SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Transcript 2020-Q4

[Operator]

Good day ladies and gentlemen, and welcome to the SmartCentres REIT Q4 2020 Conference Call. I would like to introduce Peter Forde. Please go ahead.

[Peter Forde, President, CEO & Trustee]

Good afternoon. I'm Peter Forde, President and CEO. Joining me on the call today are Mitch Goldhar, Executive Chairman; Peter Sweeney, Chief Financial Officer; Rudy Gobin, EVP, Portfolio Management and Investments. The call will begin with comments by Mitch, Rudy and myself, followed by Peter Sweeney, who will talk about our results for the quarter and year-end, including IFRS valuations, liquidity, our debenture issuance and accounting provisions. We will then be pleased to take your questions. Our comments will mostly refer to the outlook and mixed-use development initiatives sections of our MD&A, which are posted on our website. I refer you specifically to the cautionary language on Pages 3 and 4 of the MD&A material, which also applies to comments any of the speakers make this afternoon. Today, we will not only provide you with the highlights of the quarter, but update you on our major projects. Our focus remains on operating our existing shopping centers while simultaneously creating value through real estate development. This development process and the value it creates takes time is specific to each 1 of our significant number of development projects underway and is not conducive to a quarterly reporting cycle. We remain on course with each of these projects as well as remaining on strategy with the portfolio. Within the context of real estate development, this strategy is moving us forward nicely with the rewards from the SmartVMC condo closings in the third and fourth quarters. The last 9 months were unusual for all of us with the spread of the pandemic the accompanying shutdown, restarts and second wave shutdowns across the country. This impacted every one of us personally and from a business perspective to varying degrees. The pandemic added some challenges for us in the short term, but we remain firmly focused on our long-term strategy of growing our mixed-use development. The pandemic challenges required our attention in assisting all of our tenants in various ways by keeping our shopping centers operating, so as to effectively serve their communities. With more than 60% of our tenants considered essential services and with food and pharmacy retailers in every center. Everyone worked hard to maintain a safe operating environment for tenants and customers alike. The second shutdown at the end of the quarter and into the new year, in varying degrees across the country made it an even greater priority for us. Our attention was and remains on assisting our retailers and getting back to opening their stores and operating at full capacity once the lockdowns are lifted, which is just now starting to take place for many tenants. In addition, we have offered our centers to all levels of government and public health authorities to play a role in reducing the impact of the pandemic. Initially, you will recall, we offered our properties for COVID testing and PPE storage and had several institutions accept the offer. More recently, we have been in direct contact with government agencies to donate for free, our space as inoculation centers to help accelerate the rollout of the vaccination process for Canadians. As mentioned before, Mitch's vision, some 3 decades ago was to build retail centers with Walmart as an anchor, staying attentive to every detailed step. Just as we do today with our mixed-use plans. This includes building a dedicated team and an operating company around it. Our land development mindset and culture makes us unique in operating a shopping center portfolio. Our core competency in land development makes us very comfortable in driving profitability through intensifying and repositioning many of our strategically located properties, almost all of which we know very well because we develop them in the first place. These great shopping centers with a strong tenant base and covenant with their outstanding access on or near highways, transit and most importantly, in the midst of growing populations, provide a solid foundation to the development of higher and better residential and other uses. Many investors and some analysts are not yet acknowledging or giving us the proper credit for the planning, applications and physical development that is now underway in so many of our centers, driving significant value, which is here to stay. And with that, I'll pass it over to Mitch.

[Mitchell Goldhar, Executive Chairman]

Thank you, Peter. During the course of the last year, we stayed on the offensive, even accelerating the processes of obtaining rezonings and site plan approvals. It is through these approved land use changes they were able to drive value into our properties and our NAV. The lasting relationships we have forged over the last 30 years with many Canadian municipalities as well as government general receptiveness to the -- to moving intensification forward is paying off. On Page 18 to 20 of our MD&A there's a growing list of examples of the very active residential and other development applications and in rezonings achieved that were submitted by our in-house development teams during the COVID shutdown or have been well advanced by our team of professionals, such that the applications will be submitted in the next few months. When you look at the list closely, you will notice the significant amount of residential along with a variety of other new and exciting initiatives, creating significant value, not recognized in our IFRS balance sheet values to date. The list on these 3 pages encompasses in excess of 42 million square feet of additional density. Some built on undeveloped plan that we own, some on top of existing retail and a limited amount replacing existing weaker retail, making for a more dynamic, vibrant and welcoming mixed-use center. And of course, that is not all. For example, many of the future phases of the VMC and our lands in Laval Centre in Québec are not included in that number. The several seniors residences we are working on with our partner, Revera. As a very recent example, we obtained zoning approval for 4 residential towers. In Barrie, on the Waterfront for 25 storey plus -- storeys each. In Alliston, we received -- we recently obtained -- sorry, we recently obtained zoning approval to add residential, hotel and self-storage to our existing operating Walmart anchored -- dominant center in Alliston. In Mirabel, Québec, north of Montreal, we obtained residential zoning this past Monday to add 4,000 residential units on our 50-acre site adjacent to our outlet center. A site where we recently doubled our ownership interest from 33% to 66% after acquiring Simon's interest in that surplus property. The first phase will be the development of an apartment building with approximately 170 units. We expect to start construction of that in 2022. An 8-acre parcel along Young Street next to our Aurora site, where we intend to undertake residential. A 50% interest in a Markham Main Street project with Revera. 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. This was true for the first 2 office towers at SmartVMC in Vaughan where we delivered exactly what we said. 100% occupied with strong tenants in Downtown Toronto quality towers and under budget, KPMG and the PwC towers. We have just delivered and opened 177 unit residential rental tower in Laval, Québec on our Laval Centre site, along with [ Laval ] 3 of our 10 SmartStop self-storage developments being Leaside, Brampton and Vaughan Northwest. And now our third and fourth quarter results include the closings of the condo units in a smart VMC Transit City 1 and 2, the 55 story towers. Our share, 25% share. Of the profit to date from these 2 towers is contributing $45 million, not counting the town homes, which have not yet closed but are sold out. In the spring and summer of this year, 2021, we will deliver the closing of 631 units in Transit City 3, generating approximately a $20 million additional profit. For the 3 towers combined, we are not only meeting but expected to exceed our original plan for profit by more than $35 million. Other specific project highlights. One, 2 additional towers, Transit City 4 and 5 -- sorry, 1,026 units are sold out are under construction. We have the 20% deposits in place from the purchasers. We are nicely set up for recurring flow of economy and cash flow on these projects. SmartVMC's purpose-built residential rental building of 451 units is under construction along with Transit City 4 and 5. SmartVMC, the new 140,000 square foot Walmart store opened in October on schedule, allowing for the closing of the existing store on the SmartVMC site and freeing up extremely valuable land. For residential for additional future residential land on which we have already made an application to the city of Vaughan. Self-storage, in addition to the 3 open and operating properties, there are 2 others under construction, Oshawa and Scarborough, and 6 others in the process of obtaining municipal approvals, totaling near 1 million square feet of new development of self-storage. Seniors residents. First, let me reiterate, with all the troubling pandemic information that is in the news related to seniors almost all the tragic news relates to government-funded long-term care facilities, a business we are not in. Instead, with our partners, we are developing seniors' apartments with extra amenities and limited levels of residential care, all tailored to seniors, 6 with Revera, 2 with Group Selection. All of these projects are in the municipal approval stage with construction scheduled to start shortly for the 2 towers in Ottawa. A few general reminders about our development pipeline and capabilities. Most of the development initiatives we are planning are on lands we already own, unlocking value supplemented by select acquisitions adjacent to our properties and/or with existing or new strategic partners. We use our in-house development team to drive these initiatives. We know our markets, the municipalities and every detail about our properties. We have developed in adverse conditions before, both as a private company and as a public REIT. As an important reminder, across our portfolio of properties, none of the additional land value associated with our as of right residential densities or our potential densities on rezoning completion 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 reflecting a more conservative approach to the calculating of the development yields that we report. After hearing all of this and reading the development initiatives section of our MD&A, you can see the pandemic did not slow down our development drive. To the contrary, we accelerated our transition to a more diversified REIT. By moving municipal approvals forward, which, as stated earlier, is where significant value is created. It is clear that our current unit price is not reflecting the value of this development potential. As prudent managers are not only our projects, but also of our balance sheet. It is very important to note that we will only move forward with capital-intensive construction initiatives as market conditions warrant, sufficient presales occur in the case of condos and only when more than adequate financing is available. Lastly, let me clarify. The disconnect we are seeing between the significant development initiatives underway and some already realized in 2020 with the $45 million profit to date from TC 1 and 2, with our unit price, displays and a logical discount, which ignores the significant value creation for our mixed-use initiatives predominantly on lands we already own and is not reflected in our IFRS values. Nevertheless, we will stay on course and on strategy as we continue to execute on what we say we will do. Now I will turn it over to Rudy Gobin.

[Rudy Gobin]

Thank you, Mitch. The pandemic continued to affect the financial results through the fourth quarter, albeit to a far lesser extent than the previous 2 quarters. Our priority during this period of uncertainty was and continues to be protecting our employees the communities we serve, our tenants and our business, while doing everything possible to mitigate the financial implications to ensure liquidity and to continue strengthening our balance sheet. Our operating shopping center portfolio is 97.3% leased at December 31 and remains focused on essential services and value-oriented retail, not fashion, recreational or entertainment retail. It is well suited for these turbulent conditions as evidenced by the following: one, based on revenue, 60% of the REIT's tenant base is comprised of essential services, which continue to operate throughout the crisis, supporting local communities, meeting the everyday needs of residents for groceries, pharmaceuticals, banking, household maintenance, general merchandise and other essentials. And this 60% of our tenant base being essential services increases to 70% for the markets outside the Greater-VECTOM area, where our occupancy rates are even higher. In these smaller markets, our shopping centers are often the essential service hub of the area. And in all cases, anchored by a Walmart store. With the pandemic and the lockdowns, early indicators are that the demand for housing and therefore, shopping in these less urban markets is increasing. As people consider leaving the urban areas for the suburbs. This is good for our shopping centers and further enhances the opportunities to intensify on our existing lands in those markets.Two, Walmart, which anchors 75% of our properties and represents 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. As we highlighted previously, Walmart 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. 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. We are fortunate to have opened in the fourth quarter in Vaughan a new Walmart prototype store as part of the SmartVMC store relocation and a first of its kind in Canada, which includes a 10,000 square foot e-commerce omnichannel fulfillment center, and a drive through pickup facility. It will fulfill as many as 8x the online orders of an average Walmart store. Three, virtually all of our revenues from shopping centers are from open format, outdoor centers, enabling customers to practice physical distancing while completing shopping for their everyday needs. Shoppers are more comfortable and feeling safer in this unenclosed format. And four, for Q4, our renewal experience, excluding anchors, was 6.9% and owing to the 7 Walmart stores renewing in that quarter for nearly 1 million square feet. We recognize the importance of small independent retailers to the Canadian economy. Our rent relief focus to date has been on supporting these nonessential, small independent retailers, which represents approximately 6% of our contracted rent. As you know, in 2020, the federal and provincial governments put in place the Canada Emergency Commercial Rent Assistant Program, otherwise known as CECRA, designed to assist certain tenants such that effectively, the tenant bears 25% of its rental costs, the landlord, 25% and the government, 50%. The program originally applied to April, May and June. After communicating with all of our smaller tenants, we applied for relief for all tenants that qualified, approximately 725. And thereafter, we extended such relief for the full 6 months. To us, this was an important step in the continuity of business for many of these smaller retailers. In Q4, the province of Québec announced the details of a plan to top-up the federal program for Québec based tenants, yielding a further $450,000 recovery for us. The federal program through the landlords ended in September and was replaced by the Canada Emergency Rent Subsidy Program which is assisting qualified tenants directly. 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 had discussions with these tenants about rent deferrals in a few limited cases, abatements. As the government shut down nonessential retailers for a second time, we have found ways to accommodate tenants with a real need when appropriate and justified, but also factoring in the reality of our own situation and of our unitholders. There have been announcements of several tenant restructurings during the COVID period, either through CCAA or bankruptcy filings, major names such as [ Moore's ], Comark, SAIL, Reitman’s, and Aldo. Collectively, all such tenants initially indicated the intention to close 66 units in our portfolio, approximately 415,000 square feet, which is less than 1/3 of the total units we have with these same tenants and representing 1.65% of gross revenue. The remaining 128 of the units with these same tenants will continue to operate. Generally speaking, these tenants have expressed a strong interest in remaining in our Walmart-anchored centers. Now 145,000 of the 415,000 square feet previously mentioned for closure were 2 sale units, Etobicoke near Sherway Gardens; and Vaughan, our 407 redevelopment site on the West side of Highway 400. Discussions with several interested retailers for both locations have taken place, including with food, medical and sporting good users. Ultimately, such use will undoubtedly convert to residential or other mixed uses over time as we obtain appropriate municipal permissions. But in the meantime, we will continue to maximize cash flow and value. With the remaining 270,000 square feet of vacancy from the balance of the COVID related bankruptcies, we will continue our routine work of filling up all of these with the best fit tenants for each center. As shown in our MD&A, cash recoveries from our tenants continues to improve. In our April update press release, we indicated cash recoveries for the month of April was 67%, as of now, we've collected nearly 84% of gross billings for the month of April, with cash received from tenants and including the CECRA recoveries. In fact, gross billings collected improved from that 84% for April and 96% by the end of Q3 and remaining in the 94% to 95% range in the fourth quarter. And to avoid any confusion, gross billings used in these calculations are based on rent rules, excluding tenants that closed through CCAA or the bankruptcy process. And now I will turn it over to Peter Sweeney.

[Peter E. Sweeney, Chief Financial Officer]

Thank you, Rudy, 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 the SmartCentres' 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. The strategic focus on long-term viability and growth have allowed us to manage through this period of uncertainty. In this regard, we note the following highlights for the year ended 2020 and as compared to the prior year. Number one, in keeping with our strategy to repay maturing mortgages and to grow our unencumbered pool of assets, unsecured debt in relation to total debt increased to 68% and from 63%, and our unencumbered pool of assets continued to grow, increasing by approximately $150 million, $5.8 billion as compared to the prior year. And we expect these metrics to continue to improve in the future. Number two, our BBB high credit rating from DBRS continues to attract debt capital at historically low interest rates for longer terms and in keeping with our strategy to take advantage of lower interest rate environments, pursuant to our refinancing activity during 2020, our weighted average interest rate for all debt continued to decrease and at year-end was 3.28% as compared to 3.55% for the prior year. And our weighted average term of debt was maintained at 5 years, and then lastly, #3, our interest coverage ratio, net of capitalized interest, was maintained at a very strong 3.7x level this in spite of the COVID-19 related provisions that were necessary, and our adjusted debt to adjusted EBITDA multiple ended the year at 8.5x, both metrics reflecting the business' strong and stable ability to fund its obligations even during these uncertain times. From a liquidity perspective, as we look to the immediate future and continue to manage through the current uncertain capital markets environment, in addition to the conservative debt metrics noted above, please also consider that at the end of the year, our liquidity position exceeded $1.5 billion, which is represented by over $794 million in cash on hand, our undrawn line of credit, which stands at $490 million and our $250 million available accordion feature. A portion of these funds are earmarked to fund the following: number one, January of 2021, we used $300 million of this cash to early redeem both Series M and Series Q debentures. Number two, we intend to use $323 million to repay our Series T debentures that mature in June of 2021. And then lastly, #3, we expect to repay approximately $50 million in maturing mortgages over the next 6 months. Note also that we continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place to ensure project completion of our various development initiatives. And we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments that are expected to begin construction this year. Including a large retirement home project in Ottawa, several apartment building projects in both Ontario and Québec and also a large townhouse project in Vaughan. In 2020, our liquidity position was further strengthened with proceeds received from the closing of over 1,100 units in the first 2 phases of our Transit City project. In aggregate, over the last 2 consecutive quarters, we have received over $53 million in proceeds from the closing of these first 2 phases. Similarly, in 2021, and we expect to recognize approximately $25 million in FFO from the closings of Transit City 3, and we expect this recurrence of FFO and cash flow from the closing of condominium and townhome developments to continue for many years to come. The cash flow generated from these closings further fortifies our liquidity position and also supports our distribution strategy. As Rudy has mentioned, we continue to experience substantial improvements in our collection levels in the fourth quarter, and our provisions for bad debts were significantly reduced from our experience in both the second and third quarters. In this regard, in addition to the $25.2 million in provisions that were taken in aggregate for the second and third quarters we provided for an additional $5.4 million in COVID-19 related provisions in the fourth quarter of 2020. These fourth quarter provisions represent approximately 35% and 55% of those taken in Q2 and Q3, respectively, and reflect the continued improvement in collection activity over the last 9 months. From a valuation perspective, the stability that we experienced in the third quarter continued into the fourth quarter with cap rates, discount rates and other modeling variables remaining status quo and resulting values remaining stable for our portfolio of income-producing property. Our development property portfolio experienced an $18 million IFRS loss in value during the fourth quarter that was principally driven by more conservative leasing assumptions being included in the valuation models or our retail development. After the valuation erosion experienced during the first 2 quarters of 2020, which was primarily reflective of additional vacant space and the additional time now expected to backfill such space in our portfolio, much of which resulted from the COVID-19 experience, the year's second half experience is directionally important because it suggests that the market has now stabilized. And based on the discussions that we have had with the appraisal community, we are not expecting any substantial further declines in property values for the first quarter of 2021. As we have said many times in the past, it is important to recognize 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. And with that, I'll turn the call back to Peter Forde.

[Peter Forde, President, CEO & Trustee]

Thanks, Peter. So to sum it up, a very interesting quarter and year. Over $45 million of profit in the last 2 quarters from condo closings at Transit City 1 and 2 in Vaughan, a rapidly improving rent collection picture, an accelerated mixed-use intensification, and development program with 56 projects underway -- sorry, 57 and a solid occupancy level of 97.3%. Prudent and strategic acquisitions adjacent to existing properties and/or with established or new partners and a strong focus on our balance sheet. And with that, we'll turn it back to the operator to coordinate us in addressing your questions.

[Operator]

[Operator Instructions] And currently, there are no one asking a question here. Okay. Yes, we do have the first person queuing up here. And yes, the first person is Sam Damiani from TD Securities.

[Sam Damiani, Director, Institutional Equity Research]

Wonder if you could just explain the total return swap that was announced in the press release.

[Mitchell Goldhar, Executive Chairman]

Yes. Well, as you know, we we have a lot of liquidity and cash. So we have made an arrangement made a deal with a major institution, institutional bank. Whereby we would be achieving a better return, better yield on our cash. It's for a period of time. So yes, the arrangement is -- it's a deal whereby we will -- the result will be that we will achieve something -- the intention is that we would achieve something closer to the yield of our units. And instead of what we're getting as a cash deposit into the bank. So it's just been -- we just paid the deal recently. So it's just early stages, but that's the reason for it. And it's ultimately the effectively what will be expected to happen.

[Sam Damiani, Director, Institutional Equity Research]

Okay. That's helpful. And does the REIT have the sort of unilateral right to sort of unwind it? Or how does it work? How does it sort of come to its conclusion?

[Rudy Gobin]

Yes. I mean, we'll give more detail on some of the mechanics of the deal. But suffice to say that we've -- we're satisfied with the deal. I mean, we saw with the risk reward and all the various scenarios. And so we're going to -- there's lots of details. We'll go into those, share them with you as everyone in the next quarter.

[Sam Damiani, Director, Institutional Equity Research]

Okay. All right. That's helpful. And just switching on to the development pipeline, which was expanded, including, obviously, the REITs portion as well. So there's -- there was a lot on the books to do over the next few years or even more now. Is capital recycling becoming more of a factor in your mind in terms of funding this activity over the next few years? Or how should we think about how that $3 billion is going to be funded?

[Mitchell Goldhar, Executive Chairman]

Yes. I mean, firstly, I mean, you should keep in mind that we don't have to do any of it. So we didn't buy this market and there's not a loud clock ticking, but we want to do it, and we fully intend on doing it, but we don't have to do it. And so yes, one of the -- in terms of the hierarchy of guiding principles of whether we proceed or not will be, our availability of whatever [ I can ] is required in capital requirements and availability of financing. And of course, our debt levels, which we're going to be very protective of. So -- but we do believe that through various programs, which may include bringing in a partner here and there end market, which will be a source of equity. Obviously, deposits on condo sales may even include the sale of a few properties. There'll be various and, of course, proceeds from closings of condos from previous years. So these will be, among others, sources of capital equity and there's the financing availability as well. So each and maybe as we closer and closer to being able to commencing any one of these places and the markets there, and we're happy with the returns. These are sort of levers that we can pull and will pull. If we need to protect those higher tier priorities?

[Sam Damiani, Director, Institutional Equity Research]

And my last question is just on occupancy, maybe, Rudy, how do you see the fourth quarter? Does that meet or exceed your expectations down just very slightly? And what are you thinking about for the next Q1 and Q2 generally, high level in terms of where occupancy could end up?

[Rudy Gobin]

Yes. I think given what was going on in the world in our markets, we were pleased with the outcome. We did have a reduced amount with the CCAA tenants, bankruptcy tenants that filed in Q2, it affected Q3 and Q4, obviously. Not a lot of tenants were ready to jump back in and start leasing space in Q3. But by Q4, there was an uptick. There was an uptick of a number of tenants. I think we did almost 200,000 square feet of leasing in Q4 alone to the tenants who wanted to expand their footprint, which was very good. People weren't looking at a re-lockdown now that the re-lockdown has locked down and now is reopened or will reopen shortly, that's that did bode well for us. So you saw that the returns in rents. So we had a high recovery rate in our rental structures. That was good, too. So I think the recovery is happening slowly, and we're looking at this market, and we're looking at the shutdowns. And hopefully, everything will continue to slowly improve, and we don't go into any more of these. So that we will see a little bit of an improvement into '21. I think the first quarter, Sam, as you know, is always a quarter where people, smaller struggling tenants at the beginning of the year, they make it through their Christmas holiday shopping season. And then there's always a little bit of fallout. In this case, there wasn't a big shopping season over the holidays. So I expect a smaller fallout, but nevertheless, a little bit of a fallout in Q1 and then an improvement over the balance of the year. So that's how I would think it would play out. Again, everything subject to the pandemic, reflecting the recovery that is currently reflecting over the last week or 2, which has been great. Is that okay, Sam? Might have lost Sam?

[Operator]

Yes. Sam, he left here, yes. So we do have another question here? The next question is from Brendon Abrams from Canaccord Genuity.

[Brendon Abrams, Analyst of Real Estate]

And there might be some issues with the operator and trying to get into line. So just to be aware of that. Maybe just on the distribution, some of your peers have revised that in the last few months and just given kind of the current environment and significant capital commitments required for the development pipeline going forward. Have there been any discussions on the distributions? And to what extent would things really have to change here to make an adjustment there.

[Peter Forde, President, CEO & Trustee]

Maybe on mute.

[Rudy Gobin]

Mitch, you might be on mute.

[Operator]

We might have lost Mitch here. I don't see him in the conference anymore. Yes, he's not here. He call back here. So you might have to call back here, yes.

[Rudy Gobin]

Peter, do you want to take that one?

[Peter Forde, President, CEO & Trustee]

Sure. So I think it's fair to say, and just to remind everyone, decisions on distributions ultimately are board level decisions. Clearly, management has recommendations, but ultimately, our Board will be responsible for making this decision. I think it's fair to say that several years ago, SmartCentres embarked upon the strategy to roll out a robust mixed-use development platform. That's not news to anybody on this call. And I think it's fair to say also that at that time, what we announced was that we thought that this new mixed-use initiative program would supplement growth from the existing core portfolio of shopping centers. And little did we know that there might come a time where we would go through a pandemic year where this mixed-use development platform would actually assist in allowing our distributions to be maintained. But that's effectively what has taken place in 2020, where this pipeline of new development initiatives actually got its start. And I think, as Mitch mentioned, we had 2 consecutive quarters. In Q3 and Q4 of distributions coming from Transit City. And clearly, those distributions have helped supplement the challenges that were experienced in the other part of our business. Having said that, it's also -- and this should also come as no surprise that we expect this condo and townhouse profit to be forthcoming now for many, many years to come. And so it's fair to say when our Board thinks about distribution levels, ultimately, they think about our payout ratio in relation to those contributions.

[Mitchell Goldhar, Executive Chairman]

I'm back.

[Peter Forde, President, CEO & Trustee]

Mitch is back. And clearly, at an 87% payout ratio, Brendon, our Board has determined for now that it wasn't prudent to -- for them to think about a distribution cut. Mitch, I'm just answering Brendon's question on distributions while you were off-line.

[Mitchell Goldhar, Executive Chairman]

Yes. I mean, you may have already covered it. But we can sustain our level of distributions as we see it based on -- I'm sure what Peter covered off there. And we're satisfied that the payout ratio is with our various programs, it is solid and conservative enough. So now, of course, we are not happy with the unit price and the yield, and we'll obviously layer in the consideration of what is the best use of our capital because it's just not -- we don't think that it's, I mean, you know everybody thinks their stock is low and you have the usual cliches, but it is a bit extreme to actually have closings and cash coming in. And visibility on the program and still be operating at the yield that we're operating at -- a unit price we're at as well as 0, basically value put on lands that are extremely valuable, I mean, could be sold. I mean, we just got an approval of 12 million square feet on a 700,000 square foot shopping center, an additional basically 11.3 million square feet on top of what we are -- valued at in Cambridge. Which is actually unbelievable master plan for -- it's a company in and of itself. That property is currently now zoned. And of course, it's valued based upon some multiple of our income on Cambridge. And that's true with VMC, which is zoned for millions of square feet. And by the way, I don't know whether everybody has figured out, I was meaning to emphasize that the condo profits from TC 1, 2, 3, 4 and 5 are substantial, but they are the result of sales per square foot less than what was being sold across the street at festival. So the latest condo sales are somewhere between $50 and $100 per square foot higher than our TC 5 sales we're at. And going forward, it is our intention to do it in-house. Hence the REIT's share will be 50%, not 25%, and that's just VMC. And so to factor the value, if we were to take all of what I just said on just a Transit City into the valuations of say the NAV alone, I would be adding 0 to our NAV because that's what's being allocated to that property. So we have so many of those properties that are currently zoned and imminent from generating cash flow. And generating cash flow, we can't ignore the fact that the market has had time to digest all this and are looking at -- slowly looking at payout ratios of leasing space, even though we are well into a significant transformation, a very profitable one. So that does not go ignored, but if it was just strictly on the basis of our ability to sustain those payout ratios and not an examination of the best use of our capital, then we would stick by our statement that we intend on maintaining distributions.

[Brendon Abrams, Analyst of Real Estate]

Okay. That's helpful. And maybe just before I turn it over, just on that last point about the disconnect between the unit price and the value that the Board and management sees in the REIT. I know insiders have acquired the stock quite significantly in the last -- over the last year. Would the REIT consider using the NCIB to purchase units? I know there's a lot of capital allocation opportunities and decisions. But would that be something to be considered for 2021?

[Mitchell Goldhar, Executive Chairman]

We -- we passed the NCIB a year ago, I think. So obviously keep all our options open. Did just make a deal with the institution on potential strategy to use some of our cash that we're [ thresh ] it's new, but at the moment we're satisfied with. So we're looking at all these things for sure.

[Operator]

[Operator Instructions] Currently, we do not have any other questions.

[Peter Forde, President, CEO & Trustee]

Operator, if you could just give it a minute.

[Operator]

We have one person queue up here. We're just getting the name. I won't be long here. We'll take a minute.

[Peter Forde, President, CEO & Trustee]

You know what operator, would you remind everyone on the call what the routing instructions are to place a call? There seems to be maybe some confusion. So maybe you could just remind them as to whether you have to press to get a question, please.

[Operator]

Yes, sure. [Operator Instructions] So the next question is from Tal Woolley from NBC.

[Tal Woolley, Research Analyst]

Guys, I made it. I'm excited.

[Peter Forde, President, CEO & Trustee]

Just skill testing thing we do here.

[Mitchell Goldhar, Executive Chairman]

You've got to really really want to ask a question.

[Tal Woolley, Research Analyst]

Where to start. Just -- I know you'll sort of unveil a little bit more about the total [ worth turn swap ] choice. Just a couple of quick questions. Peter, if we're thinking about this, this just means like we should be thinking about picking up probably our interest income forecast a little bit going forward as long as this is on the book?

[Peter E. Sweeney, Chief Financial Officer]

I don't think it's interest income per se. We're still working, Tal, on the accounting elements of this arrangement because obviously, it's new and it's sort of pioneering in some respects from an accounting point of view. So as Mitch mentioned, I think we'll be able to provide a little more clarity in our Q1 disclosure on what to expect for this going forward, Tal. So it's really, I think, too early to say.

[Tal Woolley, Research Analyst]

Okay. TBA. Perfect. Self-storage, of the sites that you have sort of being under approval right now, how many of the proposed sites are on existing SmartCentres' retail land? Or are they all on sort of like adjacent or new lands?

[Peter E. Sweeney, Chief Financial Officer]

Peter?

[Peter Forde, President, CEO & Trustee]

Yes. I mean, they're all on lands that were adjacent or part of our shopping center that at one-time would have intended to be retail but are now -- we are now doing the self-storage instead of retail. But they -- I'm not thinking that one -- other than the one we bought strategically with our partner on DuPont Street, Downtown, all the other ones are on existing shopping center lands that we already owned or in one case, we bought some land across the street from a shopping center. I guess, that we -- yes, in Aurora. But other than that, they're all on part of our shopping centers.

[Peter E. Sweeney, Chief Financial Officer]

Yes, that's correct, yes.

[Tal Woolley, Research Analyst]

Okay. And then I just wanted to ask a question too about sort of the type of tenant that -- like my sort of recollection of how some of your smaller tenants are -- non anchor tenants got into SmartCentres properties is that you had like a lot of mid-market apparel retailers, like the Reitman's, the Comarks of the world that you mentioned earlier, who in the late '90s and early [ odds ]. Saw the rents at SmartCentres as being far more affordable and that Walmart was driving a ton of traffic, right, versus some of the more traditional department store anchors. And at Walmart traffic is clearly going to continue into the future. But with some of these guys retrenching, like who's the right tenant for the future for those 4,000 and 5,000 square foot boxes that were sort of formerly occupied by the apparel guys? Because you guys have got a tremendously long way with other value tenants like Dollarama. I'm just wondering if you think you see as like the right replacements for those apparel or those apparel tenants.

[Mitchell Goldhar, Executive Chairman]

Well, you named a couple right there. I mean, there's still -- it's more Dollaramas of the world. We do a lot of -- there's not in the 5,000-foot range, but we do a lot. We're in negotiation with a lot of potentially new TGX concepts for example. So there's been some kind of interesting emergence of new restaurant concepts that build kitchens that supply multiple actual multiple restaurant chain in different banners. We've been leasing to quite a bit [ action ] lately. So there's other discount concepts that are replacing. Reitman's was never eased -- Reitman's as an example, they're never really a discounter. They just found a way to improve their margins by getting into the malls. But they're partly also being replaced by some new discount concepts that are very suitable, compatible with our formats. Rudy, I'm sure you also have some other specific examples because I know we're doing quite a bit of leasing in that space. Like a cannabis, by the way, cannabis is another area. When something is busting, something else is booming and cannabis is quite -- is booming quite a bit actually right now. Go ahead, Rudy.

[Rudy Gobin]

Yes. No. We looked at in the last half of the fourth quarter, a big uptick in calls from tenants want to take advantage of the space. So we're seeing -- we're trying to put in something, let's say, that would fit very well with each of those communities, not just fill a space because somebody calls to fill a space. So we have everything from daycare, wanting to come back into our centers. Because the day care business is required. People want -- they want it near retail, medical, not just medical, dental, not just medical doctors, but labs are asking for a lot of our locations. They want to put in labs. What I'm going to call small fitness the orange theory, F45, they don't think that's going away. They may think the bigger fitness may be slowing down, but the small face-to-face dedicated fitness thinks that they will be fine. Smaller pharmacy are calling us up, saying they want to open up a small pharmacy. Obviously, Mitch mentioned fast food. The fast food business, some of them were doing quite well for takeout. So they are interested not to sit down restaurant types. Obviously, liquor, beer, where all still doing new deals with us. We had a number of, I'm going to call it, small financial firms, who -- not the schedule A banks but small other financial firms and then you had a bunch of office, I'm going to call it, the retail office type offices like brokerages. They want to be in a shopping center. They don't want to be in an office building if you're a brokerage. So we had a lot of different uses that were typically not wouldn't want a big part of a shopping center and something -- and we're also now attracting the stronger tenants who might have been in light industrial who want to move into the mainstream retail. So that's coming in as well. So we're looking at all of the different kinds of uses. Keep in mind, we were never big on what you call fashion retail. And our fashion retail, like the Reitman's you mentioned, were only in some of our bigger centers and some of them had a dream of -- well, I'm just going to be where Walmart is, and that has worked out very well for them, by the way. And our Reitman's, say 60 of those locations remained open. And because they're in the Walmart anchored site, and they're carrying on. So not a large number of the tenants that filed actually closed stores in our locations. If you think of, for example, Moore's. Moore's had 23 locations in our portfolio, they literally only closed four, every other one is operating and in a Walmart anchored site. So we have a lot of uses coming in, and we like the traffic we're seeing. So we're very pleased by what's transpiring right now.

[Tal Woolley, Research Analyst]

And I guess just my last question would be, you guys have some malls yourself. But there's obviously been a lot of discussion concern around being closed malls. We're seeing some transactions being done even on regional malls now. And do you feel like that there's like -- that asset class is going to bounce back? Or do we potentially have a concern with like malls being a bit of a weight on the overall market going forward? Like now that we're sort of maybe getting closer to the end of the pandemic. Is that going to be a more competitive option? Or is it still going to be sort of like the premium rent to what you would be offering in the open-air centers.

[Peter Forde, President, CEO & Trustee]

Mitch, do you want to take that one?

[Mitchell Goldhar, Executive Chairman]

Yes. I'm sorry, what was just happen just kind of sitting in. What was -- I caught the last part of that question. What was...

[Tal Woolley, Research Analyst]

Yes. I'm just trying to get a sense of how do you feel about malls right now like -- now that we're getting through the end of the pandemic? Because I'm just wondering, like we all obviously had concerns about how malls will fare pre and post pandemic and whether it could do these properties need to restructure? And could they become a little bit more competitive in terms of rent with open air centers?

[Operator]

Who are we looking for?

[Rudy Gobin]

Mitch.

[Peter E. Sweeney, Chief Financial Officer]

Did we lose him?

[Operator]

Who are we looking for?

[Rudy Gobin]

Mitch.

[Peter Forde, President, CEO & Trustee]

Did we lose him again?

[Peter E. Sweeney, Chief Financial Officer]

Probably.

[Operator]

We -- at some point, we had Mitch on 2 lines. And yes, now he's for sure gone here. I think he's trying to call back, it won't be long here.

[Tal Woolley, Research Analyst]

Okay. It's okay, guys, we can follow-up later. It's probably going to just do some [indiscernible] call.

[Peter Forde, President, CEO & Trustee]

But I mean, I'll just say, first of all, we do not have many malls, as you know, Tal. And I think obviously, the top regional malls are going to -- will likely be doing very well once we get out of the pandemic, but I think this medium to smaller malls in smaller communities are likely going to continue to struggle as they were before the pandemic. So I mean, I don't know whether that -- I have no idea if that's what Mitch was going to say, but that would be my view.

[Operator]

And we do have another question here.

[Peter Forde, President, CEO & Trustee]

One second before we hear this question, can you just remind maybe some of the other analysts on the call, again, just give them instructions on how to ask the questions, please?

[Mitchell Goldhar, Executive Chairman]

I got disconnected again.

[Operator]

Yes. Yes. Mitch is back, yes.

[Mitchell Goldhar, Executive Chairman]

You guys -- I'm sure you got the -- gist to the answer, but you guys -- technology is trading at 15x and it doesn't work and never mind. Okay. I'm sure you got to gist of the answer. I don't think that our competitors are suddenly going to be in closed malls. But I mean, so I mean, I think there's going to be a lot of changes within closed malls, for sure, but I don't think that's going to be a direct -- a suddenly become a new type of competitor. I don't see that.

[Operator]

[Operator Instructions] And the next question is from Michael Markidis, private investor.

[Unknown Analyst]

Hi, am I on?

[Peter Forde, President, CEO & Trustee]

You are, Michael, yes.

[Unknown Analyst]

So.So hello from Greece. And congratulations on the progress on your redevelopment pipeline in the past year. My question is, in the past year, there was an increase of $8.2 million in the general and administrative expenses. I would like a bit of -- I would like you to elaborate on what that included. And whether it is here to stay, these expenses or whether they are expected to go down this year and in the future?

[Mitchell Goldhar, Executive Chairman]

I guess, Peter or Peter, maybe you want to.

[Peter Forde, President, CEO & Trustee]

Yes, I can -- it's Peter Forde, I'll start and Peter Sweeney, you'll jump and add if I miss something. But basically, some of it is salaries and benefits, which is partly, obviously, normal annual increases. But more importantly, we did add some staff during the year. I think probably about 15 net on average addition during the year compared to the previous year. A lot of that would have been, I guess, development related activities or people. We did have a lot of legal fees that we incurred during 2020 as compared to 2019. And then we did incur some additional other expenses, IT and so on. So to answer your question about how do I see it in terms of going forward? I would say about half of that is probably something that would continue and half would not be, meaning especially the legal fees would not be something it was some special things that were going on in 2020 that when I would not -- which some related to COVID, some related to the special transactions that we completed in 2020, and I would not expect to -- we'd be incurring again.

[Peter E. Sweeney, Chief Financial Officer]

Yes. I think, Peter, the only other thing that we might want to add is that in that G&A number that a $8 million year-over-year increase. That does include $1.8 million of costs, G&A costs attributable to Transit City. And so from an accounting point of view, those costs would have been capitalized until the project's completion, which took places we -- as everyone knows now in Q3 and 4. And so we would have had to take those $1.8 million of G&A costs into account in 2020. So that amplified that year-over-year increase as well. So at least $1.8 million of that $8 million is attributable to the closing of Transit City 1 and 2.

[Operator]

[Operator Instructions] Currently, we do not have any other questions.

[Peter Forde, President, CEO & Trustee]

Okay. I guess, given there are no further questions, I just want to thank everybody for taking the time to participate in our fourth quarter to 2020 call. And everyone, please continue to stay safe. Thank you.

[Operator]

Ladies and gentlemen, this concludes the SmartCentres REIT quarter four 2020 conference call. Thank you for your participation, and have a nice day.