SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Transcript 2019-Q4

[Operator]

Good day, and welcome to the SmartCentres REIT Q4 2019 Conference Call.Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Peter Forde, President and Chief Executive Officer.Please go ahead, sir.

[Peter Forde, President, CEO & Trustee]

Okay. Thank you, and good evening, and welcome to the SmartCentres Q4 2019 Conference Call.Joining me on the call today are Mitch Goldhar, Executive Chairman; Peter Sweeney, Chief Financial Officer; Mauro Pambianchi, Chief Development Officer; Rudy Gobin, EVP, Portfolio Management and Investments; and Paula Bustard, EVP, Development. Today, we'll begin with a few overall comments by me, followed by Peter Sweeney, who will talk about our results for the quarter and financing activities, followed by an update on some of our exciting project developments, and then we will take your questions. Our comments will mostly refer to the first 10 pages and Page 24 and 25 of our supplemental information package and the outlook section of our MD&A, which are posted on our website. I refer you specifically to the cautionary language at the front of the supplemental market -- material, which also applies to comments any of the speakers make this evening.You will hear 2 main themes during this call. First, we continue to focus on our highly stable portfolio, 98.2% leased portfolio of 34 million square feet of well-located, value-oriented shopping centers; and two, our accelerating mixed-use intensification and development programs, with growing positive results from these initiatives to commence later this year.On the first theme. We had another strong and stable quarterly performance from our existing retail portfolio, with notable mention going to strong results from the Toronto Premium outlet expansion, which opened in November 2018, with average tenant sales for the full center at almost $1,200 per square foot; high overall tenant retention, with 84% of 2019 maturing tenants renewing at an average net rent increase of 4% excluding anchors, 3.3% overall. Our shopping centers continue to lead the industry at 98.2% leased, inclusive of all executed deals for future positions and then going forward, for 2020 and 2021, profits from the first of many recurring residential condo developments and from a variety of new business initiatives and developments, some of which are described this evening and in our quarterly report.As has always been the case in our business, a handful of retailers come and go. And in that respect, some good news on the re-leasing of premises vacated by bankrupt tenants: 21 Bombay and Bowring locations totaling 103,000 square feet that we had are 60% leased or spoken for with strong expressions of interest. And for the 46 Payless Shoes locations that we had totaling 107,000 square feet, we are pleased to report that we are in advanced discussions and/or have executed deals for approximately 80% of the locations and, in both cases, with rents equal to or higher than the previous rents.A few general reminders about our development pipeline and capabilities. Most of the development initiatives we are planning are on land we already own unlocking value, supplemented by select acquisitions with existing or new strategic partners. We use our in-house development team to drive these initiatives, all contributing to enhanced yields and profits over the long term. Remember this in-house development team developed over 85% of our current retail area. We know the markets, the municipalities and every detail about the properties. It is this team of in-house planning experts; developers; engineers; government relations, people, leasing, environmental, geotechnical specialists; construction managers; and architects that makes us very unique in our sector. And we continue to enhance the team, offering exciting and challenging learning opportunities for new associates joining our organization.With 34 million square feet built on approximately 3,500 acres of land with less than 24% land utilization and primarily all at ground level, we have over 100 million square feet of land within our shopping centers to accommodate mixed-use growth throughout the country that does not -- and that does not include the nearly 14 million square feet of undeveloped lands we also own, much of which we have plans for building out mixed use.The potential intensification and development program continues to grow as we further review our portfolio for opportunities. The number of potential projects and towers to commence construction in addition to our retail development pipeline within the next 5 years is currently estimated at 105, comprising some 12.4 million square feet, our share, of mixed-use space. This development will have an estimated cost of $12.1 billion on completion, with SmartCentre REIT's estimated share of that being over $5.5 billion. In addition, another 151 projects and towers, 15.5 million square feet at our share, have been identified, on which we will commence rezoning, design, site plan approvals and marketing during the same 5 years, with construction commencing after that. So a total of 256 projects, 27.9 million square feet at our share of mixed-use space; and the review of the portfolio continues. A breakdown of these projects by asset type is provided in our MD&A.Retailers and the new users we are bringing to the centers, residential condos and apartments, seniors' residences, office and self storage are aware of the synergistic benefits of bringing this all together in one location. The new users benefit from the great locations, access and visibility of our centers, while progressive retailers in the centers recognize the benefit of having these additional customers at their front doors. As we've stated before, we carefully select our development partners looking for expertise in these asset classes and with a good cultural fit and complementary skills. I'm pleased to report that all our new relationships are going extremely well: Revera, SmartStop, CentreCourt, Selection Group, Jadco, Greenwin; and of course, our long-standing relationships with Walmart and others. And we continue to be approached by many others about partnering, interest in both our outstanding land opportunities and our in-house development team. Mitch will provide more details on several of these partner relations, but I first wanted to review a significant transaction announced during the last quarter.We entered into a joint venture with Penguin with respect to a 15.4-acre site, let's call it the new JV Site, proximate to the SmartVMC lands already jointly owned by SmartCentres and Penguin. 10.76 acres of this new JV Site will be used for the development of the latest new Walmart prototype store. This new Walmart store is a relocation of the existing Walmart store currently located on 15.7 acres with up to 78 more years remaining on that lease. Its termination is expected to unlock significant value for SmartCentres and Penguin in the near and medium term as it is steps from the new TTC VMC University Line Subway Station and the new York Region Bus Terminal, as it will allow for full realization of the master plan vision for SmartVMC. Once the old Walmart store is relocated in August of this year, it will unlock significant value and development opportunity for mixed-use density comprising of at least 6 additional, not previously announced residential condominium and/or purpose-built rental towers; and will also allow for the permanent use of the lands already being partially used to complete the Transit City 1 and Transit City 2 and the 2 sold-out 55-story condo towers and a 225,000 square foot mixed-use tower that houses PwC's recently opened 77,000 square foot offices. The total mixed-use density available from the old Walmart store lands is expected to exceed 4.5 million square feet.As part of that joint venture for the new JV Site, SmartCentres purchased a 50% interest in the JV Site from Penguin for $109.2 million in cash, all in accordance with terms reviewed by a special committee of the independent trustees of our Board. The transaction provided us with a unique value-creation opportunity resulting from the relocation of the old Walmart store, substantially increasing the value of the existing 15.7-acre parcel, and also gave us the opportunity to acquire a 50% interest in additional land around the VMC to develop an additional 1.7 million square feet of residential condo and/or purpose-built residential rental density on that portion of the JV Site that will not be subject for lease for the new Walmart store.And just as a general reminder, throughout our entire intensification program across our portfolio of properties, virtually none of the additional land value associated with the density we are creating is reflected in our balance sheet IFRS values. To date, we have only recognized the increased land values when we close the sale of an interest in the land to a JV partner, at which time we recognize the uplift on our retained portion as well through an IFRS fair value adjustment. And as also as a reminder, when we present the development project yields or profits from our condo projects, land is included in the costs side of the equation at an estimated market price and all internal fees and capitalized costs are included in costs which I understand is not the way others may be presenting these same yields. Given the significance of the land redevelopment and intensification, which may not be reflected in our NAV or recognized in our unit price, we will be reviewing in 2020 the appropriateness of recognizing some of this land value bump in our balance sheet IFRS values. Stay tuned.More about these developments from Mitch in a few minutes, but first, I'll turn it over to Peter Sweeney.

[Peter E. Sweeney, Chief Financial Officer]

Thank you, Peter, and good evening, everyone.Our financial results for the fourth quarter of 2019 reflect the continued strength, stability and security of our 34 million square foot, predominantly Walmart-anchored shopping center portfolio. During the quarter, this portfolio generated the following strong results. Number one, rental revenue from investment properties of $209 million was $8 million or 4% higher than $201 million recorded in the comparable quarter last year. Number two, net operating income increased by $4 million or 3.4% to $131 million from $127 million in the comparable quarter. And three, NOI as a percentage of net base rent was 101%, higher than the 100% level experienced in the comparable quarter in 2018. These continued strong operating metrics are indicative of our portfolio's continued unique ability to demonstrate steady growth even in uncertain times.These improving operating results contributed to an $8.5 million or 9.2% increase in FFO after onetime adjustments to $101 million for the quarter. On a per unit basis, FFO after onetime adjustments was $0.59 per unit, which is $0.02 higher than the comparable quarter last year. This increase was experienced even after factoring in the dilutive impact of our $230 million equity issuance in January of 2019.From a cash generating perspective, during the quarter, ACFO with onetime adjustments increased by $2.7 million or 3.2% to $88.6 million and exceeded both distributions declared and distributions paid by $8.9 million and $28 million, respectively, again, representing the business' continued ability to demonstrate steady and consistent cash flow growth. Excluding the impact of Payless and Bombay and Bowring bankruptcies, same-property growth would have increased by 1% for the quarter. When factoring in the impact of these bankruptcies, same-property NOI growth was virtually flat for the quarter.We renewed or are near completion of renewing approximately 3 million square feet of tenancies, which represents approximately 84% of our 2019 lease maturities at an -- average rental increases excluding anchor tenants of 4%. This is consistent with the improving growth rates that we've been experiencing over the last several quarters and, as Peter mentioned earlier, is indicative of an improving retail leasing market.These improved quarterly results can be attributed to the following primary factors: a, the incremental NOI now being generated from new tenants at both the KPMG Tower and PwC-YMCA Towers; b, the incremental NOI now being generated from both the 144,000 square foot expansion at TPO and recent earnouts and developments. C, our portfolio of maturing mortgages and unsecured debt continues to provide unsecured fixed-rate refinancing opportunities at lower rates than the outgoing maturing rates. And lastly, d, additional percentage rent, parking revenue and other miscellaneous revenue.And now let's focus on our balance sheet. From a financing perspective, we began 2019 with a strong reminder to the capital markets of our conservative management of capital. We applied the proceeds of our very successful issuance of $230 million of equity against some of our credit facilities to reduce our overall debt levels and improve our related debt metrics to appropriately accommodate future levels of expected development financing. And the impact of these debt reductions continue to be reflected in all of our debt and financial metrics. In this regard, at the end of the year, we note the following further improvements.Number one, our unencumbered pool of assets has now increased by 33% since last year to $5.7 billion from $4.3 billion last year. Number two, our debt-to-aggregate assets ratio was reduced to 42.3% from 43.9%. Number three, our weighted average interest rate for secured and unsecured financing decreased further to 3.55% from 3.73%. Number four, our adjusted debt-to-adjusted EBITDA multiple was further reduced to 8.0x from 8.2x. Number five, our interest coverage ratio improved further to 4.0x from 3.8x. Number six, our unsecured-to-secured debt ratio has now improved to 63% to 37% from 48% to 52%.And lastly, number seven, as a result of these continued strong credit metrics that reflect our ongoing commitment to the balance sheet, we received an upgrade to our credit rating from DBRS to BBB high. Recall, please, that when we embarked upon the strategic initiative just over 2 years ago, 2/3 of our debt was sourced from secured lenders. And just as we began 2019 with a strong statement tied to our equity issuance, this credit rating enhancements allowed us to successfully end 2019 with the successful issuance of $450 million in new 10-year debentures.For our payout ratio and distributions. Our ACFO payout ratio with onetime adjustments for the 12 months increased to 87.4% from the comparably -- comparable year's level of 83% and was primarily influenced by the equity issuance earlier in 2019 and continues to reflect the healthy level of cash flow generated by the portfolio. Our surplus of ACFO with onetime adjustments over distributions declared of $44.7 million reflects the continued strength and core stability of our business model. When factoring in our highly successful DRIP program, the surplus of ACFO over distributions actually paid totaled $116.2 million. The substantive surplus of cash flow is distinctive in our industry and is funding substantive portions of the development capital required for our large pipeline of mixed-use projects.Our financial and operating results for the fourth quarter reflect our strong and stable business model and, we believe, positions us to continue to provide our unitholders with stable and growing distributions. As we have previously noted, a very successful bought deal that was completed in January of 2019 diluted our growth expectations in 2019 by approximately 3%, thus resulting in limited FFO per unit growth for 2019 as compared to the prior year. However, the expected closings of the first 2 phases of Transit City condos in 2020 will signify a profound change in the evolution of the growth profile of SmartCentres as these initial -- closings are expected to result in significant growth in FFO per unit in 2020.I will now turn things over to Mitchell Goldhar, our Executive Chairman, who will provide you with an update on some of our upcoming development initiatives.Mitch?

[Mitchell Goldhar, President of the Council]

Thanks, Peter.There is so much happening on the development side it's impossible for me to cover everything during this call. But here's some of the key highlights. In our seniors' residence JV with Revera, we announced 4 more conditional retirement living site-specific deals to develop in strategic urban locations. 3 of the 4 new locations are joint ventures between SmartCentres and Revera. They're in Barrie, Markham and Oakville, on downtown sites in each of those markets that Revera already owns. And 1 of the 4 joint ventures is between my company Penguin and Revera in Toronto on Wilson near Bathurst and that's on a Penguin-owned site. This is in addition to previously announced 3 retirement residence joint venture projects between SmartCentres and Revera in Vaughan, 2 projects, and Oakville. The 7 locations represents a total of 1,565 units, comprising of a mix of seniors' apartments, assisting living units, independent living units and memory care units. The total investment by the joint venture partners for these projects is approximately $825 million expected to generate a yield of 6% to 7.5% once stabilized.We have also entered into a joint venture with Greenwin and acquired 1.15 acres in Toronto's Yonge and Davisville neighborhood. SmartCentres has a 75% interest in the joint venture site and will be the developer. This urban infill development site represents a strategic opportunity to jointly develop, construct, own and manage a newly built rental apartment building in an established urban neighborhood. The acquisition of this site follows on the recent success of the previously announced joint venture of 7.8 acres in Barrie's waterfront. Together, these 2 acquisitions represent a development pipeline of over 2,000 purpose-built rental units with an aggregate development value in excess of $1 billion. And this will be part of the continuous growth of the apartment platform. This acquisition reaffirms our commitment to focus on recurring revenue growth in purpose-built apartments.We recently announced that we have executed agreements for 3 additional self-storage locations in our joint venture arrangement with SmartStop Asset Management. 3 new locations are in Aurora, Markham and Whitby. The total number of SmartCentres -- SmartStop joint venture locations is now 10, comprising of over 9,100 units, approximately 1.2 million square feet with a total joint venture investment of approximately $200 million.Now a quick update on the Vaughan Metropolitan Centre project. With the subway commuters and the 2,000 employees working out of the KPMG building and the PwC-YMCA building, our project is clearly becoming a metropolitan area. If you have not been here recently, you should come and visit. By the way, make sure you take the subway. The YMCA opens mid-2020. An additional estimated 1,200 daily visits will be made to the YMCA. The 3 sold-out 55-story Transit City condo towers scheduled for delivery in 2020 and 2021, 1,741 units, are under construction and costs are below budget. These sold at an average price of $710 per square foot. Construction activity has reached the 55th floor of Towers 1 and 2 and Tower 3 has reached the 29th floor. We commenced construction on 2 additional residential condo towers, 1 of them 45 and 1 of them 50 stories, totaling 1,015 units, again, sold out in less than a month, the 45-story tower at an average of $835 per square foot and the 50-story tower at an average of $865 per square foot. These 2 towers are in our partnership with CentreCourt and are connected to our 451-unit residential rental tower that my company Penguin and the REIT are developing, constructing and operating together. In fact, this past Monday, the Minister of Housing and Municipal Affairs, Steven Clark, (sic) Steve Clark; MPP Gila Martow; Minister of Education Stephen Lecce; along with Vaughan Mayor Maurizio Bevilacqua and other councilors were on site for the official groundbreaking of this purpose-built rental tower and significant milestone in the VMC.We also commenced construction on a new Walmart store in Vaughan on the site of our former office. Once the new location is opened in July 2020, yes, July 2020, Walmart will be moving from its current location, and this will free up 15 acres of additional development lands zoned with permissions on the VMC site. We are already designing the next phase of the VMC to include a 600,000 square foot office tower and additional residential towers. Overall, we continue to see 9 million to 11 million square feet being developed on the approximately 50 acres of the VMC lands the REIT owns in partnership with my company.Another recent testament to the growing sentiment of a downtown community feel of the SmartVMC was when it was showcased to millions of Canadians on January 12 with Rogers Hometown Hockey festivities and a broadcast from our transit square directly adjacent to the Vaughan Metropolitan Centre subway station.We are reviewing and planning for residential rental, condos and/or townhouses on all our sites over time. Master planning activity participation with the various municipalities are underway on most of these sites. There are too many to mention, but here is just a sampling of some of the new projects recently approved by our Board of Trustees: Pointe-Claire on the West Island of Montreal, a 22-acre shopping center approved for 2 15-story apartment towers, 300 units without impacting the operating shopping center. Alliston, north of the GTA, 36 acres, including 170,000 square feet of retail approved, a master plan involving 12 acres of residential with a Phase 1 4-story purpose-built rental apartment of 56 rental units. Ottawa South Keys, 517,000 square foot shopping center, approved a Phase 1 of 21-story rental apartment building containing 242 units on Ottawa's mass transit line. Pickering, in the east end of the GTA, a 48-acre shopping center, a master plan involving 5 million square feet of density, we approved a Phase 1 2 residential tower, 25 and 27 story, 482-unit Phase 1 project.Vaughan Northwest, as part of the master plan of this 41-acre site, 2 residential towers, 12 and 16 stories, 248 units. Vaughan 400 & 7 across a shopping center directly west and Highway 400 of our SmartVMC project. The Board approved a master plan of approximately 5 million square feet and the first 2 condominium towers of 45 stories, approximately 780 units operating together. In fact, this past Monday, the minister -- oops, sorry. Here it [indiscernible] [ North Québec ], just north of Montreal, a 20-acre site adjacent to our Walmart anchored shopping center. The Board approved a master plan involving 1,600 residential units, with the Phase 1 consisting of 2 10-story rental apartment buildings, approximately 240 units.And that is just to name a few of the projects underway. We estimate that 10 years from now, we will be generating recurring NOI from these new rental businesses, seniors' homes, apartments, office and storage facilities, representing up to 25% of our total rental NOI, plus significant profits in the tens of millions every year starting in 2020 from the sale of condominiums and townhouses.With that, we will turn it back to the operator to coordinate us in addressing your questions. Thank you.

[Operator]

[Operator Instructions] And your first question comes from Brendon Abrams of Canaccord Genuity.

[Brendon Abrams, Analyst of Real Estate]

Just with respect to the new Walmart JV Site acquired in December, I'm wondering if you can provide any color with respect to maybe the breakdown of the purchase price, with respect to supporting that with the retail or the new Walmart versus looks like the 4.5 acres that would be high-density residential.

[Mitchell Goldhar, President of the Council]

Yes. How many, Peter Forde?

[Peter Forde, President, CEO & Trustee]

Yes. Well, basically, the entire site -- when we valued the entire site, we valued it all as using a value for what it was suited best for, which is high-rise residential. And so that was the basis for the value we paid. So we paid basically the same price per acre for the entire 15 acres, 10 of which -- 10.5 of which are being used for the new Walmart and the rest being -- will be used for high-rise residential that we will do in that joint venture. But what it did at the same time is, of course, freed up the 15 acres here right next to the subway station, on which we'll be able to immediately build -- start building high-rise residential, again, very close to the subway station and close to the towers that we were so successful on already.

[Brendon Abrams, Analyst of Real Estate]

Right. Okay. That's helpful. I think in your opening remarks, you mentioned the re-leasing in the, I guess, Bombay and Payless spaces. I'm just wondering if you could provide any color or insights into kind of the new tenants moving into these spaces or leasing the space, whether there's any trends in terms of the type of service offerings or retailers entering them or if there's 1 or 2 dominant retailers taking a lot of the spaces.

[Mitchell Goldhar, President of the Council]

Probably best, Rudy. Rudy, do you want to take a shot on that?

[Rudy Gobin]

Sure. The -- when those spaces became available, a lot of our typical 4,000 and 5,000 square foot spaces -- because these spaces are -- Bombay, Bowring were all 5,000 square feet. Payless were about 3,000 to 3,500 square feet. So they ignited a flurry of activity from the types of tenants that would be in the food, the restaurants, fitness, everything, small pet stores, a variety of service offerings that has come in, everything, including telecommunications. So a lot of these tenants who would typically not have access to those small areas in our large shopping centers now did. So it is a wide variety. It's right across the country. So there was no one particular use that would be dominant across all of the 60-plus locations that we were referring to.

[Brendon Abrams, Analyst of Real Estate]

Okay. Yes, I was just wondering if there's any concentration, but it sounds like it's pretty mixed. Just turning to the acquisition. It seems until recently the diversification by asset class has been primarily focused on your existing sites. And I guess it still will be going forward, but the REIT has made a few acquisitions, whether it's the self-storage on DuPont, the Davisville for apartment and the 50% from Revera most recently. Just wondering if there's been a, I should say, shift or from the Board or management's perspective on acquisitions in terms of outside of the retail space. And is this something we should expect more of going forward?

[Mitchell Goldhar, President of the Council]

Yes. I'll answer that. I wouldn't say a shift per se, but when the opportunities present themselves, we'll certainly assess those. In those cases, they're really extensions of our relationships. They're not per se things that went on the market. I mean if there's a common theme or strain between all of those, it doesn't mean there won't be an acquisition that's out on the market. But we're really focused on intensifying sites we already own, with the caveat or asterisk that if something comes along, it makes sense. Of course, we're in the business. We're always going to be interested in looking at that. And these came through very, very good relationships. So they made sense to us. So we -- yes, we seized the moment.

[Brendon Abrams, Analyst of Real Estate]

Okay, that's great. I'll...

[Peter Forde, President, CEO & Trustee]

I might just add on the Revera. I might just add that it was sort of always contemplated. When we originally did the deal with them, there was a number of our sites that were identified for them to have an opportunity to come in on. And likewise, they had identified certain sites that they own that we would have an opportunity to come in on. So the 3 that we just did were always part of that original list, not that we had to. But once we had a look, then we chose to go and get involved with those 3 sites.

[Operator]

And your next question comes from the line of Mr. Mike Markidis of Desjardins Capital Markets.

[Michael Markidis, Real Estate Analyst]

Sort of a bit of a laundry list here. But first of all, on the outlook in the supplemental, I think the wording before would have been FFO accelerate -- FFO growth to accelerate in 2020 in excess of 10%. And I guess the 10% or "in excess of 10%" was removed. And just wondered if you could provide your thoughts as to whether or not that was purposeful or just an oversight.

[Mitchell Goldhar, President of the Council]

Yes. Maybe Peter Sweeney?

[Peter E. Sweeney, Chief Financial Officer]

Mike, it's Peter Sweeney. We had reflected that previously. It wasn't an oversight. We're still trying to refine with some level of precision the expected FFO growth levels from the closings of TC 1 and 2 this year. And as you can imagine, there's still a lot of work to be done to get to the finish line on those closings. So it actually is a moving target. But I think, as Mitch said, the -- I think the point from these development income initiatives is to provide the REIT with continuous and continuing income over the longer-term time frame in the tens of millions of dollars. So as I say, we're trying to refine with some level of precision the number of units that we will be able to close this year. And so at least for now, we're trying to defer or hold back on giving any further guidance on what that expected level of growth will be this year.

[Michael Markidis, Real Estate Analyst]

Okay. And just from the mechanics, I think when you guys would have ended those projects into the -- or sold your interest and kept the retained interest, you would have recognized a fair value gain on your books or some transactional FFO. But what happens subsequent, Peter, when you transfer to residential inventory? Is there a write-up that's associated at all with future expected gross proceeds? Or can we simply look at the gross margin that you put out and sort of back into what the transactional amount would be irrespective of timing? [ Is there anything ] wrong with that?

[Peter E. Sweeney, Chief Financial Officer]

I think so. I mean we don't characterize it, Mike, as transactional, but at least the net proceeds that we're going to recognize from the sale and closing of the units as they start to occur later this year and into 2021, because it's becoming and has become, in fact, a big part of our operations, for us, it is conventional earnings or conventional FFO. And so if you're trying to model it, it's simply taking the yield expectations or return on cost expectations that we've got in the supplemental document and doing the math on that.

[Michael Markidis, Real Estate Analyst]

Okay. That's fair. Just another quick one here. I think, last year, you transferred 355,000 square feet from the rental pool of income producing to PUD. I can't -- I mean I didn't look back to see if that was a 4Q event or if it was earlier, but could you remind us what that would refer to?

[Mitchell Goldhar, President of the Council]

Maybe, Peter, do you want to answer that, Rudy...

[Peter E. Sweeney, Chief Financial Officer]

Yes. I mean yes. Those would have been -- again, I'm trying to remember the list, but it would have included some Home Outfitters, some boxes where we are looking to add or subdivide the space, change the use of the space to a different use where it makes sense to do so in that -- in those shopping centers. So in 2019, in each of the quarters, again, they would have been maybe a Rona box, maybe a Home Outfitters box. Home Outfitters pulled, I think, a couple locations. And in those locations where we're going to add the mixed use, obviously, rezonings and so on have to carry on. So it's a variety of change in uses. And I wanted to take a look through if we have -- I don't have the list in front of me, but I can get a list and have that to you. But -- so basically, that's what it is. It's basically we're doing one of the following 3 things: subdividing the space, to re-lease a space and add new uses and/or to add mixed uses to the shopping center in that location.

[Michael Markidis, Real Estate Analyst]

Okay. And I guess, just to specify then: That 355,000 wouldn't include the Bombay or the Bowring space or the Payless.

[Peter E. Sweeney, Chief Financial Officer]

No, no, absolutely, no. Right, no...

[Michael Markidis, Real Estate Analyst]

Got you. Okay. All right. Last one for me. Just in the supplemental information package on, I guess, Page 23, you guys have the layout of the developments and the earnouts and expected income, gross commitment on the developments and the earnouts. And then the equity-accounted piece, which is, I guess, arguably where most of the future stuff is, has an investor to date but not a gross commitment or a net commitment line. I was just wondering if that is outlined somewhere else in more detail in terms of how that looks or if you guys plan to break that out anytime soon.

[Peter E. Sweeney, Chief Financial Officer]

Mike, it's Peter. The -- I think we've mentioned this or referenced it in the MD&A. We're still working on disclosing those future commitment amounts, and so at least for now, they're not in the public materials.

[Peter Forde, President, CEO & Trustee]

And this chart is retail developments, right, Peter, with -- so most of the equity-accounted-for investments are not retail. They're all the other mixed-use things that we're going to be doing, Mike. And the tables on -- and Page 24 and 25 talk about some of the mixed-use initiatives, which include things that are in the equity-accounted-for category but are not retail.

[Michael Markidis, Real Estate Analyst]

Yes. No, I see that schedule here, and that's very helpful. I'm just trying to get a sense of the equity [ investment today ] and what's to come sort of in the next couple of years from a spend perspective, but that's great.

[Operator]

[Operator Instructions] And we will now take our next question from Pammi Bir of RBC Capital Markets.

[Pammi Bir, Analyst]

Just on the back of your commentary on pre-leasing progress in Bombay and Payless, just how are you feeling about the overall same-property NOI growth for 2020?

[Peter Forde, President, CEO & Trustee]

Go ahead, Peter.

[Peter E. Sweeney, Chief Financial Officer]

Pammi, it's Peter. The -- I guess, for now at least, we're expecting it to be conventional, a conventional year somewhere between 0% and 1%. Keep in mind that most of the new leasing that was referred to earlier will be commencing at different points over the course of 2020. So we will not get sort of a full pop, if you will, in the results for 2020. But I think the bigger impact certainly from a positive perspective will be felt in 2021. But I think notwithstanding that timing difference we are expecting, based on the budget that we've got in place, that 2020's same-property growth rate will be somewhere between 0.5% to 1%.

[Pammi Bir, Analyst]

That's helpful. I guess, maybe coming back to the question earlier on guidance. Can we maybe just exclude the condo gains? There are some refinancing savings. If you strip out, sorry, the condo gains, what sort of range of FFO growth would you anticipate?

[Peter E. Sweeney, Chief Financial Officer]

If we're removing the gains, Pammi, from the development income initiatives, we would expect, at least for now, the growth rate to be somewhere in the 2% to 2.5% range.

[Pammi Bir, Analyst]

Got it. And maybe just coming back to your comments on potentially recording density value for some of your land or, I guess, unutilized land. Can you maybe just expand on what you're contemplating there, maybe the methodology or what sites that could apply to or any sort of initial estimates that you might have?

[Peter Forde, President, CEO & Trustee]

Yes. I think, as I said, it's something we're looking into. So we're at early stages of looking into it in terms of how we will measure it. But certainly, what we're planning to do is take into account, when we look at it, the program, the new initiatives that we've been talking about now for a while. And looking at the permissions that we have or in and in the process of getting through the municipalities and factoring that in and obviously looking at what's happening in the marketplace around us in those various sites. And the projects that Mitch was listing that we're working on will certainly be candidates to be looked at as well as many of the other sites that we're working on as well.

[Pammi Bir, Analyst]

Got it. Maybe just lastly, on the Yonge and Davisville site with Greenwin, what was your cost of the land? And what's the estimated density on that site?

[Peter Forde, President, CEO & Trustee]

[ Well, we didn't -- well, we haven't actually talk about ]...

[Mitchell Goldhar, President of the Council]

The density -- I don't know that we announced -- did we announce? We certainly didn't announce the density. The density is to be determined. It is zoned and it's designated for high density. The specific density that we will achieve there is not yet determined. We have a sense for what we think it will -- a range that we think we'll achieve. So it will be a high-rise building. It's also proposed to be a rental building, so that's also looked favorably upon by municipalities. It's already designated, so it's not an issue, but the exact number of square feet and number of floors is not yet determined.

[Operator]

We'll now take our next question from Sam Damiani of TD Securities.

[Sam Damiani, Analyst]

Just sort of following on the last question. The number of the some of the recent development announcements, be it residential rental, storage or senior housing, have been on lands that the REIT had not owned, so being acquired from the partners or jointly acquiring from the third parties. How do you balance, with all of the potential on the existing SmartCentres land, investing in new lands to do development versus just building on existing SmartCentres properties?

[Mitchell Goldhar, President of the Council]

Yes. It's Mitch. Well, first of all, we have the development horsepower in-house as is. So that in terms of balancing is not an issue. You will have to look at each and every one of these developments. Barrie, it depends on your take on Barrie. We are bullish on Barrie. This is a city that's always been sort of midsize city that we think is going to become more significant and there's a strategic property. The price was right. The municipality's interest in seeing density there is strong, and the partner is an experienced developer and owner of residential rental. So I won't go through each one, but each one is really a thoughtful decision, a unique opportunity. We look at a lot of things, and we say -- we pass on 99% of things we look at. But these are compelling. Each and every one of them is compelling. And if you look at each one, I mean, we can talk later offline, we see them as being high standard. In the case of Davisville, sort of even a jewel in the crown of our future portfolio. So yes, there's the creme de la cream and they're coming through relationships. So it's not a biddings exercise per se, and it's not a high-pressure situation. So not to say we wouldn't look at -- we don't look at everything, but these had all the right ingredients for us, and that's how these very specific properties ended up in joint ventures.

[Sam Damiani, Analyst]

Okay. And just a follow-up the -- for the first question on the call, the acquisition of the land at the VMC. I think the math is correct here, $7 million an acre. And any reason that is not fair to apply to the rest of the lands for future development at the VMC?

[Mitchell Goldhar, President of the Council]

Well, we're looking at that now, as Peter mentioned. When we -- well, when we look at it, we are going to be looking at it from the point of view of what we could achieve in the marketplace based on the market value of land on each of our properties. And then we're going to be conservative because we're talking about a lot of properties. So it is possible. It's conceivable, but we haven't done that yet. But we are now putting our minds to updating our NAV across the portfolio. And yes, of course, that will be taken into consideration, of course. As we'll -- sorry. As we'll look at -- I mean we've sold land in the VMC to CentreCourt. They bought into VMC lands. But we will take every variable into consideration, and then we'll present that in the near future.

[Operator]

And your next question comes from the line of Tal Woolley of National Bank Financial.

[Tal Woolley, Research Analyst]

I just wanted to ask. Your annual run rate NOI that you offer in the MD&A is about $510 million, I think, is what you're quoting. And if I look at like what you're putting up right now on a proportionate basis, it's obviously -- it's probably closer to like $525 million, $530 million. Is there a reason why the number will be that much lower than sort of where you're kind of tracking right now?

[Peter E. Sweeney, Chief Financial Officer]

Okay. So Tal, it's Peter. I think it's just the way we took the math at Q4. Unfortunately, the annual run rate is a function of the current quarter's metrics and just applying it there from -- and your point is well taken. When you look at the 12 months ending December, you get certainly a much higher number. And it really is just math. It has nothing else to do with that. And also, maybe just to one of the earlier points that was made, the annual run rate numbers in the MD&A do not reflect any of the development income that's anticipated from the condominium closings later this year. So I wouldn't place too much reliance on that in your run rate number.

[Tal Woolley, Research Analyst]

Okay. And then you'd flagged a couple leases that really started, I believe, to come on in the last half of 2019 that helps drive NOI higher. I think there's the second office building at VMC, and I think you mentioned TPO as well. When did those like new lease -- when were those sort of like fully occupied and like contributing to FFO? And was that mostly in Q4, mostly in Q3, starting in Q3?

[Peter E. Sweeney, Chief Financial Officer]

It really depends on the lease. So the way that we include for revenue recognition purposes income, Tal, is we take a building like the PwC building. And we take the tenant, in this case PwC, and we determine when the commencement of their lease is. And I think in PwC's case that might have been in...

[Unknown Executive]

Q2 or Q3.

[Peter E. Sweeney, Chief Financial Officer]

Q2?

[Unknown Executive]

Yes.

[Peter E. Sweeney, Chief Financial Officer]

It was earlier than Q4 at least, Tal. So it wasn't Q4, so we were recognizing income from PwC's lease prior to Q4 -- prior to their opening because their lease commenced formally, if you will, prior to that. They just had a fixturing period of X months prior to their opening in November, I guess. So the reality was in December we did pick up, however, some new earnouts and developments. I think there was perhaps some other tenants in the PwC building, probably Scotia in the PwC tower that -- whose lease commenced, that also affected positively that metric.

[Tal Woolley, Research Analyst]

Okay. And then just last quickly, an accounting question. The transactional FFO, the $2.8 million you recognized in the FFO walk back, where is that $2.8 million on the balance -- or sorry, on your income statement when you report the quarter? Is that in fair value gains?

[Peter E. Sweeney, Chief Financial Officer]

The transactional FFO, it -- I guess the reality is that it's partially over time reflected in unrealized gains for IFRS purposes. But keep in mind the way the transactional FFO is calculated is it represents the difference between the purchase price that a third-party is paying us for their share of an interest in a joint venture with us and our cost. And so that difference between essentially sale value and cost represents the transactional component that's been sold to that third party.

[Tal Woolley, Research Analyst]

Right. And so I guess [ like one thing ] is that, that number is -- is it in the equity-accounted JV? Is it in...

[Peter E. Sweeney, Chief Financial Officer]

I'm sorry. Yes, yes, it would be in the equity-accounted JVs. In this case, it's the Transit City 4 and 5 projects that closed earlier on.

[Operator]

And we have an additional question from Mike Markidis of Desjardins Capital Markets.

[Michael Markidis, Real Estate Analyst]

Just a last one here. Peter, in the FFO reconciliation, there's been an amount that was pretty small, but it's starting to grow pretty materially. It's the adjustment for supplemental contribution. Can you remind us what that relates to?

[Peter E. Sweeney, Chief Financial Officer]

Yes. I mean it's funny. Accounting is a wonderful art that sometimes doesn't hold a lot of weight in reality. And so what that represents are costs that are incurred that would ordinarily might be capitalized to the projects involved that we're equity accounting for, but because of the restrictions in equity accounting under IFRS, we're precluded from adding them to the balance sheet. And so they are, in effect, expensed for accounting purposes. And then just to be able to sort of balance the scorecard from a reporting point of view and not to penalize groups like ourselves that have a tremendous amount of activity in these equity-accounted initiatives, we then get the opportunity to add them back for FFO purposes.

[Michael Markidis, Real Estate Analyst]

Got it. So I guess it'd be stated [ actually kind of ] similar to the indirect interest, just other costs other than interest that you get...

[Peter E. Sweeney, Chief Financial Officer]

Yes, yes, yes. It's probably the right way of looking at it. It's just it's in equity in the accounting for equity investments, if you will.

[Michael Markidis, Real Estate Analyst]

Is there any thought to perhaps, as this -- the pipeline grows and the amount of JVs grows, [ the structuring ] [indiscernible] would qualify for proportionate consolidation? Or is it just not feasible?

[Peter E. Sweeney, Chief Financial Officer]

Great question, Mike. And I have to tell you it's a discussion that has taken place at both the audit committee level and the Board level with our group over the last few days. We're going to spearhead an initiative both at the -- a REALpac level and perhaps other levels with our auditors as well to see if there is a way that we can potentially find a way to proportionately consolidate these types of initiatives. So you may not have had a chance to see it. But if you look at our MD&A for the quarter, we have actually taken the approach of proportionately consolidating anything that is equity accounted in the accounting statements, hopefully, with the intent of giving you and others like you a better picture, better perspective on what's actually taking place as opposed to trying to understand equity accounting.

[Michael Markidis, Real Estate Analyst]

Got it. I'll have a look at the MD&A, and if you need some support in your efforts with REALpac in terms of the cheering section, let us know.

[Peter E. Sweeney, Chief Financial Officer]

We'll take you up on that, Michael.

[Operator]

And it appears there are no further questions at this time. Mr. Forde, I'd like to turn the conference back to you for any additional or closing remarks.

[Peter Forde, President, CEO & Trustee]

Okay. Good. Again, thank you all for taking the time to participate in our fourth quarter call. And again, thank you for your continuing interest and investment in our REIT. Good night.

[Operator]

And this concludes today's call. We thank you for your participation. You may now disconnect your lines, and have a wonderful day, everyone. Take care.