SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Analysis

SmartCentres REIT Q2 2024: Strong Leasing and Solid Financials

SmartCentres REIT saw significant progress in Q2 2024, achieving a 98.2% occupancy rate and executing over 272,000 square feet of new leases. Rental rate increases of 8.5%, excluding anchor tenants, demonstrated the underlying value of their properties. Same-property net operating income (NOI) rose by 3% for the first half of the year. The REIT also maintained stable distributions at $1.85 per unit annually, despite a slight decrease in net operating income attributed to fewer condo closings. Financial liquidity was bolstered by an additional $250 million to the operating credit facility and a $350 million debenture offering. The management expects continued strong tenant demand and stable growth.

Strong Operational Performance and Lease Expansions

During the second quarter of 2024, SmartCentres REIT experienced notable operational successes, highlighted by a committed occupancy rate of 98.2%. Their proactive leasing strategy resulted in over 272,000 square feet of new lease deals, indicating strong demand from both large and small retailers. Significant tenants, including Walmart, Canadian Tire, and Dollarama, are deepening their presence in SmartCentres locations, further solidifying tenant relationships through lease extensions for over 86% of properties set to mature this year. Impressively, these extensions achieved a rental rate increase of 8.5%, showcasing the intrinsic value of their properties without relying on financial inducements.

Mixed-Use Development and Strategic Pipeline

SmartCentres is not only enhancing its retail operations but is also strategically expanding its mixed-use development initiatives. Currently, the company has nearly 57 million square feet zoned for mixed-use developments and nine projects under construction, primarily focused on residential and retail centers. The ongoing improvement in community needs, such as health, education, and recreational facilities, signals SmartCentres' adaptability and commitment to becoming a one-stop shopping destination. This approach not only attracts more foot traffic but also diversifies income sources.

Financial Results and Revenue Expectations

Financially, SmartCentres reported a net operating income (NOI) decrease of 5.5% year-over-year, attributed mainly to fewer condo closings. Year-to-date, same-property NOI saw a modest increase of 3% excluding anchor tenants, displaying resilience amidst market fluctuations. The company expects to normalize net recoveries in the upcoming quarters, indicating a potentially positive impact on NOI. Furthermore, management projects that stable rental income and ongoing leasing efforts will continue to enhance financial stability.

Payout Ratio and Future Guidance

The company maintained its annualized distribution rate at $1.85 per unit, with a payout ratio adjusted to 96.9% of adjusted funds from operations (AFFO). Despite this high ratio, management remains confident due to strong income quality and expects to reduce the payout ratio below 90% over time. They anticipate sustaining dividends while navigating market conditions and prioritize maintaining financial health.

Liquidity and Debt Management

SmartCentres showcased robust liquidity management, increasing its revolving credit facility by $250 million to $750 million, strengthening its financial flexibility. The total undrawn liquidity reached approximately $652 million as of June 30, 2024. The adjusted debt-to-EBITDA ratio stands at 9.9x, reflecting a controlled increase in leverage due to development spending and lower condo closings. The company aims for a long-term debt-to-EBITDA in the single-digit range, positioning itself for future growth and financial resilience.

Outlook and Market Conditions

Looking ahead, SmartCentres is cautiously optimistic about market conditions, particularly regarding capital recycling opportunities estimated between $250 to $300 million. The potential for improved interest rates and economic visibility may catalyze this initiative. Management remains strategically patient, focusing on maximizing current developments while monitoring market dynamics closely. They are prepared to adapt and seize opportunities as conditions become more favorable.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen. Welcome to the SmartCentres REIT Q2 2024 Conference Call. I would like to introduce Mr. Peter Slan. Please go ahead.

[Peter Slan, executive]

Good morning, and welcome to our second 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 of Portfolio Management and Investments. We will begin today's call with some comments from Mitch. Rudy will then provide some operational highlights, 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 of any of the speakers this morning.

Mitch, over to you.

[Mitchell Goldhar, executive]

Thank you, Peter. Good morning, and welcome, everyone. The second quarter delivered strong results, building on the momentum we spoke of last quarter, with over 272,000 square feet of new lease deals executed in the quarter. Committed occupancy in our portfolio improved to 92 -- rather 98.2%. From the largest retailer in the world, Walmart, and many of our great Canadian brands, our tenant partner relationships continue to deepen with same-store expansions and new stores. New locations are either underway or will begin construction shortly with names such as Canadian Tire, Winners, HomeSense, LCBO, some full-line grocery, Dollarama, Golf Town, banks, QSRs, and more. You may have already noticed the higher traffic or selection and wider array of tenants in our SmartCentres locations as we enhance the experience beyond the everyday essentials with health and beauty, recreation, fitness, education, clinics, pet stores, daycares, and specialty foods.

As we work closely with our tenants, no detail is too small in ensuring SmartCentres is a good option for the growth plans of the country's strongest retailers and a desirable location to continue operating profitable stores, which, not surprisingly, has culminated in us already extending over 86% of our over 5 million square feet maturing this year.

Also positive is the 8.5% rental rate lifts achieved on these extensions, exclusive of anchor tenants. This rental rate lift is pure. It's a pure lift, not buoyed up by tenant inducements, or other costly consideration, which can sometimes be offered. This rental rate increase is a direct reflection of the value of SmartCentres real estate and the amount of business being done on our properties.

Rudy will provide some further details in a minute, but here are a few more operational highlights. Same-property NOI for the 6 months ending June is up 3%, excluding anchors. Our industrial vacant space was quickly re-leased in the quarter, along with the additional new-build adjacent space and at higher rents than the previous tenant. Our payout ratio will still high from my perspective. And while it is working its way down in the meantime is not a concern because of the quality of our income. Cash collections at over 99% reflects the quality of that income. And we expect leasing, renewals, renewal rate momentum to carry on through year end.

While enjoying a strong foundation of stable rental income, we continue to build significant mixed-use permissions with nearly 57 million square feet already zoned. This, of course, on lands we already own and have for many years. We will, of course, be prudent and strategic in executing any development project, that is when market conditions permit, with appropriate financing in place.

Here are some specific highlights. Site works are continuing for our 36-story ArtWalk project here in the VMC comprising 320 sold-out condominium units. Through our SmartLiving brand, The Millway, our 458-unit apartment rental project, which was completed late last year, was 88% leased up at quarter end, above planned rental rates, and now stands at 90%. We expect to be 95% leased by year end. Construction of our Vaughan Northwest townhomes with our partner is progressing well, with 25 closings taking place this quarter and nearly all presold units expected to close on schedule by year end.

In lease side, construction is well on its way for a 224,000-square foot retail center comprised of a 200,000-square foot Canadian Tire store. Adding to our self-storage portfolio, our Markham facility opened in May, bringing the operational portfolio to 10 projects and 4 remain under construction. This portfolio continues to excel, and we intend to continue the expansion as we are doing with 2 new locations, one in Laval East and the other in Victoria, British Columbia, just off the downtown core.

Our development teams continue to work diligently on obtaining residential and other permissions. And just recently, we were successful in our Eglinton West Center called Westside Mall in obtaining entitlements for 2.7 million square feet of density and a 327,000 square feet Phase 1 residential building with at-grade retail. Note that this mixed-use development is immediately adjacent to the soon-to-be-open Caledonian LRT station, which will also be integrated with a soon-to-be constructed Barrie GO line station.

Overall, we continue to be strategic with our development and expect to execute on some capital recycling this year where market appetite exists. We expect that with further interest rate reductions and reduced inflation in late 2024 and 2025. Market conditions may be more conducive for a more meaningful capital recycling.

And finally, we are pleased to announce that our annual environment, social, and governance report will be released shortly, reflecting the significant progress we have made in all areas of our business. As I've said previously, ESG is woven into the fabric of our organization. It is a part of how we oversee our business, interact with our tenants and engage with our employees and communities. Look out for this in the next week or so.

As you can see, we are quite active in enhancing value in our core retail operations, prudent in our governance and strategic with our development pipeline. We also take great care in maintaining a conservative balance sheet and improving liquidity, which we did when increasing our operating line by $250 million to $750 million, increasing our unencumbered asset pool to $9.3 billion and raising $350 million subsequent to the quarter, which Peter will speak to in a few minutes.

But before that, let me pass the call over to Rudy for some operational highlights.

[Rudy Gobin, executive]

Thanks, Mitch, and good morning, everyone. As Mitch mentioned, strong momentum in tenant demand has increased our occupancy now at 98.2%, a reflection of the quality tenants responding to the need for value and convenience within each community. SmartCentres has a long history of providing value-oriented, essential goods and services to communities across Canada with access to the best value brand names. As Mitch mentioned, at the core of our shopping centers and income are Walmart, Canadian Tire, TJX, Loblaws, Sobeys, Metro, Dollarama, Lowe's, LCBO, and Shoppers, to name a few.

There is increasing activity from these core tenants, further strengthening the income and covenant of the portfolio. In response to the needs of each community, we are also adding family medical, dental, daycares, recreational, education, health and beauty and more, providing that convenient one place -- one-stop place to shop, that is SmartCentres.

Demand for existing and new-build space continues to escalate from Chilliwack, BC to Lachine, Quebec. We have also executed over 272,000 square feet of deals in the quarter for small and large units, and we have extended over 86% of leases maturing in 2024 with rental lifts at 8.5%. And as Mitch mentioned, this increase is a pure rental increase and does not involve financial inducements or landlord work. We also re-leased our vacant industrial space above the prior rent, a reflection of the demand for such quality building and highway location.

Same-property NOI increased by 2.3% in the quarter and 3% for the first half of the year, excluding anchors, and we expect this to be higher in the next several quarters. 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 ranks amongst the top performers in the Simon Properties portfolio. Our Toronto and Montreal locations remain fully leased with rental lifts and EBITDA coming in above budget. These affordable luxury centers and world-class brands augment the SmartCentres portfolio well. And our relationship with our partner continues to be strong and collaborative as we discuss possible expansion.

Overall, a great first half of 2024 with strong rental lifts, NOI growth, cash collection, and tenant retention while delivering a broader array of tenants to meet the changing needs of each community. We anticipate a continuation of strong interest from our core tenants, our tenant base as we strengthen and grow SmartCentres.

With that, I will turn it over to Peter.

[Peter Slan, executive]

Thank you, Rudy. The financial results for the second quarter once again reflect the strong performance in our core retail business with improved occupancy and the continued contribution from our mixed-use development portfolio. For the 3 months ended June 30, 2024, net operating income decreased by $8 million, or 5.5% from the same quarter last year, largely due to the decrease in condo closings, which were only partially offset by new townhome closings.

NOI was partially impacted by a decrease in net recoveries, primarily due to the timing of certain operating costs, which we expect to normalize over the remainder of the year. Same-property NOI, including equity accounted investments, but excluding anchor tenants, increased by 2.2% compared to the same period in 2023 and by 3% for the first 6 months of the year. FFO per fully diluted unit was $0.50 compared to $0.55 from the comparable quarter last year. The decline is primarily due to the condo closings that occurred in the prior year, which did not repeat this quarter, as well as an increase in net interest expense due to higher interest rates and lower interest capitalization from completed development projects that are currently in lease-up.

During Q2, we also delivered and closed on 25 units of our Vaughan Northwest townhome project for net profit of $2.5 million at the REIT's share. FFO with adjustments, which excludes both the townhome and condo profits and the total return swap, was $0.51 per unit for the second quarter. The decrease of $0.03 from the comparable quarter last year was primarily due to an increase in net interest expense due to higher interest rates and lower interest capitalization.

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 for the 3 months ended June 30 was 96.9%. Adjusted debt to adjusted EBITDA was 9.9x for the rolling 12-month period ending in Q2, which is unchanged from the prior year, but a slight increase from 9.8x last quarter due to additional development spending and fewer condo closings. Our debt to aggregate assets ratio was 43.7% at the end of the quarter, a 50-basis point increase compared to the same period a year earlier. Our unencumbered asset pool increased by $100 million to $9.3 billion in Q2 compared to last year. 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.

From a liquidity perspective, we remain comfortable with our current liquidity position. During Q2, as Mitch noted, we upsized our main revolving operating credit facility by $250 million to $750 million, with strong support from our banking syndicate. As a result, as of June 30, 2024, we have approximately $652 million of undrawn liquidity, including our share of equity accounted investments and cash on hand, but excluding any accordion features.

As Mitch noted, subsequent to the quarter end, we increased our liquidity further through the issuance of $350 million of senior unsecured debentures at a rate of 5.162% for a term of 6 years. The proceeds from this offering will be used to repay the upcoming maturity of our Series O debentures and higher interest floating rate debt on our operating line. The weighted average term to maturity of our debt, including debt on equity accounted investments, is 3.1 years, or 3.3 years pro forma the recent debenture offering. Our weighted average interest rate was 4.25%, an increase of 8 basis points from the prior quarter. Our debt ladder remains conservatively structured where the most significant aggregate maturities are in 2025 and 2027. Approximately 80% of our debt is at fixed interest rates.

Just before we open the call up 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. As you will see on Page 17, there are currently 9 projects under construction, down from 10 last quarter. The one project that was completed during the quarter was a self-storage project in Markham. The REIT's share of total capital cost of these 9 development projects is approximately $499 million, with the estimated cost to complete standing at $307 million.

Subsequent to the quarter end, all of the debt drawn to fund Phase 1 of the Vaughan Northwest townhomes has been repaid. In addition, all of the construction debt related to funding the development of 3 SmartStop projects has been replaced with permanent financing from an external lender.

And with that, we would be pleased to take your questions. So operator, can we have the first question on the line, please?

[Operator]

Certainly. [Operator Instructions] The first question is from Mario Saric from Scotiabank.

[Mario Saric, analyst]

Maybe starting off with Rudy. Both occupancy and blended lease spreads were up quite nicely sequentially. I'm curious about the -- whether there's a direct connection between the 2. So I guess I'm trying to understand returning back to peak occupancy, or on your way back to peak occupancy, may impact your ability to continue expanding the lease spread onging forward.

[Rudy Gobin, executive]

No, I think we -- as we -- obviously, as we lease up the portfolio, there is going to be -- and we are at market, we expect that, that lease spread to, I'm going to call even out during the -- by the end of the year. So quarter-by-quarter, you'll see a little bit of change, but we do expect that to continue to maintain that current spread year-to-date.

[Mario Saric, analyst]

Okay. Sorry, to maintain the spread, or do you see the possibility to increase it further?

[Rudy Gobin, executive]

This -- but again, for the balance of this year, we are budgeting that, that will -- like you see in first quarter, second quarter. And then we expect that, that sort of blended rate will increase. But that does not include the lease-up of space. So we will have it increase as we lease up the space, but on the existing portfolio to maintain that alignment with the first half of the year.

[Mario Saric, analyst]

Got it. Okay. The genesis of the question, I'm trying to understand kind of the relationship between pricing power and occupancy within your portfolio, if there's a very direct relationship between the two. And it sounds like there is.

[Rudy Gobin, executive]

Absolutely.

[Mario Saric, analyst]

Okay. And then just a follow-up for you, Rudy, what percentage roughly would you estimate of your non-anchor tenancies would have fixed price renewal options in place?

[Rudy Gobin, executive]

I don't know that off the cuff. I'll have to get back to you on that, Mario. Yes, I just don't have that at my fingertips.

[Mario Saric, analyst]

No problem. Okay. And then maybe shifting over to Peter. I think the variable rate debt was roughly about 20% this quarter. That may become a tailwind in the coming months with potential Central Bank easing, as Mitch alluded to in his prepared remarks. Just curious what your kind of target variable rate exposure would be by the end of this year or by the end of next year? And what's a good stabilized figure to use?

[Peter Slan, executive]

Yes, that's right, Mario. It's been about 20%. There's been 2 rate cuts, I would note, since the last time we hosted a quarterly call. So that benefited us slightly -- only slightly in this quarter because it was late in Q2, and it will benefit us again in Q3 with the most recent rate cut. And your guess is as good as mine about future rate cuts. But I do agree with you, it could certainly become a tailwind. I expect we're going to maintain roughly the same proportion. It's not going to move all that meaningfully. But with the most recent raised debenture issue, of course, we did repay mostly floating rate debt.

[Mario Saric, analyst]

Right. Okay. And then can you give us a sense of how much of the variable rate debt in place today's interest thereupon is currently being capitalized? I'm just trying to get a sense of what the potential path it could be well...

[Peter Slan, executive]

Yes. So most of it is being capitalized. Certainly, all of our construction facilities are floating rate debt, Mario.

[Mario Saric, analyst]

Okay. And then maybe just lastly for Mitch. In terms of capital recycling, you kind of highlighted potentially more favorable interest rate environment as being a possible catalyst for increased activity or for some activity. Are you at the stage where you might be able to quantify the magnitude of potential dispositions, whether it be development intensification or IPP? And what the catalyst outside interest rates might be for that?

[Mitchell Goldhar, executive]

I think from order of magnitude, we look at trying to achieve something in the $250 million to $300 million range or more. And I mean, we're okay hanging out until market conditions improve a bit. It's likely to be, most likely to be dispositions of lands with permissions that we've talked about. And that market really didn't exist even a year ago or 1.5 years ago. It does exist now. It's quite where we want it to be yet, but it's moving in the right direction.

[Mario Saric, analyst]

Okay. And sorry, you have so many attractive options across the portfolio geographically. So it's hard to generalize. But what's your guess in terms of how much the value of those types of companies or the type of land has come off in peak?

[Mitchell Goldhar, executive]

Maybe I won't be specific, but an example of a property we have in the east side of the GTA, let's say, by example, at the peak, it was probably worth some would say between $95 a square foot of buildable. Let's say, the Phase 1 would have been 1 million square feet. Phase 1 meaning a couple of towers that are approved. As I said, there wasn't much of a market a year or 1.5 years ago, but maybe the market now is -- goodness, I don't know. I mean, I would like to think it's better than half that, but maybe it is as bad as half of that. It's still highly accretive to us even at half of that because it's just -- it's basically vacant land that we have on an operating shopping center. These high-rise -- mid-rise, high-rise buildings don't take up much land.

So we'll be watching closely. We certainly aren't going to wait for the -- what was the peak of the market a few years ago. But we're monitoring it closely, and that's an example of something when the time is right, we would probably sell properties like that Phase 1s. That's a property that is owned for, say, goodness 6 million square or 6.5 million square feet. So we've got lots and lots more there to do in-house if we want to. But Phase 1 being 1 million square feet, we've got a lot of that around the GTA and other major cities when the market recovers a little bit more.

[Mario Saric, analyst]

That's really helpful color. And is it, in your opinion, when you're talking to potential buyers, is it simply a function of interest rates coming down, or is there an element of a desire for better economic visibility going forward? So I'm just curious what the catalyst could be in your view that could revive demand?

[Mitchell Goldhar, executive]

Yes. I mean, most of the buyers have -- what I was just describing, it's not the only thing, the only lever we have for capital recycling. But in that particular area, it's usually private developers. And private developers are really on the sidelines until they're suddenly hot to trot. So when they're not hot to trot, they're very careful buyers. So right now, they're very careful buyers. So there's this theoretical value and then there's just what does the deal actually look like. Private developers are super-careful when there isn't a clear path. Right now, there's not a clear path. There's a -- the fog is lifting. Private developers, there's a lot of them with a lot of money, are still not ready to buy straight up. They want to buy on terms, they want to buy conditional, they want to buy with all kinds of potential adjustments. So -- but when the fog lifts a little bit more, and there's a real clear path to the other -- to an exit development, the market warms up, probably a little bit of momentum in the condo market, the end user or the investor, then you'll see the developers start to come off the sidelines. And that can go quickly from being what I speculate as the market today to something better and less conservative structured buying terms. So yes, we'll wait and see.

There's other levers we have that we'd be dealing with more institutional types. But that type of buyer, I think that's a fair profile.

[Mario Saric, analyst]

That's really interesting color.

[Operator]

The next question is from Mike Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

Thank you, operator. Out of consideration for all participants, I'll limit my questions to 2. Just first off, on the -- Peter, on the drag that you mentioned with the decapitalization of interest, I guess, Millway is probably a big component of that, maybe self-storage. Do you have a sense of what the quantum of that drag was this quarter from an FFO per unit perspective? Just trying to get a sense of the reversal as you lease up.

[Peter Slan, executive]

Yes. Good morning, Mike. Yes, Millway was the -- certainly the largest by far. Millway would have accounted for more than half of that drag. And you're right, self-storage as well. I did mention that a couple of quarters ago, we had put some permanent takeout financing on a portfolio of completed self-storage SmartStop projects. And so that obviously ceased capitalizing interest on those projects.

[Michael Markidis, analyst]

Okay. Great. And then, Mitch, in your comments earlier, you made a comment that you weren't concerned about the payout ratio, but that you did think it was too high for -- maybe too high, I'm not sure you're liking or the markets. Just wanted to get a sense of what your ideal payout ratio would be in your mind for the long term.

[Mitchell Goldhar, executive]

Below 90%, 85% to -- you're talking ideal, and we're talking in the foreseeable future, we'd like to see it down below 90%. It's fine if it's low-90s. We sort of use 88% to 92%, I think, right now, sort of short, medium term, our goal. But yes, we're very motivated to get that down, but we're also very comfortable with where it is because we can maintain everything that we've got going on and plan to do with our tenant profile, and everything that's going on here on the leasing side and so on.

So we'll -- we've got our eye on it. We hope that we'll -- there'll be moments not in the too distant future to make moves to bring that down.

[Michael Markidis, analyst]

Got it. Have a great weekend, everyone.

[Operator]

The next question is from Matt Kornack from National Bank Financial.

[Matt Kornack, analyst]

Just quickly going back to capital recycling. By the time, I guess, interest rates have come down and developers are coming back to look at some of these projects that may actually be attractive for you guys to participate in developing. And again, just your thought process around like where the destination for some of that potential capital coming in would be? Would it be exclusively for deleveraging, or would it be to kind of reparticipate or ramp up the development pipeline again at that point?

[Mitchell Goldhar, executive]

Yes. I mean it's a good question. So I mean I think what will likely happen will -- the market will come back to a point where we're able to -- we're happy with the deals and we'll probably sell those properties most likely outright. We've severed these properties in a lot of cases, they're zoned; in some cases, they're even site plan-approved. I mean it's like building permit applications is the next step. So it will be very appealing. It's -- when it becomes appealing, becomes very appealing. Right now, it's not appealing. But that will probably be what happens first, and we'll get -- we'll bring in as much from that as we think we need to get where we want to be. And then we'll maybe start considering some joint ventures, maybe we'll do a couple of ourselves. But obviously, we'll just be assessing the conditions and the weather in the overall marketplace, whether we'll do any of those ourselves or whether we'll just continue to sell them.

I'd say the first bunch of capital that we bring in will not be directed to -- necessarily be directed to new development. I'd say, at this moment in time, my hunch is that we just continue to finish the developments that we have and lower our leverage. And then yes, the market continues to be strong enough. We'll keep doing that until we get to a point where we're comfortable to use that capital to do some of our own developments, whether in joint ventures or ourselves. I don't want to commit to it, but I mentioned $250 million to $300 million, probably want to pass through that first. And then it's just a theory, just a hunch that that's when we might start looking at directing some of those funds to some of the developments that we might want to do ourselves.

[Matt Kornack, analyst]

No, that makes sense. And I guess it's all in the context of where cost of capital goes unless anybody's guess. So we'll see. But just on the quarter itself, Peter, you mentioned recoveries had an impact and that we'll see a normalization into the second half of this year. Can you quantify what that dollar value impact would have been in the quarter in terms of just the NOI and where we should kind of think of that addition being in each of the subsequent 2 quarters and maybe run rate into next year as well?

[Peter Slan, executive]

It's actually quite modest, Matt. So no, I'm not going to throw out a number, but I can tell you it's quite modest. Our recovery levels remain very high, and we expect them to continue for the balance of the year to remain very high. In terms of specific dollars, though, it's pretty small. It's less than $1 million.

[Matt Kornack, analyst]

But it could be up to $1 million, which anyway -- okay, that's fair. And then last one, sorry to get into the minutia, but for your secured debt, it looks like the 2024 maturity, the weighted average interest rate was up a fair bit sequentially, but presumably then you can just pay that. Was that just a variable rate debt component or is there something else in there? And will it be repaid in Q3 or is it a Q4 maturity?

[Peter Slan, executive]

I don't have the full schedule of each of the mortgages in front of me, Matt. But I can tell you that the plans are that some will be repaid and some will be refinanced. So I...

[Matt Kornack, analyst]

Okay. Fair enough. I don't think it's going to make a material difference to our model.

[Peter Slan, executive]

It's not. The smaller ones we tend to just pay off. The ones where we have JV partners, we may refinance.

[Operator]

The next question is from Sam Damiani from TD Cowen.

[Sam Damiani, analyst]

Just wanted to touch on the development of retail. We talked about last year, I think around 300,000-square foot pipeline of discussions which then translated into 200,000 square feet of active development projects, as I recall from last quarter. Just wondering if you could give us an update on that.

And also, Mitch, I think you mentioned that there was talks with Simon with respect to TPO and maybe an expansion. Does that mean a third project in the country or yet another expansion to TPO?

[Mitchell Goldhar, executive]

Sam, I'll answer -- I'll start. In the first -- I'll go in reverse order, the -- it's pretty good for you to pick up on -- hunt that TPO question or the Simon question. We're looking at everything, yes. So it's too early to say anything about what that may look like. So clearly, TPO could be much bigger from a demand point of view. So we're just looking at it. We just finished expanding it. So to expand it again is just something we're looking at.

And with respect to the sort of magnitude of new deals, net new space, retail, it's quite a bit actually. We've had a lot cooking in terms of new deals. A lot of the large cap and large floor plate retail chains in the country did not expand a lot in the last 10 years.

So they're looking at it now, and we're one of the go-tos for sure, for that. So we're in discussions. But deals take a long time to do, and then you've got to get it approved. I mean we're zoned for it, but we've still got to get it site plan approved and billing permits and build them. So it takes time. But I would say the interest is not superficial or flippant. I mean, we're well along, and I would rank the likelihood of doing quite a bit of new retail space starting next year to be very high and to go in -- to continue for the next few years, unless there's some major catastrophic event. Their interest is based on population growth, actual sales trends and strategic -- their strategic plans, large corporate strategic changes in their plans.

So we're one of the go-tos, I think, for sure, for a lot of the companies. You might forget how many of them there are, including Walmart, who haven't done a lot of expanding on the retail side, who've done a lot of expanding on the warehouse and distribution and fulfillment side. So we've got a lot of things cooking with a lot of the core retailers in this country.

[Sam Damiani, analyst]

Okay. Great. That's helpful. Second and last question is just on the disclosure of same-property, which was broken out between with and without the anchors. I think this was the first quarter. Just wondering what the rationale for doing that? Does it indicate a new way you're thinking about the business? I'm just wondering, I guess, why separate out that disclosure.

[Rudy Gobin, executive]

No, we've, in fact, disclosed that in many prior quarters. We just wanted to make sure that everyone knew given that we have a predominance of larger tenants in our portfolio that everyone would understand the rental lifts. And for what I'm going to call our CRU, which includes our mid-box size.

So Mitch, do you want to...

[Mitchell Goldhar, executive]

Yes. I mean, Sam, obviously, we know that a bulk of -- a lot of renewals this year were Walmart, and Walmart, for the most part, don't have bumps in their rents. It's not a reflection of the market. And so the non-anchor, particularly the non-Walmart number gives some -- got some value in just understanding what the market is for our properties. It's more of a reflection of market value.

[Operator]

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

[Pammi Bir, analyst]

Just maybe on that last comment regarding the Walmart renewals and maybe coming back to the overall commentary around same-property NOI growth and the recoveries, et cetera. Should we then expect maybe at property can pick up through the back half, I guess, given the leasing that was done as well? Or is it sort of -- you expect it to kind of continue to track in that 2% range for the year?

[Mitchell Goldhar, executive]

Pick up. And yes, pick up. Yes, will leave it at that.

[Pammi Bir, analyst]

Okay. All right. I wanted to maybe just come back to the commentary on capital recycling in the $250 million to $300 million. Mitch, just given where we sit today, you mentioned developers are obviously being careful. But if you were to transact on any of that, would you be providing, or would you consider providing any BTPs or you're looking to get that cash back and take leverage down?

[Mitchell Goldhar, executive]

Yes. I mean that's what I was trying to say there. Right now, I think they just want too much of a VTB. I mean, they weren't there a year and a bit ago, but now they're there, but they -- I guess, they want VTBs. And so I guess just -- it's not really helpful to us to -- it's just not -- it doesn't move the needle enough to do the kind of deals that developers want to do today, private developers.

So if in the future, the price goes up and the percentage of the price as a VTB goes down, we would give a VTB if it was enough cash and it was not too long of VTB and decent interest rate. We'll consider it all. But right now, it's sort of not -- none of it is quite there yet. So I can see to kick things off. There might be a small or some kind of a VTB at the right price.

[Pammi Bir, analyst]

And then I guess -- yes. No, that's helpful. And I guess, as you think of what you put all this together, it sounds like hitting that type of level from a disposition sort of target standpoint. It's really unlikely this year. This is, if anything, maybe a more 2025 event or I'm just curious if you have any sense of timing.

[Mitchell Goldhar, executive]

Yes, I don't know. Maybe we're -- yes, I would say you're most likely, but actually, there is a chance it could happen this year. As I was saying, when the market is where it is, I mean, it just seems like that and it seems like it's going to be forever. But then suddenly, some things happen and they get pretty anxious and things can change very quickly.

So I would say you're -- if I was a betting man, I would agree with you, but it's still -- I'd say there's still a small chance that there could be a transaction this year and close this year. But yes, I would say for conservative estimates, I'd say the bulk -- or, I would say I'd bet on 2025 at this point.

[Pammi Bir, analyst]

Okay. Last one for me. Just, Peter, maybe you can remind us when you factor -- sorry, just from a leverage standpoint, where you want to get to on a debt-to-EBITDA basis on a longer-term basis?

[Peter Slan, executive]

Well, so I have indicated on prior calls, Pammi, that we are going to see it tick up slightly, not because we're adding debt, but because the EBITDA from the 1,000 Transit City 4 and Transit City 5 condo units that closed in 2023 will roll off. And so that's exactly what we saw this quarter. But we would like to see it remain in the single digits, certainly. And so I don't think we've articulated a particular target, but we would like to see it trend down, of course.

[Operator]

The next question is from Lorne Kalmar from Desjardins Capital Markets.

[Lorne Kalmar, analyst]

I think most of the questions have been answered, but I just had one quick follow-up on the discussion around the retail developments. What type of yields would you need to see before you move forward? And how realistic is it do you think you can achieve those if you start developing kind of next year-ish?

[Mitchell Goldhar, executive]

Yes, I mean, it varies. It depends. The retailers are super -- the retailers recognize the cost of construction and they recognize the value of land. So they don't -- and I think we're -- all of the development community are experiencing the same thing. So retailers appreciate that they've got to pay more rent. So yes, for the most part, they're reasonably accretive day 1 with bumps, decent-sized spaces. In our case, we're doing multiple deals. So with most of these retailers, well, I'd say almost all of these retailers. So they're -- for the most part, day 1-accretive. Everything is moving all the time. So when it actually kicks in and when we actually spend the money and borrow the money, we'll see. But based on our establishing rents, fixing rents, each one of these deals is calculated on an accretive basis with bumps with long-term leases.

[Operator]

There are no further questions in the queue.

[Mitchell Goldhar, executive]

Okay. Well, thank you for participating in our Q2 analyst call. Please feel free to reach out to any of us if you have any further questions. And have a great rest of your day and weekend.

Thank you very much.

[Operator]

Ladies and gentlemen, this concludes the SmartCentres REIT Q2 2024 Conference Call. Thank you for your participation, and have a nice day.