SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Transcript 2020-Q2

[Operator]

Good day, ladies and gentlemen. Welcome to the SmartCentres REIT Q2 2020 Conference Call. I would like to introduce Peter Forde. Please go ahead.

[Peter Forde, President, CEO & Trustee]

Thank you. Good afternoon. Welcome to the SmartCentres Q2 2020 Conference Call. I'm Peter Forde, President and CEO. And joining me on the call today are Mitch Goldhar, our Executive Chairman; Peter Sweeney, Chief Financial Officer; and Rudy Gobin, EVP, Portfolio Management and Investments. The agenda for the call will begin with comments by myself and Mitch; followed by Peter Sweeney, who will talk about our results for the quarter end, including IFRS valuations, liquidity and accounting provisions for bad debts. And then we will take your questions. Our comments will mostly refer to the first 14 pages and pages 22 to 24 of our supplemental information package and the outlook and mixed-use development sections of our MD&A, which are posted on our website. And I refer you specifically to the cautionary languages -- language on pages 2 and 3 of the supplemental material, which also applies to any comments of any of the speakers make this afternoon.The second quarter was, no doubt, an interesting one for all of us. The spread of the pandemic and the accompanying shutdown impacted every one of us to varying degrees. Our REIT was no different. The pandemic added some challenges in the short term, but our focus remained on our long-term strategy. We were intensely focused on our initiatives to grow the business through mixed-use development.Short-term challenges required our attention in assisting our tenants and keeping our shopping centers open and operating effectively to take care of the more than 60% of our tenants, which are considered the essential services that remained open during the shutdown. These tenants were a priority as they were meeting food and other essential needs of communities. Our attention has not waned and continues to be assisting our retailers in getting back to opening their stores once the lockdowns were lifted, such that more than 95% of our retail space is now open and operating.At the same time, we formed a committee, which I headed up, that monitored and ensured a safe work environment for our employees. Initially, we limited in-office staff to approximately 10%, or about 30 associates, taking care of our essential service business, with the rest working almost immediately and very effectively from home, thanks to our IT department and systems. We have spent considerable time and money to enhance all our physical distancing, health and cleaning practices in accordance with government guidelines, such that we now have approximately 50% or about 180 of our employees back in our 3 offices, allowing for a return to more effective communication and collaboration.We are also very fortunate to have our main Vaughan office located in a 2-story former retail building with very high ceilings and no elevator pinch point, but rather escalators to get everyone up and down easily while maintaining physical distancing. In fact, after we were ready for employees to return to the office, we engaged an outside firm with 10-plus years experience in assessing company's preparedness for emergencies and things like a pandemic. And I'm happy to say that we passed with flying colors, a score of 98 out of 100. And the conclusion was that SmartCentres had demonstrated their prioritization for the health and well-being of their associates.All the way through the shutdown, we remain very focused on our longer-term strategy of development. 30 years ago, Mitch was in real estate development, not in the shopping center business. But he saw an opportunity, and the vision was to build retail centers specifically tailored to all Canadian incomes. To ensure success, he would anchor them with the world's largest discounter, Walmart, who had not yet expanded internationally. Executing on such a vision involved a lot of steps to say the least as well as building an operating company around it. The culture of our company is unique, in that we are land people operating shopping centers. We are and always have been comfortable with land, its possibilities and its path to profit. This is our core competency. It is in this moment and the foreseeable future that our core competency will differentiate us as we work on the new path, intensifying and repositioning many of our strategically located properties.Another way of saying this, we are a real estate development company that owns many great shopping centers with substantial and reliable recurring income, most of which we developed. But these great shopping centers, with their outstanding access on or near highways, transit visibility and most importantly, in the midst of growing populations, are just a starting point to the development of higher and better uses, in many cases, residential. And many investors and some analysts are not acknowledging or giving the proper due for this development that is now here to stay.And that's an appropriate time for me to turn it over to Mitch.

[Mitchell Goldhar, President of the Council]

Thanks, Peter. Yes. We went on the offensive, and we're accelerating, not decelerating the processes of obtaining rezonings and site plan approvals because it is those approvals, those land use changes from which the value and the opportunity is created. This is strategic. This is our choice. Because with the lasting relationships we have forged over the last 30 years with many Canadian municipalities and as well, the municipalities' responsiveness to move things forward. This approach is already paying off. For example, VMC was originally planned to be a shopping center. And this will continue to pay off.At the bottom of Page 20 and all of Page 21 of the MD&A, there is a list of examples of the very active residential and other development applications that were submitted by our in-house development teams during the COVID shutdown or have been working on by those teams such that the applications will be submitted in the next 1 or 2 months. Look at the list on these pages carefully. Go to these properties. Go to 1 of these properties before you write your next report. These are the initiatives, not the ones already under construction that we will review in a minute, many very exciting projects and mostly forms of residential. Significant value creation, not recognized in our IFRS balance sheet values will result from these. A list on that page and a half encompasses in excess of 40 million square feet, which is more than our current square footage of additional density. Some built on undeveloped land, some on top of existing retail replacing it and some replacing existing retail. This is -- this will be for the making of a dynamic, vibrant and welcoming mixed-use property.Of course, that is not all. For example, many of the future phases of the VMC are not included in that number. Let's look at 1 example of value created, Westside Mall on Eglinton and Caledonia in Toronto. It is currently 140,000-foot shopping center. Our planning entitlements are for up to 3 million square feet of residential density, and we are surrounded by the brand-new LRT station, which is, in fact, right in front of the property and a GO Transit station on the side. The land, once fully zoned, would be very conservatively valued at, at least $150 million, approximately $100 million above our IFRS balance sheet value. And that excludes profits to be earned from condos or other initiatives that we may build on site. This $100 million on 1 site represents more than double a loss in value of any actual or anticipated CCAA or bankruptcies in our company.Now let's talk about the new development initiatives already under construction. Over the last several years, we have pointed out to the investment community that it is part of our culture to deliver on what we say we will deliver. This was true for the first 2 office towers at SmartVMC, where we delivered what we said, 100% occupied with strong tenants in a downtown quality tower and brought in under budget. That is the KPMG Tower and the PwC tower. And now we have delivered and opened the 177-unit residential rental tower in Laval, Québec and on the first of our 10 SmartStop self-storage developments that we've announced, this one -- the first one being in Leaside in Toronto. And now literally starting yesterday, we have commenced closing of the first condominium units in the SmartVMC Transit City Tower 1 and 2, 255-story towers, 56 units closed yesterday. Between now and December 31 of this year, we expect to close all 1,110 units in those 2 towers, generating approximately $50 million in profit, approximately $0.28 of FFO for the trust, 25% in this project. This will be followed in the spring and summer of next year with the closings of 631 units in Transit City 3, generating a further $20 million of profit. For the 3 towers combined, we are not only meeting but exceeding our original planned profit by -- we are exceeding our original planned profit by $30 million. But who stuttered? Nobody apparently.Other specific project highlights. We have 2 additional towers at Transit City, Transit City Tower 4 and 5, 100 -- I'm sorry, 1,026 units, which are sold out. They're under construction. And just recently, we have started receiving the additional deposit, which brings us to 20% from the sold-out towers. We are nicely set up for the recurring flow of continuing cash flow and from this and other projects.SmartVMC purpose-built residential rental of 451 units is under construction. In SmartVMC, the construction of the new 140,000-square-foot Walmart store is almost complete with opening expected at the end of October, allowing for the closing of the existing store on the SmartVMC site and freeing up extremely valuable land for future residential density.Under the heading of self-storage, there are 3 others under construction, Vaughan, Brampton and Oshawa and 6 others in the process of obtaining municipal approvals. Seniors' residence, and first, let me clarify with all the troubling COVID information that is in the news related to seniors. Almost all the tragic news relates to long-term care facilities, a business we are not in. With our 2 partners, we are developing seniors' apartments and seniors' residents, 6 with Revera, 2 with Group Selection. All of these projects are in the municipal approval space trending positively towards approvals.A few general reminders about our development pipeline and capabilities. Most of our development initiatives we are planning are on lands we already own, we are unlocking value, supplemented by selective acquisitions with existing or new strategic party -- partners when a unique opportunity arises. We use our in-house development team to drive these initiatives. I am personally involved in all aspects of the development -- of the developments from the conceiving of the plan, through the selection of materials. Remember, this in-house development team developed over 85% of our current space. We know these markets, the municipalities and every detail about the properties. This team was actively engaged from home using our technologies to connect seamlessly to our office and the municipalities, which are also set up to operate remotely. This was a natural for us. We have developed through turbulent times before, both as a private company and as a public company. Empires are built in turbulent times, not heavy times.As a general reminder, across our portfolio of properties, virtually none of the additional land associated with -- land value associated with asset-light residential densities or our potential density is reflected in our property IFRS values. And when we present development project yields or profits from condo projects, land is included in the cost side of the equation at an estimated market price and all internal fees and capitalized costs are included in costs, which may be a conservative way to present these development yields.After hearing all of this and leading the development initiative selection of our MD&A, you can see that the pandemic did not slow us down. To the contrary, we accelerated our transition. Our response to COVID-19 is to push even harder. And we believe our current unit price is not reflected in the value of this potential. We believe our unit price does not even fairly reflect the strength of our current income than loan to value of any of the development initiatives. Note that we will only move forward with the more capital-intensive construction stage of these initiatives as market conditions warrant. Sufficient presales occurred in the case of condos and adequate financing is available.The last development-related comment relates to the disconnect between our unit price and the under-construction mixed-use -- I'm sorry, and the planned mixed-use value creation underway, not to mention the strength, of course, of the existing retail portfolio. If our unit price is down, say, 1/3 from its pre-COVID levels, that would be akin to the markets believing that 1/3 of our retail portfolio is going to permanently generate no income. The absurdity of this goes even further, as that valuation ignores the mixed-use opportunities already underway and our undeveloped lands and the opportunities to create substantial value in place of any such vacancy by replacing the vacant retail with our mixed-use initiatives.Now I'll turn it back to Peter.

[Peter Forde, President, CEO & Trustee]

Okay. Thanks. The financial results for the second quarter and, to a lesser extent, for the balance of 2020 are being impacted by the COVID-19 pandemic. Our priority during this period of uncertainty is to protect our employees, the communities we serve, our tenants and our business, while doing everything possible to mitigate the financial implications. Our shopping center portfolio is 97.8% leased at June 30 and remains focused on essential services and value-oriented retail, not fashion, recreational or entertainment retail. It is well suited for these turbulent conditions.60%, based on revenue of the REIT's tenant base, is comprised of essential services, which continued to operate throughout the crisis supporting local communities, meeting the everyday needs of residents for groceries, pharmaceuticals, banking, liquor, general merchandise and other essentials. And this 60% of our tenant base, being essential services, increases to 70% for the markets outside of the Greater-VECTOM areas. We have shopping centers in these markets, where our centers are often the essential service hub area. With the pandemic and the lockdowns, early indications are that demand for housing and therefore, shopping in these less urban markets is actually increasing as people consider leaving the urban areas for the suburbs.Walmart, which anchors 75% of our properties and representing over 25% of our rental income, along with our family of value-oriented focused tenants are well suited to serving its community during this period of pandemic-induced, weaker economic conditions. In fact, you likely saw the announcement of Walmart Canada's plans to spend $3.5 billion over the next 5 years to make the online and in-store shopping experience simpler, faster and more convenient. It includes renovating 150 of its stores over the next 3 years and expanding the full Walmart pickup offering to 270 stores, which is about 70% of its locations. By the end of this year, that will be in place. This continued commitment to its retail operations in Canada speaks to the ongoing strength of Walmart and its growing ability to drive traffic to our centers. Although we do not yet know all the specific locations, many of the stores in both initiatives will be ours, given that we own more than 28% of the Walmart-anchored shopping centers in Canada.In addition, we are fortunate to have under construction in Vaughan, as part of the SmartVMC store relocation, a 10,000-square-foot e-commerce, mini fulfillment center and drive-through pickup facility. It opens at the end of October and is the first of its kind in Canada.98% of our revenues from shopping centers are open-format outdoor centers, enabling customers to practice physical distancing while completing shopping for their everyday needs. It appears that shoppers are much more comfortable and feeling safer in this unenclosed format. And the strength of the covenants of our tenants is reflected in our stable tenant base, Walmart, Loblaws, Shoppers Drug Mart, Canadian Tire, Sobeys, Dollarama, Rexall, LCBO, Lowe's, Metro, Home Depot and the 5 major banks and more.We recognize the importance of small independent retailers to the Canadian economy. Our rent relief focus to date has been on supporting these nonessential business's small independent retailers, representing approximately 6% of our contracted rent. The federal and provincial governments put in place the Canada Emergency Commercial Rent Assistance, or CECRA program, designed to assist certain tenants such that effectively, the tenant bears 25% of the cost; the landlord, 25%; and the government, 50%. The program originally applied to April, May and June, then extended to July, and as of last Friday, now to August. Initially, there were potentially more than 1,200 tenants that might have qualified. But after communicating with the tenants, we are now working with approximately 850 who indicate they qualify. It is a complex process administered by us, the landlord. And with an internal team of approximately 40 of our associates engaged in this process, we will have all the applications in before the end of August. In the meantime, some of our nonessential medium and larger tenants have also asked for some rent relief or have just not met their rent obligations. While protecting our legal rights as a landlord, we are in discussions with some of these tenants about rent deferrals or, in a few limited cases, rent abatement. We expect to be able to find ways to accommodate tenants with a real need, when appropriate and justified, but also factoring in the reality of our own situation.There have been announcements of several tenant restructurings during the COVID period, either through CCAA or bankruptcy filings, and including a couple this week, major names such as Moores, Comark, Sail, Reitmans and Aldo. Collectively, all such tenants have indicated the intention to close 42 units in our shopping centers, approximately 319,000 square feet, which is less than 1/4 of the total units we have with these same tenants and representing 1.24% of gross annually -- of our gross annual income. It is expected that the remaining units will continue to operate once the relevant restructuring process is complete for each retailer.Overall, it would appear that our shopping centers are preferred options for the surviving stores. Approximately 1/2 of the 319,000 square feet that I mentioned is 2 sale units, 1 in Etobicoke near Sherway Gardens, and the other in Vaughan, which is our 407 redevelopment site. Discussions with other retailers for Etobicoke are underway and the Vaughan location departure may serve only to alter the sequencing of the mixed-use redevelopment plans already underway for this project. So if you back those out, like if you back the sale units out, we are left with 173,000 square feet of vacancy from all these COVID-related bankruptcy, a fairly routine amount for our leasing team who has commenced discussion with potential tenants for other -- of other of these smaller vacated units.As shown on Page 10 of our MD&A, cash recoveries from our tenants continues to improve. In our first quarter reporting, we indicated cash recoveries for the month of April of 67% or 69%, excluding the 2 outlet centers. For the month of April, we have now collected 74% or 76.5%, excluding the 2 outlet centers, of gross billings for the month of April, an improvement of 7% over where we were when we last reported. Gross billings collected improved from an average of 74.1% for the 3 months ended June 30, or 76.1% excluding the 2 outlet centers, to almost 85% for the month of July, or 87% excluding the 2 outlet centers. And to avoid any confusion, gross billings used in these calculations are based on pre-COVID rent rolls. These amounts do not reflect any anticipated recoveries from governments or tenant deferral programs related to those months.With recoveries from government and the tenants through CECRA, scheduled repayments of amounts deferred with other non-CECRA tenants and ongoing collection efforts with the remainder, we expect to ultimately collect 91 -- or 92% of our second quarter gross billings and 94% to 96% of July's rent. This is expected to improve in later months of the year.And one last thing I'm going to mention, which is a factor coming into play in this COVID environment is our experience with Penguin Pick-Up. 5 years ago, we partnered with Penguin Pick-Up, now a mature operating business that provides customers with more than just the curbside pickup that everyone is trying to do now. But Penguin Pick-Up provides a one-stop pickup location for shoppers' online purchasers -- purchases from all sources with our rapidly expanding network of over 100 locations across Canada. 2 years ago, SmartCentres supported Walmart Canada's test and rollout of grocery pickup in its stores at our properties and introduced co-branded Walmart Canada, Penguin Pick-Up locations to help expand their reach into areas of Downtown Toronto and Montréal, where access to their grocery offering is limited. With COVID-19 and the customer desire for safe, contactless shopping, our foresight and experience with the above-mentioned initiatives has proven to be extremely valuable, and we are using our 5 years of last-mile logistic learnings to help more of our retailers establish a curbside pickup option as a natural evolution of Canadian shopping habits.And now I'll turn it over to Peter Sweeney.

[Peter E. Sweeney, Chief Financial Officer]

Thank you, Peter, and good afternoon, everyone. As we know, these challenging times will test the balance sheets of many real estate companies. However, for many years now, we have encouraged the capital markets to focus on our commitment to our balance sheet, our unyielding focus on conservative capital management, our discipline in the deployment of capital on acquisitions and developments 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 will continue to allow us to manage through this period of uncertainty.In this regard, we note the following highlights relative to the comparable quarter last year. Number one, our unencumbered pool of assets of $5.6 billion has increased by $1.1 billion or 24%. Number two, our debt-to-aggregate asset ratio was a conservative 44.5%. Number three, our weighted average interest rate for all of debt was 3.46% as compared to 3.69%, which, when coupled with our improved credit rating, permits us to continue to attract debt capital at historically low rates for longer terms. Number four, our interest coverage ratio was maintained at 3.8x and our adjusted debt to adjusted EBITDA multiple was 8.8x. Each of these metrics reflecting our business is strong and very stable ability to fund our obligations even during these most uncertain times. And then lastly, number five, as a result of these continued strong credit metrics that reflect our ongoing commitment to the balance sheet, together with our upgraded credit rating from DBRS to BBB high, we took the preemptive opportunity in May to issue $600 million of new 7- and 10.5-year debentures at 3.19% and 3.65%, respectively. The proceeds of which are expected to be used primarily to repay existing debt. Recall that when we embarked upon the strategic initiative to increase our unencumbered pool of assets over 2 years ago, approximately 2/3 of our debt at that time was sourced from secured lenders, a metric that has now almost reversed, whereby currently, 65% of our debt is now sourced from the unsecured market, and assuming that credit markets continue to accommodate our needs, this metric is expected to further improve in the future.From a liquidity perspective, as we look to the immediate future and plan to manage through the current environment, in addition to the conservative debt metrics noted above, please also consider the following: number one, we have only $70 million in mortgages maturing in the third and fourth quarters of this year and $250 million in unsecured debt that comes due in December of this year. And we continue to speak with market participants concerning appropriate repayment alternatives associated with these maturing amounts. Number two, with the proceeds from the recent bond issue noted previously, coupled with our $500 million line of credit, we have ample liquidity when and if needed during this period. And this is in addition to a $250 million accordion feature on our line of credit that is also available to us. Number three, 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 at our various development projects. And we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments that are expected to begin later this year. And then lastly, number four, the closings of the first 2 phases of the Transit City Phase 1 and 2 condos have now begun from which we expect to generate in excess of $50 million of net proceeds that will be earned and paid prior to year's end, thus further fortifying our liquidity profile in both 2020 and into 2021.As Peter has previously mentioned, we made various COVID-related provisions in the second quarter. These anomalous provisions totaled $15 million and are represented or considered distinct as follows: number one, for those CECRA-eligible tenants, we have provided $5.6 million as amounts that we are compelled to provide as part of the current federal program. Number two, for those tenants that are not CECRA eligible, we have provided $1.4 million. Number three, for those tenants that have filed under CCAA or similar bankruptcy restructurings, we have provided $2.3 million. And then lastly, number four, we recorded additional conservative provisions aggregating $5.8 million for other expected credit losses emanating from the current environment.The additional vacant space and the additional time now expected to backfill such space has had an impact on our IFRS property valuations. During the quarter, we recorded an additional $197 million in provisions against our portfolio's value. This is in addition to $63 million taken during the first quarter. These reductions in value primarily reflect additional vacant space and the additional time now expected to backfill such space in the portfolio, much of which is a result of the COVID-19 experience. It is very important to note that we have not factored into our IFRS values any value that accrues from future development of mixed-use space, and these future value increments that are derived from our proposed mixed-use initiatives are substantial. As mentioned earlier by Mitch, the potential for incremental value from future mixed-use development, once fully zoned and site plan approved at our Westside Mall property in Toronto alone, is projected to add in excess of $100 million to this property's current IFRS value. And as we mentioned, this represents only 1 property in a portfolio of 166 properties that provide for further mixed-use development of various forms, none of which has been reflected in the current IFRS values.And finally, a comment on distributions. Our current annual distribution level is $1.85 per unit. And based on our current trading price, this distribution represents an approximate 9% yield on our units, which is approximately 8.5% above the current 10-year Government of Canada risk-free rate of return. This spread is extraordinarily higher than we have experienced or would expect. Decisions on distributions are always made by our Board. And given the liquidity, strength of the balance sheet and near-term prospects for cash flow generation, management continues to recommend the current distribution levels.And with that, I will turn the call back over to Peter.

[Peter Forde, President, CEO & Trustee]

Okay. Thanks, Peter. So to sum it up, a very interesting quarter, a rapidly improving rent collection picture and accelerated intensification and development program and commencement of condo closings yesterday at Transit City 1 and 2 and Vaughan for the first of the 1,110 closings to happen by December 31, to generate a $50 million profit for our REIT's interest in the project.And with that, I'll turn it back to the operator to coordinate us in addressing your questions.

[Operator]

[Operator Instructions] We already have one question queued up. This one from Pammi Bir.

[Pammi Bir, Analyst]

Just as you look at some of the potential vacancies coming up from bankruptcies or otherwise, can you maybe just comment on the interest that you've seen from tenants in backfilling that space? And how do the rents compare with what prior tenants were paying?

[Mitchell Goldhar, President of the Council]

There's not a lot of interest right now in new tenants taking new spaces, although it's not a -- it's not expected. So we don't expect the interest in June and July in middle of the pandemic that tenants who aren't even open or just opening to even have the time or energy to do that. But yes, the food stores that we've already -- we were already in negotiations with, we're now directing some of those discussions towards some of the vacancy, which is proving to be interesting to them.There are -- there is the odd natural discussion with some of the stronger retailers. Rudy, maybe you want to illuminate on that. But none of this is concerning to us whatsoever, as we've already stated, but I'm just answering your question literally, but right at this moment in time. But Rudy, maybe you want to eliminate on...

[Rudy Gobin]

Sure. The -- we started looking at doing this many quarters ago, we talked about some of the smaller fashion and apparel that we're moving into malls at that time. And we were already looking at more service-oriented type tenants, and we are continuing to do that with the dollar stores, with the pet stores, liquor stores, health care, shoppers, Rexall, drug stores. For sure, food stores are high in our priority list, and we do having lots of discussion with them. We started talking with medical, with labs, and of course, day care and many other service type tenants. So there is, in fact, a lot of interest for tenants who are in those fields that are calling us and in fact, asking us about vacancy in our centers. So the conversations are very, very live.

[Pammi Bir, Analyst]

And just as we look over maybe the next 12 months or so, and I get it, it's still -- there's still a lot of moving parts with what we've seen in retail overall. But do you have a sense of where -- what you're thinking about in terms of your occupancy may bottom out over, call it, the next 6 to 12 months or so?

[Mitchell Goldhar, President of the Council]

Rudy?

[Rudy Gobin]

Yes. The -- we looked at -- we've looked at the tenancies that have already told us, and we have been talking to all of our tenants. And you can imagine that our relationships with every tenant have gotten even stronger as we talk to them about what's going on in Q2. And they're all very open and sharing with what's going on in Q3 and Q4. We don't see much of a change downwards. There is some downward movement in terms of occupancy in the range of maybe another percent or so. But that's about it that we're seeing in terms of tenants leaving, and that's not with tenants being netted out with who we're talking to. So maybe 1%, 1.5% over the course of the next quarter or 2, but that will be about it, Pammi, in terms of what we're seeing now.

[Pammi Bir, Analyst]

Just switching gears, last one for me. Just coming back to Westside Mall and the potential upside from zoning there. What is your sense of the time required for full zone approval -- zoning approval on that site? Or is that really going to be done in phases over time?

[Mitchell Goldhar, President of the Council]

Well, it's already designated, which is the most important. So like in terms of -- in Ontario, the way these things are rezoned, so to speak, I'm using the word you said, is it's designated in the official plan. So we are already designated. So conceivably, if we were sellers of a property, that would be -- there would be, and there is a lineup from residential -- other residential developers to buy that site. But yes, 3 million square feet, I mean, if you look at Transit City, we built 355-story towers at once. That's about 1.5 million square feet, took us 3.5 years, let's say. So it's in the middle of the city with Transit at the front door and side door actually, probably kind of all get built out over 6 years, commencing hopefully sometime in the next -- over the next year or 2. It's hard to say because we are implementing the zoning bylaw from the official plan. So we have to go through a process, which gets into the nitty-gritty details of phasing and things like you're asking about. So that will take a year or 2, and then we'll be under construction.

[Operator]

We don't currently have any more questions in the queue. [Operator Instructions] Okay. We have a question here from Mike Markidis.

[Michael Markidis, Real Estate Analyst]

Just a couple of quick ones here. First up, on CECRA, just given that the applications are still being processed, should we take that to mean that for next quarter, it will be the full 5 months that tenants are eligible? So we'll see a 2-month impact?

[Mitchell Goldhar, President of the Council]

Peter or Rudy, I guess?

[Peter Forde, President, CEO & Trustee]

Well, I think there'll be a 1-month impact to each of those months, right in July, and then in August as well and potentially less impact for the month of August, then we will see for April, May, June and July. But -- and that amount, Rudy, is approximately how much is the...

[Rudy Gobin]

The 25%?

[Peter Forde, President, CEO & Trustee]

Yes, the 25%.

[Rudy Gobin]

It will be about $1.1 million, $1.2 million per month. So for a month or 1.5 months, that would be somewhere between 18 -- $1.8 million and $2 million, let's say, for that quarter.

[Michael Markidis, Real Estate Analyst]

Okay. So not all the tenants applying will get the full 5 months of the program? Some will get a lesser amount?

[Rudy Gobin]

Correct.

[Michael Markidis, Real Estate Analyst]

Okay. Got you. Right. Okay. And then just curious, you mentioned that not to draw attention to the downtime of sale. But Rudy, I think you alluded to this in terms of the types of tenants you're speaking to, generally speaking, across your portfolio. But the sale of Etobicoke space, I was just curious, it's a big box and a heavily retailed note. Curious what sort of demand to backfill that space you're seeing, whether it's a single user or multiple tenants?

[Rudy Gobin]

Well, that's really interesting because we have gotten calls, unsolicited calls, even though we were making some for that space. We have received calls from tenants in the enclosed mall asking to leave the enclosed mall, and that's not just for that 1 location because, as you can imagine, there's just a little bit of fear out there about being in enclosed malls in the current environment percolating for a while yet and hopefully knows how long. But for that kind of space, we're also looking at big food stores that would be interested in that kind of space. That note, as you know, is highly popular. So we're not anticipating a lengthy downtime for that. But for sure, the food stores and the sort of the centric for that area, given that it's south of Etobicoke and what would be in the Sherway. And there were some tenants that were already in that enclosed mall that were moved over to our shopping center, if you recall, not that long ago in the last few years. So we see more of that happening as well.

[Peter Forde, President, CEO & Trustee]

And then for the other -- Mike, for the other sales location, which is here in Vaughan, we -- that's a project that we've discussed before at 407, where we're planning to do significant residential. And I think what could happen is it made -- if sale is leaving, it may just alter the order in which we'll build residential on that site, meaning we may change our plan and do it more towards that end of the site. So I don't think other than perhaps a short-term backfill for someone to use that space as retail space. Our plan there would be to switch to our intensification program there right away.

[Mitchell Goldhar, President of the Council]

Yes. I mean it's kind of it's one last retailer to deal with in terms of achieving our redevelopment goals.

[Michael Markidis, Real Estate Analyst]

Yes. Well, Mitch, actually, remember being on a property tour when we drove around that site, and you specifically pointed to the tenants in that property and sort of inherently referred to them as being sort of quasi short-term in nature, not long-term tenancy. So I totally know that property, and appreciate the color.

[Operator]

There are no further questions in the queue.

[Peter Forde, President, CEO & Trustee]

Okay. Okay. Thanks, Karl. So I guess, I'll say thank you to all of you for taking the time to participate.

[Peter E. Sweeney, Chief Financial Officer]

Peter, you may want to ask him just to wait another few seconds, just in case.

[Peter Forde, President, CEO & Trustee]

Okay. We can wait. Peter suggesting we just wait a second and see if there are any other questions.

[Peter E. Sweeney, Chief Financial Officer]

Karl, maybe you can just remind people of the instruction to get their calls in the queue, please?

[Operator]

Certainly. [Operator Instructions] Well, we actually do have some questions coming in. We do have a question here from Brendon Abrams.

[Brendon Abrams, Analyst of Real Estate]

Maybe just a question on capital allocation. Clearly, in the opening remarks, management feels that the units are undervalued. I noticed the NCIB was implemented at the end of -- or at the beginning of the quarter. What are some of the thoughts around the utilization of the NCIB, given where the units are trading and the current 9% yield?

[Mitchell Goldhar, President of the Council]

Yes. It's pretty hard to find a 9% yield out there. So obviously, we had to go through a process to pass our NCIB. So just one, deliver -- sort of we did it deliberately for the option to evaluate that. When I say yes, it's the Board and the management decision. It's the Board's decision, but management's going to weigh in, and the Board's going to decide. So I mean, certainly, therefore, for us to exercise the people, it's the prudent thing to do.

[Brendon Abrams, Analyst of Real Estate]

Right. Okay. And maybe in the MD&A, it mentions just the requirement to backfill some space on vacancy. Just wondering if there's a rule of thumb maybe for us to use in terms of the costs associated with the backfilling space in general, maybe on a per square foot basis?

[Mitchell Goldhar, President of the Council]

Well, certainly a fraction of the cost of mall space, certainly office space, our space is really quite expensive to refit, but it really depends on who is in there and what we're putting in there. We often will give a TI, what we call a tenant improvement allowance. But again, it's nothing in the -- it's never in the scheme of things compared to other sectors, it's quite small. But the fit out costs, Rudy, do you want to give a range and to try to give a range of what those can be?

[Rudy Gobin]

Yes. I would say for a -- one of our traditional value-oriented type tenant would be in the $10, $15 range because it's already built space, previously used, previously fitted out. If it's a tenant that's going to change the use, like Mitch has just mentioned, and let's say it's a lab, and we're going to put a lab in, that's a national tenant, strong quality covenant, and so on and they may need a little bit more money for fit out, that number could end up being $15 to $20 to $25. But it's in that range. It's not a large number, very typical of what we would do for tenants coming in, yes.

[Brendon Abrams, Analyst of Real Estate]

Okay. That's very helpful. And then last question before I turn it over. Just in terms of your retirement projects, I noticed that the expected yield has remained pretty constant at 6% to 7.5%. I'm just wondering, given some of the headwinds that sector is facing right now, both, I guess, on the revenue and the cost side, if you're looking at maybe adjusting some of those pro forma yield expectations?

[Peter Forde, President, CEO & Trustee]

Yes, I would say. Yes. Not yet, Brendon. I mean we are working closely with Revera and Group Selection. But we're looking at that and any design changes that are being made to the buildings to accommodate any new things. But so far, it's not been a lot. I mean Revera was already building a pretty sophisticated building in terms of being ready for COVID issues. So I don't think on that cost side, it's going to be much an impact.And then in terms of operating costs and revenues, again, they're not seeing a huge impact yet in their business on -- and especially in newer homes, which is obviously what these will be when we build them. So no, but we are working closely with them. And we will update if there is anything in there. So far, nothing.

[Operator]

We have a question from Tal Woolley.

[Tal Woolley, Research Analyst]

Just one of the things that I was wondering, through the process of going and talking with all of your tenants over the last quarter, have you heard any commentary from some of maybe the larger national ones just about the performance of suburban retail versus urban retail through this period? And what they expect going forward?

[Mitchell Goldhar, President of the Council]

I spoke to one today. I mean, right now, I can't make a sweeping statement. But certainly, somebody this morning was saying how, I guess, the downtown office buildings being pretty empty that the retail -- their retail in the core was impacted most, and they've reopened and that it's coming back the slowest. So I mean, that is a piece -- there's a narrative that's sort of going around, I guess. And then malls, enclosed malls are also down substantially in terms of sales over last year compared to the open deal, item closed units, which are generally the -- what you would call the suburban units. So -- but are people jumping your conclusion that the end of downtown retail or downtown whenever? I mean, I don't know. There's certainly people have to fill the spaces and then paper every day with something, and I know people just oscillate on different -- they oscillate on that topic. But I think, truthfully, I don't think anyone's jumping to conclusions, except for the fact that the unenclosed stuff is bounced -- has bounced back very nicely, much easier to open. And the customer is less concerned and more inclined to shop with a direct access.Rudy, maybe you can eliminate, I don't know.

[Rudy Gobin]

Yes. I've been hearing a little bit of that same sentiment. With people staying at home and where they live, if you think about where they live and they live in the suburbs, they travel to urban areas, they're shopping near their homes. They're not getting far away. They're liking the experience that they're getting used to go to their favorite places to shop. And they've picked their 1 or 2 places. They're not driving to 5 different grocers or different places. And they're finding that the small amount of potential extra cost, because they're using someone right at their doorstep versus going to 3 different places looking for a deal, is worth the safe environment that they're in. So we're hearing some movement of lots more traffic happening because we're monitoring the traffic and our tenants reopening, lots more traffic happening in our open format, lots more traffic happening in the suburbs to these locations, again, simply because the change in sentiment where people feeling very comfortable about shopping near their homes and again, going to the unenclosed format where they feel safer because they can look in the window and see the number of people in there and wait outside and so on versus you walk inside a mall, you're in that mall. And you can't -- you have to leave the mall to feel safe if you weren't feeling safe once you walked in.

[Tal Woolley, Research Analyst]

Yes. For what it's worth, I live out of the city and I've been in a couple of your different properties and on the East side of town. Like I was impressed by like the amount of traffic that was there versus what I've seen downtown myself. So I think there is something to it.On the -- I just wanted to ask you about the SmartStop JV. You're up and running in lease side. How has the lease-up been going on that asset?

[Peter Forde, President, CEO & Trustee]

It's -- I mean, it is just open, and they really don't do any pre-leasing to speak of. And so as you probably know, Tal, that's a pretty competitive area in terms of yes, the numbers, but it's something that our partner, SmartStop, as we've talked about quite a bit there and obviously, chose to go there. They're not concerned about it. But the lease-up in our pro forma, I think, was either 36 or 48 months. We assumed it would take to lease that particular property up because of the competitive situation there. So I don't know the actual percentage, but I suspect it's fairly small today, but that was expected. And so nothing unexpected is happening there in terms of lease-up.

[Tal Woolley, Research Analyst]

And do you have the next -- I can't recall off the top of my head, do you have the next series of openings you expect under that JV?

[Peter Forde, President, CEO & Trustee]

Yes, there's 1 in Vaughan. That's under construction. I think it's the next 1 or that 1 on Brampton is the next one. So those 2 are later this year and Oshawa -- and 1 in Oshawa South is also under construction. And then there are 6 others that are at various stages of municipal approvals, actually, 1 in Scarborough is basically approved by the -- it is approved by the city now. So that 1 will be starting construction within a month or so.

[Tal Woolley, Research Analyst]

And are those all on new sites or that they're on existing SmartCentres properties?

[Peter Forde, President, CEO & Trustee]

They -- I'm going to say they are all, except for 1, maybe all on existing SmartCentres properties. But they all seem good. Yes, go ahead.

[Tal Woolley, Research Analyst]

So if there -- and so the municipalities because I know -- I guess, maybe in the urban centers, like it's a little bit harder to get the zoning to go your way because it's just -- they don't like the employment factor. But in the suburbs, it hasn't been -- like it's not a real zoning issue to put self-storage on the retail site.

[Mitchell Goldhar, President of the Council]

And there's a pretty controversial use.

[Peter Forde, President, CEO & Trustee]

And I don't know whether you've seen the 1 in Leaside. I mean, they're not bad looking anyway. These are not the standard single-story orange -- Storage Wars kind of place. And these are more attractive, 2-, 3-, 4-, 5-story buildings with a firm glass to them and so on. So they're not bad-looking buildings. So...

[Mitchell Goldhar, President of the Council]

They're not the storage facility of new criminal.

[Operator]

There are no further questions in the queue.

[Peter Forde, President, CEO & Trustee]

Okay. Well, we appreciate everybody's time, and we know it was a busy day for you all. And obviously, we encourage you if you have any additional questions or as you read our material more carefully, we encourage you to call anybody, any of us that are on the call here today and talk to us. So thank you for -- all for taking the time, and please stay safe.

[Operator]

Ladies and gentlemen, this concludes the SmartCentres REIT Q2 2020 Conference Call. Thank you for your participation. Have a nice day.