of growth, I guess, in the last 3, 4 quarters. And I'll tell you the momentum and what's picking up, and you can see it in the new build, new build that you can tell that's driving it is pushing rents a little bit higher because, again, traffic is, as Mitch mentioned earlier, traffic is just something so much stronger than it would have been a year ago.So now what we're seeing is tenants certainly redeveloping, growing, adding square footage, changing their offering and doubling down, I'm going to say, on the locations. You can see that with 82% of our tenants already extending for the year by the end of the quarter, that just -- that is unprecedented from prior first quarter. So, we expect to see more of the same going forward. Yes.

[Pammi Bir, analyst]

Just to clarify, with the Pickering industrial, that was included in the drop in occupancy this quarter, if I'm not mistaken. Is that correct?

[Peter Slan, executive]

That's correct.

[Operator]

We'll take a follow-up from Sam Damiani at TD Cowen.

[Sam Damiani, analyst]

Yes, I just wanted to maybe follow up on Pammi's question, trying to understand how the 3% same property NOI growth was achieved given the drop in vacancy. And I just want to kind of address the renewal schedule in the MD&A as well on Page, I think, 35. So are you saying that 4.4 million square feet rolled during the quarter? Or is that a trailing 12-month number? And for the 2 larger vacancies that occurred in Q1, how much rent contributed to NOI from those two?

[Mitchell Goldhar, executive]

Rudy, do you want to just quickly address that? I may follow up.

[Peter Slan, executive]

Yes, for sure. The $4.4 million, Sam, is the amount of extensions we completed in the quarter relating to the 5-point-something million that is maturing in the year. So that's the percentage that we did because tenants are, again, coming to us early wanting to lock up their space and negotiate deals. So it's that. So again, a high number for the quarter.The NOI growth, again, is the NOI growth, notwithstanding the vacancies? It's just strong NOI growth. And again, NOI being everything, right? All in, it's not just the rents, not just the rental -- the net rental increase. It's NOI relative to -- which is revenues and expenses. So, it's a little bit of apples and oranges to compare the rental extension rates with NOI changes because they do encompass all the operating costs as well.

[Sam Damiani, analyst]

But I mean, like the 2 vacant spaces, the larger ones, there were obviously different circumstances. But in the one case, I assume the rent was paying until the space went vacant. And the other one, just obviously, is a bankruptcy. Yes, so how, like, how much of the quarter did those 2 spaces contribute rent?

[Peter Slan, executive]

Not much. The other tenant is, again, a logistics independent operator with one location. So not a significant impact on the overall rent. That's why you're not seeing an impact that you might have otherwise expected with 2 -- a little bit 2 plus of these kinds of tenants because, again, the renewals and the new deals that have started for lease-up of space that was vacant at the end of the year last year, which we've done in the year, probably around 150, 200, I can't remember exactly the number, thousand square feet also would have made up for some of that in the NOI. Yes.

[Sam Damiani, analyst]

And I want to be -- sorry, go ahead.

[Mitchell Goldhar, executive]

So imagine you got like a 130,000 square foot building and somebody has taken it for like $5 a foot, okay? So from an occupancy point of view, they left, so we got back 130,000 square feet. But we put them in sort of on the fly when the tenant -- when the original tenant that was occupying that building, when their term expired, we put in a tenant that was kind of almost in a sense sort of like a temporary tenant, which we would have had rights to terminate, but they were paying, let's say, net $5 a foot. So they're paying all the taxes in common area and $5 a foot on a huge amount of space, but immediately because they can move in so quickly. There's no [Technical Difficulty] related.So we did that and -- because that was on balance attractive, especially during COVID. And then when nobody was doing anything. But now things have changed, and we have interest in that space. Had that tenant still be there now, we might soon terminate them because we have interest in that space for somebody at double-digit rents, double-digit rent and a much stronger covenant. But in between, it's vacant. So we reported as our vacancy.And then the Bad Boy space is the Bad Boy space, what can you say. They went bankrupt. So, we're very confident in that location, very confident in our building, and we have multiple interest in that space, and we fully expect to lease it within the next quarter or 2. We'd probably lease it in the next quarter, but rent commence in the next quarter or 2. And the Bad Boy deal, the building was built for Bad Boy. Nobody other than myself should take -- have responsibilities to that deal…But I have zero regrets about it. The Bad Boy deal was done at below market rents. And so even though it's working, it's a headache, we're sort of cut out for the work in the headaches part. We will probably lease that space at more than what we had rented it to Bad Boy for. So I mean, it's working a headache, but it's vacant right now, but it's a great building in a very strategic location. So, we'll probably re-lease that in the next quarter and rent will commence in the next 2 quarters. So yes, I mean, that's a little bit more color on those 2 situations.

[Sam Damiani, analyst]

That's a really good color. And I just want to be mindful of time, but if there's a 60-second answer to this question, I would appreciate it. And sort of back to my earlier question on the call, which is about all this retail development, are you finding, in some cases, it overlaps with on sites that you had been contemplating high-density development, and are you presented with the opportunity to choose between developing something, single story, fairly low risk, short term, quick get it done with a good attractive yield and forego that sort of higher density land value opportunity? Is that something that's starting to play out? Or are you mostly…

[Mitchell Goldhar, executive]

Yes. You should be a developer. That's a very good question. That's really, really lateral thinking. Absolutely. We are doing some retail deals where we will preclude, we will forgo density. But are we really foregoing density? Not really. But in that specific location, will we give term to a strong because what we're trying to say to you in between the lines, there's a lot of interest from strong tenants. Will we forgo some density to get a new single-story retail deal done at a good rent from a strong tenant for a long-term lease? Yes. Why? Because we have 50 million, 60 million, 70 million square feet of dense. We don't need -- we can give up 500,000 square feet of density to do a deal with Blake, strong AA plus retailer, okay?So yes, we are absolutely doing that. It also obviously supports and augments the existing shopping center. And by the way, the sophisticated retailers are very interested, not just open, but interested in talking about going on to the ground floor of some of our density. So in many cases, I would say, we are going to both. But there are certainly a number of cases where we will forgo some of that density for a good retail deal that's single-story, had great parking, long-term lease that's accretive from a strong tenant.

[Operator]

And that concludes the session. I will now turn the conference back over to Mitch Goldhar for closing remarks.

[Mitchell Goldhar, executive]

Thank you. Sorry, guys. Hold on one second. Sorry. Yes. Thank you all for participating. This is our Q1 analyst call, and we appreciate all the thoughtful questions. If there are any more questions or feedback, please feel free to reach out to any of us. In the meantime, have a good day, and thanks for taking the time to be part of this call. Have a good day.

[Operator]

Ladies and gentlemen, this concludes the SmartCentres REIT Q1 2020 Conference Call. Thank you for your participation, and have a nice day.