SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Analysis

Stable Results with Strategic Dispositions Planned

In Q4 2023, the company reported a modest 4% rise in FFO per unit to $0.59, buoyed by rental income and condominium profits, yet affected by higher interest costs. Adjusted FFO was $0.51 per unit after excluding gains. Net operating income (NOI) remained stable with a slight decline, but same-property NOI grew by 1.7%. Occupancy rates were strong at 98.5%, and the AFFO payout ratio improved y-o-y to 89.4%. The unencumbered asset pool grew slightly to $9.2 billion, with stable unsecured debt levels. A fair value loss was recognized due to cap rate adjustments in investment properties. The company has ample liquidity over $523 million and maintains a conservative debt structure, with 80% at fixed rates. Management is open to strategic dispositions, given favorable market conditions. Credit losses normalized post-COVID at $1.2 million for the quarter and miscellaneous revenues increased, mainly from premium outlet percentage rents and parking.

Overview of SmartCentres REIT

SmartCentres REIT's latest earnings call began with their executive team setting out to discuss the fourth quarter and full-year 2023 results. The team, featuring executive chair and CEO Mitch Goldhar, along with Peter Slan, the CFO, and EVP Rudy Gobin, focused on operational highlights, financial outcomes, and forward-looking developments.

Operational Excellence with Stable Cash Flows

The call painted a picture of strong operational stability. The REIT sustained a high occupancy rate of 98.5% throughout the second half of the year, a notable achievement against the backdrop of economic turbulence. The successful mix of offense and defense in their leasing activities was stressed, along with cash collection exceeding 99%. Rudy Gobin highlighted robust retailer demand for high-quality spaces and the continued importance of Walmart as an anchor tenant.

Financial Fortitude and Development Opportunities

The financial narrative underscored the significance of their conservative balance sheet strategy and ample liquidity, with over $800 million available. Mitch Goldhar outlined the development initiatives, including condo unit closings and construction of various mixed-use projects. The REIT reported a net profit of $2.8 million from the sale of condominium units. Moreover, adjusted debt to adjusted EBITDA showed improvement, signalling a stable financial position.

Mixed-Use Development and Tenant Growth

The company has been active in mixed-use development, with over 7.8 million square feet of permissions achieved in the year. This focus on leveraging existing land for value addition was reiterated, suggesting a strong potential for future growth. Tenants like Canadian Tire and Loblaws were mentioned as vital players actively seeking expansion, reinforcing the attractiveness of SmartCentres properties.

Meticulous Approach to Financial Results

Peter Slan delivered a meticulous breakdown of the REIT's financials, reporting a funds from operations (FFO) per fully diluted unit increase of 4% from the same quarter last year. This was aided by rising rents and the inclusion of profits from condos and other properties, though offset by amped interest costs. Net operating income stayed relatively stable, with a slight decrease, suggesting a solid foundation for the REIT's ongoing operations.

Portfolio Valuation and Liquidity

The portfolio valuation faced a fair value loss attributed to cap rate adjustments. Still, the REIT expressed comfort with current liquidity, having more than $523 million undrawn and a prudently structured debt ladder. This positions SmartCentres well to handle future developments and underscores their prudent financial management.

Q&A: Rental Gains and Lease-Up Expectations

During the question-and-answer session, executives responded to inquiries regarding rental income from the premium outlets, which, along with parking revenue, is expected to remain robust. They also anticipated the full leasing of their Industrial Investment Ontario property amid strong market interest. There was a discussion about floating rate debt exposure, which was predominantly associated with construction lines and would be addressed with takeout financing upon project completion.

Closing Remarks and Forward Outlook

The call concluded with SmartCentres maintaining vigilance on market trends, openness to strategic dispositions, and a cautiously optimistic outlook on same-property net operating income for 2024, potentially matching or even exceeding the past year's growth.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, ladies and gentlemen. Welcome to the SmartCentres REIT Q4 2023 Conference Call. I would like to introduce Mr. Peter Slan. Please go ahead.

[Peter Slan, executive]

Thank you, and good afternoon, and welcome to our fourth quarter and year-end 2023 results call. I'm Peter Slan, Chief Financial Officer; I'm joined on today's call by Mitch Goldhar, SmartCentres' Executive Chair and CEO; and by Rudy Gobin, our Executive Vice President of Portfolio Management and Investments. We will begin today's call with some comments from Mitch. Rudy will then cover some operational items, and I will review our financial results. We would then be pleased to take your questions.

Just before I turn the call over to Mitch, I would like to refer you specifically to the cautionary language about forward-looking information, which can be found at the front of our MD&A materials. This also applies to comments any of the speakers make this afternoon. Mitch, over to you.

[Mitchell Goldhar, executive]

Good afternoon, everyone, and welcome to our fourth quarter call. I'm pleased to report strong overall results for Q4, building on the momentum of the 3 previous quarters. Before I get into the details, a quick reminder for those who may be newer to SmartCentres. At 35 million square feet and 100 Walmart strong, our commitment to value and convenience has never wavered. Starting from our first newbuild Walmart in South Barrie, which is now celebrating its 30th anniversary.

This store and shopping center continues to perform above expectations. To this day, it was busy on opening day in a snowstorm like today, and it has been busy every day for the last 30 years with no end in sight. Portfolio occupancy was maintained at a leading 98.5% leased throughout all of Q3 and Q4 and with over 99% cash collections, a well-balanced combination of offense and defense. This portfolio is located in the midst of established residential communities across the country and in every province with a wide tenant mix, strong covenant tenants who provide essential products and services in every one of our locations.

Leasing continues to strengthen with existing and new retailers continuing to demand more locations or expand in various growing markets. New build retail demand from the likes of TJX, Canadian Tire, Banners, Loblaws Banners, Sobeys Banners to name just a few, is also growing in both large and small markets. Tenant retention remains strong and renewal rates are up just over 5%, reflecting the demand of local communities and the need for well-located physical retail. More on leasing in a minute from Rudy.

Built on this stable cash flow, cash-generating platform, we continue to construct on the significant mixed-use permissions already in place. Here are a few highlights. During the quarter, we completed the balance of the Transit City 4 and 5 condos closing on the remaining 106 units for a profit of $2.7 million. We also continued our site work for our 40-story ArtWalk project comprising 320 sold-out units right here in the VMC.

Throughout -- sorry, through our SmartLiving brand, our 458-unit Millway apartment rental project here in the VMC was fully completed during Q4 and with the stage occupancy during the year, we are now at 65% leased, 60% leased at year-end, which is on time and slightly ahead on budget. Construction of our 174 Vaughan Northwest Town Homes with our partner is progressing well, with closings scheduled to commence in Q2 2024.

In lease side, we continue with our site work for a 224,000 square foot retail center, comprised primarily of a 200,000 square foot Canadian Tire flagship lease. In Ottawa, we are progressing with our new partner on our planned seniors, residential and apartment buildings, totaling 200 -- sorry, 402 units, which was previously delayed as a result of a prior partner.

And lastly, we are under construction on 6 self-storage units at various stages of completion and totals near 900,000 square feet at 100% as outlined in our MD&A.

As you can see, even in this more complex market, we remain selectively active, making use of our skills and dexterity, bringing projects forward based on their merits and metrics and only when financing is available. In the meantime, we work actively as always, seeking additional uses throughout the portfolio. In 2023, we achieved over 7.8 million square feet of mixed-use permissions compared to the 6.1 million achieved in 2022.

We remain committed to unlocking the tremendous value embedded in the lands we already own. You can find a lot more details in the residential and other mixed-use development initiatives section in our MD&A.

On the financial side, Peter will provide a full update in a minute, but let me emphasize a couple of pertinent items. Maintaining our conservative balance sheet remains a high priority for us along with maintaining a significant unencumbered asset pool, which now stands at $9.2 billion. Our debt level continues to recede and liquidity remains in excess of $800 million.

On a final note, my thanks and appreciation to our great team of associates and partners and, of course, our tenants. For your commitment and dedication to what SmartCentres has always stood for and continues to stand for which is bringing value to Canadian communities. With that, I will pass the call over to Rudy.

[Rudy Gobin, executive]

Thanks, Mitch, and good afternoon, everyone. The fourth quarter continued to reflect a doubling down on demand by retailers for high-quality, high-traffic space. The dominance of a Walmart-anchor remains incomparable to any other given its combination of mass merchandise, electronics, full grocery, pharmacy and the purchasing power of a global retailer.

The momentum in demand by retailers continued building throughout 2023, culminating with an industry-leading 98.5% leased portfolio, as Mitch just mentioned. Competition for small amounts of remaining vacant space continues, driving rents upwards steadily, demand surge from our existing portfolio of retailers as well as from new entrants; our TJX, Canadian Tire Banners, pharmacy, pet stores, banks, dollar stores, liquor, QSRs and online grocers; all remaining very active wanting to secure any remaining bay space.

And given our proximity to residential, we're also hearing from a number of new interested parties in complementary categories such as entertainment, gaming, logistics, health and personal care. Demand for new build retail is also on the rise and for significant sizes and in some markets that may surprise you, like Alliston, Carleton Place, London, Orleans and Bracebridge. While these are smaller markets, our centers dominate in most of these communities and are typically 100% leased.

And as consumers continue to battle inflation, a great sense of comfort comes from knowing where prices are reliably low, quality meets their expectations and with little substitute for a highly convenient location. For SmartCentres, the strategy remains clear in delivering value and convenience to every community in strengthening our shopping centers, while preparing the way to city centers with our intensification program utilizing lands we already own within our centers.

With tenant retention in the 85% to 90% range over the past few years, 2023 was no different, and renewal rents in the quarter came in at an average of 5.3%, excluding anchors. For some specifics, it's not unusual to see 1 or 2 tenant restructurings after the Christmas shopping season, and this year was no different. This was -- this year [indiscernible] filed for creditor protection for their 66 locations. We have 6 of these and just 2 are being affected, to source, close 6 locations but all with small footprints and easily releasable.

And finally, that way filing the quarter and subsequent to year-end closing its doors in their warehouse, we have no retail store locations. But nevertheless, it was disappointing to see this retailer closing its doors. For our newly built industrial warehouse with 40-foot clear ceilings, we expect re-leasing in short order and at better rents.

As you know, in November 2022, Lowe's Canada was sold with the expectation of rebranding all locations to Rona by late 2024. Our location in Vaughan closed and while the site to see, it does unlock significant value for future mixed-use developments while giving us the flexibility to structure leases the way we need and to generate some short-term income in the intervening years. We have good interest in the space, especially when you consider what's going on in the VMC. But we'll be taking care to maintain the flexibility we need to execute our intensification plan over time.

Grocers such as Loblaws, Sobeys and Metro are all very active, wanting to add new stores to expand their customer reach. I don't need to tell you the importance of having another full-line grocer on our existing sites or a new site to be developed, which we are also looking at. Dollarama, Michaels, Mark, Golf Town, TGX have all signed new deals in the quarter, solidifying their position with us in many mid-markets.

Large tenants like Canadian Tire and their banners are selectively expanding some of their stores, which affords us the opportunity to shuffle the CRE deck a bit, one of the great advantages of the open format design by their SmartCentres. As you can tell, relationships matter and strong national relationships matter even more. So we are very proud that we are able to help our tenants grow and innovate their business with more locations and lease flexibility. Our premium outlets continue to dominate in its category and exceed even our partners' expectations. We are 100% leased with traffic and sales continuing to improve.

Growth in QSR concepts continue with demand from U.S. concepts in the chicken pizza and Hamburger categories such as Chick-fil-a and Chipotle, all driving higher rents. Our national platform offers a unique opportunity for any new entrants looking for a coast-to-coast or regional presence. And lastly, while NOI was down modestly in Q4 over Q3, most of this change was a result of year-end final CAM billings, which gets adjusted in the CAM installment rates for new tenants -- for tenants in the new year.

All in all, 2023 operational results delivered on every metric; occupancy, NOI, cash collections, renewals and improving array of tenants serving the everyday needs of each community, embedding value for the long term. As we continue to see all of this culminates in a stable and growing cash flows, we expect for years to come. With that, I'll now turn it over to Peter.

[Peter Slan, executive]

Thanks, Rudy. The financial results for the fourth quarter and full year once again reflect the strong performance in our core retail business, and the continued contribution from our mixed-use development portfolio through the final closings at Transit City 4 and Transit City 5 condo towers in the Vaughan Metropolitan Center.

For the 3 months ended December 31, 2023, FFO per fully diluted unit was $0.59, an increase of 4% from a comparable quarter last year and an increase of 7% from last quarter. These results include $2.7 million or $0.01 per unit of profits from the closing of the remaining 106 condominium units at Transit City 4 and 5. Higher rental income was driven by increases in base rent, primarily due to contractual rental step-ups, lease-up activity, an increase in percentage rents and rents from self-storage and apartment properties, all partially offset by higher interest costs.

Our FFO also includes a gain on our total return swap of $0.07 per unit. As a result, FFO with adjustments, which excludes both the condo profits and the TRS gain, was $0.51 per fully diluted unit for the fourth quarter.

Net operating income for the quarter remained essentially flat with a marginal decline of $0.7 million or half of 1 percentage point from the same quarter last year. Including our equity accounted investments, however, NOI increased by $2.7 million or 2%, largely due to condo closing profits, higher rental renewal rates and continued strong performance across our shopping center portfolio.

Same-property NOI, including equity accounted investments, increased by $2.3 million or 1.7% compared to the same period in 2022. G&A costs were somewhat elevated compared to Q3 due to some development costs that we wrote off during the quarter amounting to approximately $0.01 per unit of FFO.

Leasing activity remained strong during the quarter. Our occupancy level, including committed leases was 98.5% at the end of Q4, unchanged from the prior quarter and up 50 basis points from a year earlier. In terms of distributions, we maintained our distribution during the quarter at an annualized rate of $1.85 per unit. The payout ratio to AFFO for the 3 months ended December 31, 2023, was 89.4%, an improvement from 95.7% for the same period a year earlier.

During the quarter, as Mitch mentioned earlier, we closed on the sale of the remaining 106 condominium units at Transit City 4 and 5 for gross proceeds at the REIT's 25% share of $13.2 million and net profit of $2.8 million. For the full year, we have booked net profits on these 2 condo towers of $25.5 million on gross revenues of $136 million, resulting in a margin of 18.8%.

Adjusted debt to adjusted EBITDA was 9.6x in Q4, representing continued modest improvement from 10.3x in the prior year and 9.7x last quarter. The improvement was as a result of both growth in EBITDA and the repayment of approximately $87 million of debt during the quarter, including repayments under equity accounted investments. Our debt to aggregate assets ratio was 43.1% at the end of the quarter, a 50 basis point improvement compared to the same period a year earlier. However, as construction proceeds on some of our larger development projects and condo profits fall off from our trailing EBITDA levels, we do expect our leverage ratio will begin to grow modestly.

Our unencumbered asset pool increased to $9.2 billion in Q4 from $9.1 billion last quarter. Our unsecured debt, including our share of equity accounted investments, was $4.3 billion, virtually unchanged from the prior quarter and represents approximately 81% of our total debt of $5.3 billion.

During the quarter, we recognized a fair value loss on our investment portfolio of $14.9 million. This adjustment was mainly attributable to a cap rate increase of 25 basis points for our premium outlet properties, partially offset by rising rental rates and increased leasing activity. In addition, we recognized a fair value loss on our EAI properties of $13 million, which was attributable to a cap rate increase of 50 basis points for our office properties in the VMC.

From a liquidity perspective, we are very comfortable with our current liquidity position, with more than $523 million of undrawn liquidity as of December 31, including our share of equity accounted investments and cash on hand, but excluding any accordion features. The weighted average term to maturity of our debt, including debt on equity accounted investments is 3.6 years. Our weighted average interest rate was 4.15%, a slight increase of 2 basis points from the prior quarter. Our debt ladder remains conservatively structured with the most significant aggregate maturities are in 2025 and 2027. Approximately 80% of our debt is at fixed interest rates.

Just before we open the call up to questions, I want to touch briefly on our development projects that are underway. Once again, we have updated our new MD&A disclosure focusing on those development projects that are currently under construction. You can find this on Page 17 of our MD&A materials, and you will see there are currently 12 projects under construction, down from 13 last quarter. There were 2 additional projects that commenced this quarter and 3 projects that were completed. The 2 new ones are self-storage projects, one on Jane Street in Toronto, the other in Dorval, Quebec. The projects that came off the list were the Millway purpose-built residential rental project and the Transit City 4 and 5 condo projects, all in the VMC.

The REIT's share of the total capital cost on these 12 projects is approximately $578 million, with the estimated cost to complete standing at $382 million. We expect to see initial closings on the first phase of the Vaughan townhouse development in the first half of 2024. And with that, we would be pleased to take your questions.

Operator, can we have the first question on the line, please?

[Operator]

Yes, of course. First question comes from Mario Saric from Scotia Capital. Please go ahead, Mario.

[Mario Saric, analyst]

So just a couple really quickly, maybe first for Rudy. With occupancy essentially at a max 98.5%. How should we think about 2024, and expected lease from those spreads, both including and excluding anchors?

[Rudy Gobin, executive]

Mario, can you repeat that? I didn't hear the end part of that.

[Mario Saric, analyst]

Sorry, Rudy. I'm just asking, given occupancy is essentially out of maximum kind of leading within the sector, what is your expectation for '24 lease renewal spreads, both including and excluding anchors?

[Rudy Gobin, executive]

Yes. We don't expect it to be any lower I'll say it this way. We don't expect it to be any lower, Mario, than we have found in '23, given that we have fewer less space to lease and demand is still remaining strong. So we expect the spreads to be a little bit better than we're seeing right now. And you see in the spreads that we've had in the last quarter, and it's approved in Q4. So we do expect to see some uptick on that. Where you see the tens coming in from south of the border, there will be even bigger spreads in that area.

[Mario Saric, analyst]

Got it. Okay. And then you also spent a bit of time kind of running out some of the tenant failures in the broader market post the holiday season. When you look out into '24 outside of those tenants, which just seems to have very minimal exposure to, are there any larger leases from exploration standpoint that may not renew or are you pretty comfortable with kind of the 98.5% occupancy kind of holding through '24?

[Rudy Gobin, executive]

I mean there are 2 things. One is, no, we keep a close eye on what we call at-risk tenants, and we talked about that on our last call a little bit, and we talked about a couple of tenants that we were concerned about. So no, I think now that we have gone through the year-end, we are not expecting any further deterioration in that for this year because, again, that normally happens right after the Christmas holidays.

So that is looking very positive. And we did have time for many, many years where we were at 99% occupied, if you recall. So we are not planning on stopping at 98.5% occupancy. We're carrying on leasing and talking to all of our tenants new and existing in our portfolio.

[Mario Saric, analyst]

Okay. That's helpful. A quick financial question for Peter. Perhaps, the floating rate debt as a percentage of total debt remains or 18% to 20%. I think you mentioned 20% in your prepared remarks. While it's perhaps delayed a couple of months, the expectation is still for the short end of the curve to come down over the summer. So is staying a 20% conscious decision given the expected lower rates later this year? Or is it more kind of structural in nature?

[Peter Slan, executive]

I would say it's conscious, yes.

[Mario Saric, analyst]

Okay. So where do you think that 20% to evolve by the end of the year?

[Peter Slan, executive]

Well, a portion of that floating rate debt is used for our construction facilities. And we have just embarked on a couple of new large projects, the ArtWalk project here in VMC, the Canadian Tire project and lease side. And so as those ramp up, we'll continue to see the incurrence of floating rate debt. I would expect the ratio to remain relatively stable over the course of the year, though, Mario.

[Operator]

All right. Next question comes from Matt Kornack from National Bank Financial. Please go ahead, Matt.

[Matt Kornack, analyst]

Just quickly, I have the benefit of being new to this name in a quarter that's got, I think, a fair bit of onetime adjustments. But can you give us a sense as to what the impact of that CAM expense this quarter would have been and how it would kind of revert back in Q1?

[Rudy Gobin, executive]

I don't have the exact number in front of me, but that would probably be a couple of pennies in terms of the impact on the NOI. And again, that is not going to be a recurring item because we adjust for that after we do our final year-end billings in the CAM installments for 2024 that we send to tenants.

[Matt Kornack, analyst]

Okay. And I think there was a $4 million adjustment on the same property number and part of it would have related to bad debt expense versus recoveries year-over-year, but would that also be in that $4 million? Or is that something in addition to the $4 million?

[Rudy Gobin, executive]

That's part of it. That is exactly part of it, and there would be a little bit of provision ECL that's also included in there, yes.

[Matt Kornack, analyst]

Okay. So if I add that number back, I should get to something that is stable, I guess.

[Rudy Gobin, executive]

Yes. Okay.

[Matt Kornack, analyst]

Okay. No, that's helpful. And then the other adjustments during the quarter was, I think, with regards to Millway because it's 60% occupied at year-end, presumably a little less so during the quarter. Did it generate any NOI? Or was it a net negative because you had costs but not necessarily enough rent to offset them? And how much interest would you have decapitalized relative to that project?

[Rudy Gobin, executive]

It was essentially a breakeven, Matt, during the quarter.

[Matt Kornack, analyst]

Okay. So we'll get the incremental NOI contribution. And I guess is lease-up expected winter is usually not the biggest lease but kind of by midyear 2024?

[Mitchell Goldhar, executive]

We're currently leasing at an average probably of it's between 5 and 10 units a week. That's as much as we can actually do. So 10 a week -- it's like 20, I guess it's like 30 weeks, maybe 30 weeks from now. So most of the year.

[Matt Kornack, analyst]

Okay. That's helpful. And then lastly, just with regards to G&A and the capitalized amount to the development portfolio. I know you used to disclose it, but will that impact future G&A if you are less active on development? Or is that number kind of steady this year and into 2024 in terms of the capitalized amount?

[Mitchell Goldhar, executive]

Development activity isn't directly proportion in relation to development people because a lot of our people are on the land use side when it comes to the development, the actual physical construction. I don't think we see reduction in overheads as it relates to that. Peter, do you want to add to that?

[Peter Slan, executive]

As it relates to this quarter, in particular, Matt, Q4, the amount of G&A did include a onetime write-off of about $1.7 million, $1.8 million relating to development activities that we're no longer pursuing. So that's not recurring.

[Matt Kornack, analyst]

Okay. So that's almost $5 million of, I guess, service and other revenue. I guess, I don't know that -- sorry, I'm in the wrong line item, $10.5 million was higher than what we had seen historically on G&A. Okay. So we can back out $1.7 million from that as well to get to a stabilized figure?

[Peter Slan, executive]

Correct. It's about $0.01 a share of FFO.

[Matt Kornack, analyst]

My consensus -- I'm going to just ask this only, but the consensus was, I think, $0.54 versus 51 ex condo gains in the total return swap. Is that -- it sounds like if we make these adjustments, it should be largely in line with that figure. That's a fair comment.

Yes, I think so. I'll turn it back.

[Operator]

The next question comes from Sam Damiani from TD Securities. Please go ahead, Sam.

[Sam Damiani, analyst]

First question for me is on the miscellaneous revenues because they were up nicely, not only for the year, but in the fourth quarter as well. I assume this is still largely coming from parking and the premium outlets. But how do you see that playing out in 2024, how much gas is left in the tank on that line item?

[Mitchell Goldhar, executive]

It's majority of that is percentage rents from premium outlets, and parking, parking revenue. And we do think there's a lot of cash left in both of those tanks. They're both robust. In fact, the parking particularly VMC is very strong. And TPO is also -- both of them are very strong. So we would expect to continue -- those numbers to continue.

[Rudy Gobin, executive]

Sorry, Sam. We lost you.

[Operator]

Yes. This is the operator. I believe his line dropped. [Operator Instructions]

[Peter Slan, executive]

If we have the next question in the queue, we can move there.

[Mitchell Goldhar, executive]

And Sam has dialed back in, let's get him back on the call.

[Operator]

Okay. Just one moment, please.

[Sam Damiani, analyst]

So don't know what happen. Can you hear me now?

[Mitchell Goldhar, executive]

We completely answered your question and your next question, Sam.

[Sam Damiani, analyst]

So you already answered my next 3 questions? That's really -- I'm so impressed. So the next one was just actually on the credit losses. $1.2 million in the quarter, $1.8 million for the year. It seems to kind of resurfaced after a pretty quiet 2022. So is there -- do you expect sort of this expense line item to continue into 2024? And I guess, really, what's driving it? Where are the areas of, I guess, challenges in your tenant base that is driving this?

[Peter Slan, executive]

Well, I'll defer to Rudy on any challenges, Sam. But essentially, there was a net recovery stemming from some COVID matters that were just coming to an end and we had over-provided during COVID. So there was a net recovery in the prior year. And then this year is a much more normalized run rate that I think as good as anything in terms of going forward.

[Rudy Gobin, executive]

Yes. And I would say, Sam, the same thing. In the COVID year in 2020, 2021, we had some big ECL provisions. And then in '22, we saw a recovery of a lot of those because tenants were around. 2023 is starting to become a steady state. So Peter is bang on.

[Sam Damiani, analyst]

Okay. Last question for me, probably a quick one, just an update on disposition intentions where you see taking the leverage? I know, Peter, you mentioned just with the progression of condo games getting further in the rearview mirror. The debt-to-EBITDA calculation is going to go up a little bit. Just what are your thoughts and targets on leverage over the next couple of years.

[Mitchell Goldhar, executive]

We are keeping a close eye on that. I guess it's starting to feel like that's more -- the markets more conducive or conditions out there moving in the direction. So we'll see. But yes, we are open or were interested in dispositions at the right price. But until now, it just hasn't been a market for dispositions. So it seems like it's opening up a little bit. And if it opens up a little bit more, we'll certainly be exploring that.

[Operator]

We don't have any more questions in the queue. [Operator Instructions] And we have 2 more questions that got queued up. We're just going to get the name, won't be long. All right. Next question comes from Pammi Bir from RBC Capital Markets.

[Pammi Bir, analyst]

I just wanted to -- on the back of Sam's question, just with respect to the dispositions that you said you're open to, does that include income assets? Or are you referring more to density?

[Mitchell Goldhar, executive]

I mean it's more to do. It's strategic, just equity raise. It would be, ideally, it would be just density, land not income. But the -- I guess there would be a scenario where it might be possible that there will be some income involved. But I guess, ideally, it would be just density.

[Pammi Bir, analyst]

Okay. And then just I wanted to come back to some of the earlier remarks. With some of the tenant closures that you mentioned, can you just comment on the estimated impact on occupancy that you see over the next few quarters? And how you see that sort of trending over the year as you backfill that space?

[Mitchell Goldhar, executive]

Generally speaking, there's going to be maybe a bit of an impact in the beginning, maybe in Q1, but there's a lot of interest in those. And actually, there are opportunities. So there's a lot going on those, but the effects, probably the impact will be maybe felt in the first quarter, but after that, it will be positive. And ultimately, short, medium term, potentially really positive. Rudy, do you want to add?

[Rudy Gobin, executive]

Yes. And I just add to that, Mitch. Pammi, if you look back at the last few years, you'll see a trend and with tenants after the Christmas season, like we talked. Like I mentioned earlier, the few, there will be a little bit of softness in Q1 as usual, and then it builds quickly into the balance of the year. So I expect to see that trend to continue throughout this year and especially with all the new builds that I talked about and tenants being very interested in space that will get rebuilt quickly, we think.

[Pammi Bir, analyst]

So if you just sort of put all that together, is it fair to say that the same-property NOI growth for 2024 perhaps wouldn't be that dissimilar from what you delivered in the last year?

[Mitchell Goldhar, executive]

It's hard to say it could very well end up being similar, but it's a little bit too off, but it's a little lumpier because there's some big potential kind of big deals. But I guess other than that, I guess, it's probably similar. It has potential for being better. We're sort of being conservative when we say we're sort of hoping it will be the same or better.

[Pammi Bir, analyst]

Got it. Okay. Just a couple of small ones. On the Pickering Industrial, what's your sense of re-leasing on that space and maybe the upside in rate you think you can capture?

[Mitchell Goldhar, executive]

That deal was done before we even bought the land. So it was a slightly preferred rent. It was actually -- it was sorry, land owned by IO, Investment Ontario that only sold lands under certain circumstances but on pretty reasonable terms. So we're quite -- we're in, I think, get a good number there and that's why their rent was favorable. It was all part of it. So yes, I mean, market rent is higher than their rent.

There is quite a bit of interest. There has been interest even before that event. It's been steady. In fact, I don't think there's been a weakness come by that there hasn't been somebody seemingly serious about taking what was the remaining vacancy and now the entire building. But yes, I mean, it's been a bit elusive in terms of getting it absolutely buttoned down, but there's been a steady stream of very serious companies interested in the building. And so that sort of the anatomy of we're in the right place. The planets are lined up nicely. But until it's done, I mean it's vacant. But we anticipate it will be fully leased this year based on what's going on in the negotiations we have going on.

[Operator]

Our next question comes from Dean Wilkinson from CIBC World Markets.

[Dean Wilkinson, analyst]

Just one question for Peter. Going back to Mario's question around the floating rate debt exposure. The majority of that is related to the construction lines, correct?

[Peter Slan, executive]

Yes, that's right, Dean. The majority of it is related to construction debt. And then as that -- as those projects get built out, we look at takeout financing to term it out.

[Dean Wilkinson, analyst]

Right. So how much of that would be capitalized as opposed to just sort of flowing through to the cash flow?

[Peter Slan, executive]

I don't have that number at my fingertips. I'm happy to get back to you after the call, Dean.

[Operator]

[Operator Instructions] We don't seem to have any more questions.

[Mitchell Goldhar, executive]

Okay. Well, thank you all for participating in our Q4 and year-end analyst call. Please feel free to reach out to any one of us if you have any further questions, and have a great rest of your day. Thank you.

[Operator]

Ladies and gentlemen, this concludes the SmartCentres REIT Q4 2023 Conference Call. Thank you for your participation, and have a nice day.