SmartCentres Real Estate Investment Trust (OTCPK:CWYUF) Q4 2022 Results Conference Call February 9, 2023 3:00 PM ET
Company Participants
Mitchell Goldhar – Chief Executive Officer
Peter Slan – Chief Financial Officer
Rudy Gobin – Executive Vice President and Portfolio Management and Investments
Conference Call Participants
Mario Saric – Scotia Capital
Pammi Bir – RBC Capital Markets
Sam Damiani – TD Securities
Tal Woolley – National Bank Financial
Gaurav Mathur – iA Capital Markets
Operator
Good day everyone, and welcome to the SmartCentres REIT Q4 2022 Conference Call. [Operator Instructions] I would like to introduce Peter Slan. Please go ahead.
Peter Slan
Thank you and good afternoon and welcome to our fourth quarter and full-year 2022 results call. I’m Peter Slan, Chief Financial Officer; and I’m joined on today’s call by Mitchell Goldhar, SmartCentres’ Executive Chair and CEO and by Rudy Gobin, our Executive Vice President and 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 please 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
Thank you. Good afternoon and welcome everyone. Well start with this quarter strong operational results, which is taking place in near every category, as well as our success and achieving some significant mixed use entitlements. This sets the stage for an even stronger 2023. With the completion of Transit City four and five condominiums and the Middle Way apartments, all scheduled to occupy in the coming quarters.
The fourth quarter capped off a year of resurgence both in consumer traffic and retailers wanting more space. Not only are we seeing continued demand for space in most of our nearly 35 million square foot value oriented portfolio, but we are also welcoming new retailers to our centers in many segments, allowing us to provide a more compelling and diverse offering to every community we serve across Canada.
We are also seeing consistency in our industry leading occupancy rate of 98%, which is back to pre-pandemic levels. We continue not only to expand in our existing footprint, but demand for new retail construction is also growing in various segments, which Rudy will speak to shortly. All-in-all, our tenants are adept and most with strong e-commerce, delivery and/or pickup channels.
From a portfolio perspective, we continue to work towards derisking our tenant base as reflected in our improving tenant covenant liquidity and collections. Retailers have for the most part, figured out how to best adapt their product offering store sizes and distribution to fit the needs of Canadians. Thus, tenant collections are now an industry leading 99% and continue to improve with provisions for non-payment of rent near zero.
On the land use permission in development front, we continue to move the goal line forward, not giving way to these challenging times. For 2022, we achieved over 6.1 million square feet of new mixed use permissions in various urban locations with high demand for housing.
Given that development is a long-term game, we are committed to unlocking the tremendous value embedded in our existing owned lands, which I will remind you sit in the midst of highly populated communities in nearly every major market across Canada.
While you can read the details of many of our developments planned for the portfolio in our MD&A here are a few highlights of what is currently underway. Construction of the 4 and 5 Transit City condo towers at SmartVMC comprising 45- storey and 50-storey respectively, are nearing completion and remain on budget and on schedule with first occupancies starting later this quarter.
Also within smart VMC the Middle Way, our 36-storey apartment building is also nearing completion. Occupancy commenced just last week, and we expect continued lease throughout the year, which we are all very excited about. Our apartments in Mascouche and Laval suburbs of Montreal are near completion and demand for rental suites in those markets is also reflecting the high level of interest.
Construction of a 240,000 square foot 40-foot clear industrial space on 16 acres of a 38 acre site on the 407 in Pickering is in its final stages, with half of the space already preleased and return over scheduled for next month. Construction continues on new Seniors Residence apartments totaling 402 units at Ottawa, Laurentian.
Our investment made me aware. Our JV partner on this project Groupe Sélection is currently taking some financial steps. However, construction is continuing. SmartCentres continues to support this project, and we are confident in a path to substantial and successful completion.
In Vaughan Northwest with our partners, we recently commenced the construction of our townhouse subdivision including 174 homes with site servicing now completed. Lastly, in addition to our seven self storage facilities already opened, and high demand in other markets across the GTA.
We are under construction on three additional storage facilities in Markham, Brampton and Whitby. You can see this current construction activity is all in our expanded disclosures in the MD&A, as well as the list of additional 48 projects scheduled to commence construction in the next two-years, subject always to satisfy our many internal risk hurdles, while again demonstrating the tremendous opportunity that lies within our underutilized lands that we already own.
On the financial side, maintaining our conservative balance sheet remains a priority with an unencumbered pool of assets of $8.4 billion a 43.6% debt level and significant liquidity which Peter will speak to shortly. As I have mentioned previously, we are not bound to the commencement of any project and will await the proper economics timelines and funding before initiating any project.
In today’s market of higher interest rates, higher inflation, economic and political uncertainty, we may selectively determine it prudent to sit back and wait for a safer environment. However, sitting back is not in our DNA.
Over the past 30-years, we have consistently navigated and push forward in many market conditions, building a dynamic and resilient portfolio, starting from 1994 with the opening of the first newly built Walmart in Canada at our very south site.
At SmartCentres, we are far too forward thinking to be distracted by noisy headlines to take our eye off the long-term vision and objectives of building lasting value for communities across Canada and hence value in growth per unit holders. We will get you there in one piece.
Environmental, social and governance issues for example and have always been woven into the fabric of our organization. They are embedded in everything we do and how we oversee our business, interact with our tenants and engage our associates and communities and of course, impact on the environment.
Although ESG is getting more attention as of late, it has always been part of our DNA. Since the beginning and when you assess our portfolio, you can see that ESG principles have been applied throughout.
In our approach to building and design energy utilization of social interaction with tenants and their customers especially evident during the pandemic cost savings to communities and of course convenience.
So such that Canadian families are able to live a better life. That is not to say we can’t do better. We are committed and energized to find new and innovative ways to share ways, innovative ways and do more than our share of good in this important area.
On a final note, I would like to offer my sincere appreciation to our exceptional team of associates for their commitment and dedication to delivering on this long-term vision of improving the lives of the communities we serve every day.
And with that, I will pass the call over to Rudy.
Rudy Gobin
Thanks Mitch and good afternoon, everyone. Operationally, what started earlier in the year as a strong rebound in customer traffic and competing leasing interests for space in our centers, carried all the way through the fourth quarter, with over 700,000 square feet of vacancy leasing, completed in the year 2022 ended with a strong performance all around and back to our pre-pandemic occupancy of 98%.
Demand was driven by a wide category of retailers including full line grocers, pep and dollar stores, pharmacy, the TGA spanners of course, and health and beauty. Also in the non-urban markets, with consumers spending more on their own, additional demand emanated from the furniture stores home decor, appliance stores, daycare and craft stores.
Given that virtually 100% of our SmartCentres portfolio already have a full line grocery, and nearly 70% with a Walmart Supercenter, it should not be a surprise that all of our centers are doing well and in smaller markets especially so as the center’s are 100% leased and occupied.
Now for a few operational highlights. Rent collections, as Mitch mentioned earlier, are now in excess of 99% and along with the fact that we have settled and collected virtually 100% of our deferrals offered during two tenants during and since the onset of the pandemic, the covenant quality of our portfolio is now even stronger than it has ever been.
By year end, we renewed nearly 90% of all maturing tenancies are 4.5 million square feet, again strengthening the portfolio with the best retailers in the country and at a 3.1% increase over maturing rents. In addition, as of today, we are already at 50% renewed of our 2023 maturities.
Demand for new build retail space, as Mitch mentioned earlier, as well is also growing in a number of categories, such as grocery, pharmacy, dollar stores, liquor stores, bank and QSR. And we intend to meet these demands where it makes sense to do so and where it does not interfere with our mixed use development plan.
Other signs that physical retail is quickly improving which reflected in the lack of any bad debt provisions being booked in the quarter, but rather, throughout the year, we reflected our recovery and I might add with no tenant restructurings or filings during the quarter.
Regarding our Premium Outlets, it is difficult to believe that we will be celebrating our 10-year anniversary of Toronto Premium Outlets in August of this year, what a landmark and draw it has become.
And Q4 ended with 100% occupancy and sales and percentage rent exceeding pre-pandemic levels in many categories. EBITDA is expected to be the best year yet in 2023. Montreal opened later and in Q4 sales are also exceeding expectations and for 2023, we also projecting a similarly strong performance.
As Michelle said before, this resurgence in customer traffic and adaptiveness of our tenancies speaks to the resilience of this portfolio, which was built for heavy weather. From virtually every perspective 2022 was a strong recovery and 2023 is shaping up to be more of the same.
Physical retail and especially our value oriented unenclosed centers continue to be in high demand and communities across Canada. Tenants are continuing to adapt to the needs their customers through best locations store sizes and merchandise mix.
Aligned with our tenants SmartCentres will continue to deliver value each community by meeting the individual needs through a comprehensive tenant mix, ease of access, and optimal shopper driven experience. And most importantly, all of this is happening concurrently with our extensive mixed use developments already underway and in the pipeline.
And with that, I will now turn it over to Peter Slan.
Peter Slan
Thank you, Rudy. The financial results for the fourth quarter reflected continued solid performance in our core business with results that are now trending above pre-COVID levels by virtually every measure, including net operating income, payout ratio, and average rents per square foot.
For the three-months ended December 31, 2022, FFO per fully diluted unit, with adjustments and excluding various anomalous items with $0.60, an increase of 7% from the comparable quarter last year. Please note that these results include the non-cash impact of a $6.2 million gain for marking to market the total return swap for the quarter.
Higher rental income was more than offset by higher interest expense. However, an improvement in G&A expenses helped the bottom line during the quarter. As in prior quarters, we have also presented FFO information net of the impact of certain anomalous items including the gain from a total return swap of $0.04 per unit and the dilutive impact associated with units issued pursuant to the acquisition of VMC West Lands of $0.02 per unit.
Net rental income for the quarter increased by $2.2 million, or 1.7% from the same quarter last year. Including our equity accounted investments, however, net rental income increased by $4 million, or 3.1%, largely due to exceptionally strong performance at our Montreal and Toronto premium outlet centers that Rudy just mentioned.
Same property NOI including equity accounted investments increased by $5.1 million, or 4% in the quarter. Leasing activity remained strong, which is expected to drive continued, but modest growth in NOI over the coming quarters. Our occupancy levels, including committed leases was 98% at the end of Q4, virtually unchanged from the prior quarter, but up 40 basis points from a year earlier.
In terms of distributions, we have maintained our annual cash distribution level of $1.85 per unit throughout the COVID-19 period. For the full-year 2022, our payout ratio to ACFO excluding the impact of the total return swap, condominium and townhouse closings, and the smart VMC West Land acquisition was 92.6%, representing a significant improvement from 96.5% in 2021.
Total assets include including our proportionate share of equity accounted investments were $12.1 billion at year-end, compared to 11.5 billion in the prior year. For the quarter IFRS, fair value adjustments in our investment property portfolio, resulted in modest net gains of approximately $13.4 million, principally reflecting additional leasing activity. We did not make any portfolio wide changes in our capitalization rate assumptions this quarter.
During the quarter, we repaid $176 million of debt. The release of cash held us security for our TRS liability, as well as proceeds from the repayment of loans receivable during the quarter were the primary sources of capital used to repay debt.
We expect to continue to repay debt over the course of 2023 using proceeds from our upcoming condo closings at Transit City four and five, as well as from the recently completed sale of some park lands at the Vaughan Metropolitan Centre, which closed earlier this week.
At the end of Q4, our debts aggregate assets ratio stood at 43.6% and our unsecured debt to secure debt ratio was 74%. Total unencumbered assets to unsecured debt was 2.2 times at year-end up from 1.9 times a year earlier.
In terms of debt to EBITDA, our ratio on an adjusted basis, including equity accounted investments was 10.3 times at Q4 compared with 10.2 in the prior year. Excluding the liability associated with our total return swap brings this ratio down modestly to 10 times, both in Q4, and a year earlier.
We were pleased that our credit rating was reconfirmed at the BBB level during the quarter, and we remain focused on continuing to strengthen our balance sheet and improving the outlook for our rating.
The weighted average term-to-maturity of our debt, including debt on equity accounted investments is approximately four years and it bears a weighted average interest rate of 3.86%. We remain comfortable with our conservatively structured debt ladder where the most significant aggregate maturities are in 2025 and 2027.
We do have an upcoming maturity this spring with a $200 million debenture and we are currently exploring multiple refinancing options. Approximately 82% of our debt is at fixed interest rates, which has been a significant benefit to us during the recent rising rate environment.
In short, our balance sheet remains strong, it withstood the pandemic well, and we believe that we are extremely well positioned to fund the various growth oriented development projects that are currently in our pipeline.
Just before we open up the lines for questions, I want to touch briefly on some of our various mixed use development projects that are currently underway. We have added some new disclosure on page 22 of our MD&A this quarter, as Mitch referenced earlier, that we hope users find helpful.
As you will see, we have 11 projects under construction at the moment, including over 1000 condominium units. Another 1000 rental units comprising conventional apartments, seniors and retirement units, along with 174 townhomes, 240,000 square feet of industrial space, and more than 2600 self storage units.
All of these projects are expected to be completed by the third quarter of next year, with the first ones Transit City four and five, the Millway Rental Project expected to be finished later this quarter.
Collectively, the REITs share of the total expected project costs including land is $539 million, of which 304 million has been spent to date, we have more than adequate liquidity to finance the remaining $235 million of construction costs associated with these projects.
We intend to update this table quarterly. So I expect that as the year progresses, you will see certain projects come off the list as they reach completion, and other projects get added as construction commences. Later this year for instance, we expect to add the Canadian Tire side and lease side and the ArtWalk condominium and rental developments at SmartVMC.
Project financing work on these developments has already begun, upon completion, each of these project projects is expected to drive continued FFO growth, as well as allow us to recycle capital into other opportunities in our development pipeline and facilitate prudent management of our capital and liquidity needs.
And with that, we would we would be pleased to open up the line to your questions. Operator, can we have a question on the line?
Question-and-Answer Session
Operator
Certainly. First question is from Mario Saric from Scotia Capital. Please go ahead Mario.
Mario Saric
Hey good afternoon. I wanted to touch quickly on the operational side. And just trying to establish kind of the building blocks in terms of potential kind of same-store NOI and an ethical present growth in 2023 versus 2022? So Rudy on the 50% of the 2023 maturities, lease maturities have been renewed. Can you give us a sense of what the lease renewal rates have been both including and excluding anchors?
Rudy Gobin
Most of the 50% we have done now are actually higher than this year’s renewal rate so far. And I don’t know if you recall last year when we were doing this each quarter, and we give the updates. We tend to have a strong list of tend to want to renew earlier in the year.
So right now, we are north of 3% increase into 50% already renewed compared to this year. So it is looking very good. I don’t have the breakdown area with regard to what it is with or without our anchors, but that is an all in number. So it is looking stronger than 2022.
Mario Saric
And then in terms of the occupancy, I think in your disclosure, it was noted there was an expectation for higher occupancy in 2023. Given you are already kind of at a sector leading 98% at least. How much higher do you think the occupancy gains can go and then conversely if Canada was to revert into an economic recession. How should we think about potential downside to occupancy levels in that scenario from here?
Mitchell Goldhar
I will start with that. First of all, we try to go and try to increase that by 3% of occupancy.
Peter Slan
Retail humor 101%.
Mitchell Goldhar
But we actually do well in, first of all, COVID, did do a lot of things with respect to a little bit of down went on around COVID. So we don’t really have and it is really, and we, I think we have all actually touched on the focus on strengthening, even strengthen even more our tenant profile from a credit worthiness point of view.
So combine that with the fact that we are sort of value oriented here, and we make up two-thirds or more of our portfolio is basically just essential services. We actually do well in both strong economic times and tough economic times.
So, we anticipate, for a variety of reasons that just stated that we don’t see a lot of exposure for downwards. I can see about consumer recessionary type environment. In fact, given what is going on, we might be actually a little bit stronger. So, that is my part of the answer Rudy.
Rudy Gobin
That is a two maybe talked about a lot of different types of tenants who have come to the table wanting space, everyone from logistics to distribution to last mile to furniture and crafts. And so we have a number of new tenants to the portfolio of wanting space and it adds a really nice mixed use to our centers.
So they may see some turn, like I mentioned earlier, where we were at 90% retention. So that 10% of our maturing maturities, which is around roughly five million square feet a year churns. So all – at any one point in time, it may be plus or minus, but generally, we expected to maintain and improve that throughout 2023.
Mario Saric
Got it okay, and then maybe just shifting gears to capital allocation. What are your updated thoughts on the magnitude of potential asset dispositions in 2023?
Mitchell Goldhar
We are open to that subject to of course valuations, what can be achieved in terms of prices? We are not going to reconcile our assets short, if you will. So, we are open to it, the last few months has certainly not been conducive to that we had a number of different capital raising activities going on, going back a year-ago, but that certainly just kind of came back, sort of inflationary [Technical Difficulty] started.
But we stay in touch with all of the institutions who are interested in teaming up and of course, we get approached all the time from people who want to acquire our assets, but we are open to all the above subject to the details and it is certainly, I would say, possible that something along those lines could happen this year.
Mario Saric
Got it, okay and then my last question, I believe in the last call, the Q3 call, you noted that a development budget for both 2023 and 2024, roughly about 250 million. Is that still a fair assessment or has anything changed in the past three-months that would either accelerate that figure or decelerate it?
Mitchell Goldhar
Yes, it is decelerated. As we said on that call, I’m glad that you guys are listening. Actually, it is great. We are going to slow it down, because as we say, on bad and other calls we will always look at the environment and make development decisions based on playing it safe.
So we have decelerated some of our development initiatives. I think that are under construction are all locked in for pricing and pre sales and so on. But going forward, each and every one is being assessed very, very carefully. ArtWalk is highly likely to go ahead, and I think Peter mentioned that already, couple storage, probably proceed, as well.
And a few other things we are looking at very closely. But others other things we have definitely sort of the approval process now, drawings now. Testing on some tendering, but we are definitely going to slow down a number of our slowdown initiating a number of our developments.
Mario Saric
Got it, okay. So look in terms of the 250, let’s go through the math, in terms of the cost or some of the things that you mentioned, but that 150, 200 versus 250, is that kind of the quantum of the slowdown, those you think about?
Mitchell Goldhar
It is hard to say right now, because there is a couple of big projects that if we don’t proceed, it is big money, like so we are actually in the process of really very much daily going through the handful of projects that could for candidates to start, but their implications are huge whether we proceed or not.
Peter anything else you want to add?
Peter Slan
Yes. So you saw in our MD&A, Mario, we have got $235 million left to go on the 11 projects that are currently under construction. But that, of course, is over both 2023 and 2024. And so we haven’t provided the breakdown of how much of that is in 2023, and how much we will be in 2024. And some of the new projects that Mitch described, won’t start until the second half of this year. So the heavy lifting from a budget perspective is into next year really.
Mario Saric
Okay, that is it for me and thank you for the answers.
Operator
Thank you Mario. The next question is from Pammi Bir from RBC Capital Markets. Please go ahead Pammi.
Pammi Bir
Hi, good afternoon. Just in terms of the disposition of that small piece of land there at the DMC what was the motivation there to sell and/or maybe just versus retaining it? And I’m just curious, how the job price compared to the IFRS values?
Mitchell Goldhar
Yes, I mean, it was not so much a motivation. I mean, it is part and parcel of the process of developing requires some contribution towards parks and so we wanted a large park in terms of the overall development of the VMC, SmartVMC, so in certain respects exceeds what we are currently begin obligated to.
So the settlement of the city resulted in a firing the nine – what is ultimately the nine care park there, which is was always going to be a park. And in the valuation of the park was based on appraised values, it was all third-party. It was all third-party appraisals to the satisfaction of the city staff and city council. And then ultimately by us, because we had to agree with it as well. So, yes, obviously, it also is consistent with what we paid ourselves for lands recently on the west side of the SmartVMC.
Rudy Gobin
And just in terms of your question on the how it compares to the IFRS values, Pammi it, there was no material gain or loss either way. As you know, it was two separate parcels of land and so they had slightly different valuations on our books. But the prices Mitch notes was consistent with both appraisals and our recent acquisition price. And so there was no material gain or loss either way.
Pammi Bir
Okay. And maybe just switching and wanting to maybe just touch on the self storage business. How much have you invested in that, you know, that segment at this point, and I’m just curious, it seems to be going quite well. I think last quarter you had provided the disclosure on the occupancy levels I’m not sure if it is still in there but just curious how you are happy, you are going to be the target.
Mitchell Goldhar
You cut out at the end there about the, I couldn’t hear you at the end of your question.
Pammi Bir
I was just questioning the how the yields are coming in relative to the target. I think your range is like [6% to 8%] (Ph). The business seems to be doing quite well, but just wanted to see how it is tracking relative to expectations?
Mitchell Goldhar
Yes, you are right. Number of years ago, when we commenced this program, we sort of targeted the 7% range. Excluding by the partner, but it is exceeding that. We are very pleased with the performance, both in terms of path stabilization, and also just overall NOI total investment. I don’t know you have actually got that.
Peter Slan
I don’t think we have disclosed that, no.
Pammi Bir
Okay and then just a couple of housekeeping items, I believe there was a larger increase in the capitalized amounts to G&A and interest in Q4 relative to last quarter. Were this year-end type catch ups or are those the sort of the reasonable run rates. It just didn’t really see a big change in the development or the properties under development? I’m just curious how we should think about that for the year ahead?
Peter Slan
No, I wouldn’t characterize it as year-end catch ups. I think it is more a combination of rising interest rates on the interest capitalized and the G&A. I think it is pretty normal course, there is a few puts and takes but nothing unusual this quarter.
Pammi Bir
Okay. Last one for me, just on the Transit City four and five condo closings. Are those should all of those should be done before Q3? And then I guess maybe an add-on to that is seeing any risk of any of those units perhaps not closing?
Mitchell Goldhar
First of all, the first part, I would say that by the end of Q3, that will all be closed. And we haven’t seen any sign of defaults, a couple of assignments. But we have seen aside. I would also point out that third deposit was doing ArtWalk for 36 storey tower that we haven’t commenced construction, but will be. And they were for all intents and purposes, all received in January of 2023 just last month.
Pammi Bir
Great, thanks very much Mitch. I will turn it back.
Operator
Thank you Pammi. The next question is from Sam Damiani from TD Securities. Please go ahead Sam.
Sam Damiani
Thank you and good afternoon everyone. Mitch, I think you may have just answered my first question, which is what has changed at ArtWalk to give you a little bit more confidence in proceeding with construction, and it sounds like the receipt of those deposits might have been add to that. Is that fair to say?
Mitchell Goldhar
That is right on. Yes.
Sam Damiani
Okay, perfect. And is it still going to be a partial rental building as was initially proposed?
Mitchell Goldhar
Yes. It is a separate building, shared underground, shared underground everything, obviously parking but other things, too. And it is 15. storeys. And it is a separate rental building. Yes. It is also going to go at the same time. I mean, it still hasn’t a final decision to go by the way yet, but looking like we are a step closer, for sure and there also be a small for story office building along with that.
Sam Damiani
Okay. And just on sort of a similar vein with the guess the Vaughn Northwest townhomes that construction. I think you said it may have actually already started. The sales levels still at 60%, I think I read what is you know what is going on in terms of sales there you expect those to resume or pickup in the near-term and are you going to build the ball and without pre sales potentially?
Mitchell Goldhar
With servicing, we disclosing the percentage sale there. So it is there about 50% sold, the sales is being done by our partner. And yes, I mean, they are townhomes in a, townhomes a very desirable product in a desirable, census tract. So sales continue.
We are not going to build the actual townhouses. If they are not sold, the servicing for them is always for all of them. So it is quite normal to do that. But we are optimistic about being able to sell the balance.
Sam Damiani
That is great okay. Just final one is on the potential headwinds. I guess that is our excuse me, Bed Bath and Beyond has been in the news over the last few months with the sale, Lowe’s Canada to Rona, now all branded has grown and now complete, or at least in process. Are you concerned about any closures impacting your exposure to either of those retailers in the coming year?
Mitchell Goldhar
So Bed Bath and Beyond we have a sum total of two. One of them, we have, we already have interest on the space and have for a long time before they even sort of went public with some of their financial situation and the other one in Cambridge, is very close to where we are intending to do some residential developments.
So there was a scenario we were actually looking to relocate the Bed Bath and Beyond there, but did not because for various reasons, including that one. So that would be the height, that would be the height of our concern.
With respect to I will let Rudy illuminate a little bit more on in a second from our portfolio, our portfolio and the other one, sure, which was in Rona and Bed Bath and Beyond. As I was implying earlier, there was some turnover over the last three years.
We have, we have replaced a lot of that with strong tenants and, and the tenants that did do some closing have reconfirmed their interest in our center. So we are actually in not bad shape. I would say for the certainly the foreseeable beating the next 12-months.
Rudy do you want to add something to that?
Rudy Gobin
I just add to Mitch’s comment, Sam. We have eight locations with them and we have a very strong relationship with Lowe’s Canada, U.S. as well, for that matter all of their locations when we met with them at the ICSC last month, they communicated all of them are in good shape, good standing and intended to remain that way. It is about I don’t know, 850,000 square feet or so.
And as you can, you may recall, a couple of them Lowe’s took Sam’s boxes back in the day and, of course, in those leases, the rent, their rental rates are good rental rates for Lowe’s, and for that size project. So in one in fact, they have come to us and asked to expand the store, because it is too small. So very good, a very good tenant for us, and we are seeing things remaining strong with them.
Mitchell Goldhar
And I also add to that. You mentioned sale, I forgot sale. We have one situation with them set a vacancy. And we actually have interest for the entire 70 – we have multiple interests. We have more than 70,000 square feet of interest over the one that is vacant, the other one that we had been become vacant has been leased on a temporary basis and at market rent. So actually, I would say at the end of the day, we will probably end up a little bit ahead with respect to the sales that we got back sales meaning the store.
Sam Damiani
Excellent, thank you and I will turn it back.
Operator
Thank you Sam. The next question is from Tal Woolley from National Bank Financial. Please go ahead Tal.
Tal Woolley
Hi good afternoon everyone. Let’s just start with a Millway. Where do you see asking rents as you start to lease up the building?
Mitchell Goldhar
Are you big – candidate? So yes, I mean it depends on which unit and which building you are in. I mean, Millways in a sense, sort of four different types of spaces. That is their podiums of four and five, podium of the tower and the tower itself. So it really depends, but I will just say that our leasing to-date is exceeding slightly our original budget, original pro forma?
Tal Woolley
Like, are we talking about like four bucks per square foot on average kind of or something below that?
Mitchell Goldhar
Below.
Tal Woolley
Okay got it. And then just with the delivery schedule you have got for this year, is it possible to estimate what you think like the NOI is that sort of the yields you are getting on the stuff you are completing this year or should it vary a bit by asset type, because obviously, there is a mix of stuff in there. But I’m just wondering if we can get some sort of estimate of what you think the income is going to be on these projects?
Rudy Gobin
[Technical Difficulty] and as you know in terms of building gets stainable states. There will be a lot of space that is not least up until again, it gets to that sustainable occupancy level. So we are in lease up here. We have the Jackal building in Montreal, Laval, under construction. And the first building is obviously fully leased. And Millway as Mitch mentioned, is just started. So were you talking about those or something else?
Tal Woolley
I’m just looking at what you guys intend to deliver through 2023 and 2024. And I’m thinking you have got okay, you are spending about 540 million bucks here. Are we looking at yields of like, five to six?
Mitchell Goldhar
The storage is seven to eight, the rentals are lower. Roofer shares were here with residential rental. I think, you know, the range of residential rentals. I mean, obviously, it makes up the bulk of the capital investment.
And then the really, I mean, the rest of it is condo. And you can, I think we have given you all the numbers more or less on the condo, so you can probably do the math on that one. So, I mean, I would say, I hope, I think you can do the math with what I just summarized.
Tal Woolley
Okay. And then just on, I think bill 23 is kind of shown that for the municipalities, especially those that were using development charges, I think, to finance growth arguably more through sprawl that rather than density in some of the suburbs, like obviously, places like Mississauga and Vaughan, Aurora sort of stick they stick out and come to mind. These mayors now, or in the press talking about, having to increase property taxes dramatically to make up the shortfall from the development charge relief.
I think the CVC as the mayor of Vaughn talking about cut 75% plus increases in property taxes. I’m just wondering, what your intelligence in the community is kind of thing about how this shift here, like, are we going to see material increases in commercial tax rates in some of these suburban communities that have financed a lot of their growth through sprawl?
Mitchell Goldhar
I mean, there is no question. We are in the political rhetoric stage on that. We have a provincial government who are very familiar with municipal politics, they come from their origins or our local government and now they are, a lot of them are running the provincial government. So it is a tension that is there, between the province wanting to stimulate growth and the municipalities wanting to provide local services and community services such.
So I think it is a lot of rhetoric, but offstage, how it is going to end up getting resolved. It is anyone’s guess, I think it’d be pretty risky for I mean, municipal politicians to just vote higher property taxes as a replacement for development charges, but maybe some, maybe some variation or permutation on tax increases.
But I don’t know, I think we have got a ways to go on that and don’t forget provinces, ultimately, big brother, to the municipalities. So I guess this is going to bring it to a head and eventually there will be some kind of an agreement on how municipalities can, how they can both be happy.
I think the province is basically communicating municipalities were getting a little bit gold plated with their expectations, and laying onto development, development laying it on to the public. And this is a way to try and get back to something a little bit more sustainable. I think it is a stay tuned situation.
Tal Woolley
Okay. And then I guess, just lastly, you have had Mauro, obviously, retired, believe you are kind of retired of the last little while and you are part of a team who is from another firm, can you just talked sort of about some of the changes that have gone on, on the development side and how do you see that structure working going forward?
Mitchell Goldhar
Yes, the bottom line is, I mean, we are in great shape in terms of our overall staffing. Mauro, who is 20-year plus veteran here, did a fantastic job. But there is 150 or 160 people in the development department here and so, a lot of horsepower, a lot, a lot of experience, a lot of veterans, a lot of 15-year, 20-year people in that department.
And then in terms of construction, yes, Bhupesh did retire, but, we had made plans around that. So we are in good shape. We did acquire a team construction, a crackerjack team of construction people recently and they are primarily high rise focused. Whereas our construction of R1 was built step-by-step around the originally the construction of excuse me, Walmart stores and winters and Loblaws, Canadian tires, and Home Depot’s and, and so on and so forth.
And they have done a great job supering the supers, that is the PCL the Brookfields who built our high rise for us, but we want to be able to, we want to be able to do everything that we are doing a lot of and that is why we don’t outsource our leasing. That is why we have – it is legal – we have in house sales for our residential.
Now we have in-house construction for our low rise. And we have now in house construction for our high rise. So we are feeling very, very good about our construction department and our development department.
Tal Woolley
Okay. And then just lastly, with the Walmart Canada leases, do they all have like going to bungle the wording here, but like an exclusive restriction on like, Walmart can be the only food retailer on site?
Mitchell Goldhar
Good question. It depends. Some do, some don’t. So, it really depends in our portfolio, I would suggest that it is probably anything over a past a certain date. I don’t even want to try and come up with that date right now but probably they do have food restrictions but before that date, or rounder, before that date, probably, maybe not so much. We did the vast majority of them before that date. So, that is why I say with us it really depends.
Tal Woolley
And do you have a sense of how many of the locations actually have a full grocery offering?
Mitchell Goldhar
I think all of ours, except maybe one have full, fresh and departmentalized supermarket offering. And by the way, I do want you to know that Walmart does I mean, not just Walmart, in Canada, we have a very, very – our food store offering in Canada is among the best in the world. And so they actually do okay, even when they are on the same site. And they also are often across the road from each other, and so on.
So even though the food lots of retailers want, and try to get restrictions on certain things with each other. But when it comes to food at the end of the day, you can look around and you can see food stores next to Walmart’s and Loblaws stores next to Walmart and Costco is next to Walmart spent.
Without getting into all the reasons why we would have to do sort of footage of per capita. But suffice to say that they actually often do better when they are next when they are near next to each other than when they are not. So they all know that to just FYI.
Tal Woolley
Okay. That is great. Thanks very much gentlemen.
Operator
This question is from Gaurav Mathur from iA Capital Markets. Please go ahead Gaurav.
Gaurav Mathur
Thank you and good afternoon everyone. Since it is the last question, I was just very curious to understand your comments further about the slowdown and future development initiatives. I’m just wondering if there is a certain asset class or property type, which is leaving that slowdown over the others?
Mitchell Goldhar
Yes, it is residential. Because it is the most, capital intensive to take the longest term and longest range class. It is still comparison is not that tough. And it is also if it is multi res, it is the lowest yielding initial storage comes out of the gate, red hot, and it is low capital intensity.
And retail there hasn’t been a lot of it in the last number of years. But there is a little bit of an uptick in that here, from our core retail base. But again, that one is a little bit more capital intensive, it is all going to be subject to construction prices. But they are dwarfed by the capital investment involved in our residential program.
Gaurav Mathur
Okay great. And if I can just squeeze in one more question, Would that be okay?
Mitchell Goldhar
Sure.
Gaurav Mathur
Fantastic. And the next for Peter, but with the upcoming 200 million refinancing, would it be possible for you to discuss how pricey currently stands in the conversations that you are having?
Peter Slan
Sure Gaurav, I can give you a little bit of color there, maybe not too much, but a little bit. So right now, while the bond market appears to have tightened over the last couple of weeks, and pricing on a new issue basis, hypothetically, has improved a little bit. It is still fairly expensive, and it is certainly more expensive by maybe 50 or 60 basis points relative to the current cost of bank financing.
So we are looking at it, we still have several months to go between now and the maturity as you know, and so hopefully, that will tighten a little bit we certainly like the idea of replacing a debenture or I should say maintaining debentures to diversify our funding sources.
But we are not going to pay a big premium for that for that benefit. So we are watching the market carefully. And we will make a decision with plenty of time prior to that upcoming maturity.
Gaurav Mathur
Fantastic. Thank you for the color gentlemen. I will turn it back to the operator.
Mitchell Goldhar
Okay, so thanks, everybody for participating in our Q4 analysts call and please reach out to any of us for any further questions and have a great day.
Peter Slan
Thank you.
Operator
Ladies and gentlemen, this concludes the SmartCentres’ REIT Q4 2022 conference call. Thank you for your participation and have a nice day.
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