SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen. Welcome to the SmartCentres REIT Q4 2024 Conference Call. I would like to introduce Mr. Peter Slan. Please go ahead.

[Peter Slan, executive]

Thank you, operator, and good afternoon, and welcome to our fourth quarter and full year 2024 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, Portfolio Management and Investments. We will begin today's call with some comments from Mitch. Rudy will then provide operational highlights, and I will review our financial results. We will then be pleased to take your questions.

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

Mitch, over to you.

[Mitchell Goldhar, executive]

Thank you. Good afternoon, and welcome, everyone. The retail sector in Canada continues to [ power ] along with strong fundamentals in the basics: food, general merchandise, fashion and household value, pharmacy, general value, dollar stores. If SmartCentres has historically dominated this slice that is value and convenience on weekly needs, it is now supercharged in that regard.

Rental growth was up 8.8% on lease extensions excluding acres and 6.6% overall. Cash collections are above 99% and then same-property NOI continued to deliver with 3.8% growth, all driving occupancy to a new 5-year high of 98.7%.

It is one thing to say -- it is one thing for us to say SmartCentres has real estate of strategic appeal with the retail that serves value to Canadians, but it's another thing for the retailers themselves to say, some world's largest, with its 98.7% occupancy across the SmartCentres portfolio.

For the quarter, we executed 192,000 square feet of deals for vacant space. And for the year, we executed 253,000 square feet of deals for new retail construction. With Walmart, as with all of our great national brands, our tenant partners relationships continue to deepen the same-store expansions and new stores. In that respect, I am proud to say that after the year-end, the REIT executed a new Walmart lease for our South Oakville Centre location. This represents just one of the opportunities we are working on with Walmart and with others to more conveniently serve markets that have steadily, even rapidly grown in population over the last 10 years, but have not grown proportionally or at all in retail. Walmart will take possession of the South Oakville store later this month and will open this new store in late summer.

In addition, I'm also pleased to announce our new Costco lease deal at Winston-Churchill on 401 in Mississauga in the vacant ex-Rona store. And while we are satisfied with the contracted -- with what the contracted rents will contribute financially in both locations, it is their nonfinancial contributions that are the most valuable. The enormous amount of additional traffic -- the enormous amount of additional shopping traffic to these 2 large centers will ultimately spread much additional economic activity across each center, filling vacancies, improving renewal rates, providing further expansion opportunities.

In addition, we have a number of new build locations underway or to begin construction shortly with names such as Canadian Tire, Winners, HomeSense, LCBO, Sobeys, Loblaws, Dollarama, Golf Town, banks and more. This higher level of construction activity has not been seen for some time, and we believe we will continue to spread a wide array of tenants in our SmartCentres locations.

As we work closely with our tenants, every detail matters, and it is this attention to detail that enhances our tenants' and customers' experience, which by year-end, has resulted in another metric, attaining a 5-plus year milestone that is extending over 91% of the 5.4 million square feet of tenant maturities in 2024.

Rudy will have some further color in a minute. But here are a few more operational highlights and some worthy of repeating. Same-property NOI excluding interest for the 3 months ending December is up 6%, and including anchors, 3.8%. Our Millway apartment leasing has reached 95% occupancy level, well ahead of budget from a rental and time perspective. Cash collections remained strong at over 99%, again, reflection of the quality of our income, strength of our tenant mix. We expect this momentum to carry on through the year and into 2026.

Built on the top of this strong retail platform, we continue to build and secure significant mixed-use permissions with over 59 million square feet already zoned, and as you know, on lands we already own. We will continue to be careful and strategic in executing the approach, that is when market conditions permit and with appropriate financing in place. You can read about many of our future mixed-use development potentials in our MD&A. But here are a few highlights.

Our development teams have continued to secure residential and other mixed-use permissions across the country and were successful achieving 1.8 million square feet of permissions in Q4, bringing the year to a total of 9.8 million square feet. These and our other 50 million square feet of residential and mixed-use achieved allow us to immediately launch when market conditions permit. In the meantime, we will continue adding these higher and better uses to our properties, improving NAV, flexibility and readiness for execution. And someday, somebody other than us may care.

Site works and excavation were completed and construction is advancing for our 36-story ArtWalk project here in VMC, comprising of 320 sold-out condominium units continues. Through our Smart Living brand, The Millway, our 458-unit apartment rental project, which was completed late last year, was 95% leased at quarter end above planned rental rates.

Construction of our Vaughan Northwest townhomes with our partners are progressing well with 11 more closings taking place in Q4, bringing the total to 96% of the 120 presold units now closed. In Leaside, construction is continuing for a 224,000 square foot retail center, comprising primarily of a 200,000 square foot flagship Canadian Tire store. Opening remains on schedule for early 2026.

Our self-storage portfolio comprises 11 operating units, which now accounts for over 1.4 million square feet at 100%, with 3 remaining projects under construction, which on completion, will bring the total to 1.9 million square feet. This portfolio continues to excel. We intend to continue expansion as we are doing with our 2 new locations, one in Laval East, adjacent to our shopping center, and the other in Victoria, BC, just off the downtown core.

Overall, the business continues to expand and strengthen, and we continue doing so with a strong balance sheet while carefully managing our overall debt and the amount of floating rate debt. We have increased our unencumbered pool to $9.5 billion and maintain our conservative metrics, which Peter will speak to in a moment. But before that, let me turn it over to Rudy for some more operational highlights. Rudy?

[Rudy Gobin, executive]

Thanks, Mitch, and good afternoon, everyone. The fourth quarter was once again a standout in near every meaningful aspect and operating metric. Tenant demand for space remained strong with near 200,000 square feet of vacancy leasing in the quarter, delivering high-quality income across all provinces in both large and small centers, delivering that 98.7% occupancy that Mitch spoke about. Same-property NOI continued its momentum with 3.8% growth over the period and prior year. Near 5.5 million square feet of space matured in 2024. And for the first time in a long time, tenant retention was above 91%, reflecting the improved attraction of the portfolio and with rental spreads of 8.8%, excluding anchors, and 6.1% all-in.

Cash collections continued to exceed 99% in the quarter. And on a more exciting note, as Mitch mentioned, we leased the ex-Rona space at our 550,000 square foot Winston-Churchill on 401 center to Costco at meaningful market rents. We also completed a new Walmart lease for the ex-Target space in South Oakville with imminent possession and summer grand opening. The relaxation of grocery restrictions will not only continue to benefit large open-format retail but, we believe, will also accelerate the pace of tenant demand and customers to our center, maintaining strong cash flow and high occupancy. We have been adding uses such as medical, day cares, entertainment, health and beauty, fitness, pet stores and more, providing that one-stop convenient place to shop.

Our premium outlets continue to excel in driving traffic and improving tenant sales, leading to strong growth in EBITDA and value to the REIT. Tenant sales has our Toronto Premium Outlets in the top 3 highest performers in all of Canada and remains an outperformer in Simon's portfolio. Our Toronto and Montreal locations remain 100% leased, and rental -- with rental lifts and EBITDA continuing to come in ahead of budget and well above the prior year. These affordable luxury centers and world-class brands continue to dominate in their segment.

Overall, the REIT continues strengthening its cash flow and stability while reducing risks through strong rental lifts, higher covenant quality, introduction of new brands and more grocery. We expect this momentum to continue throughout 2025.

With that, I will turn it over to Peter. Peter?

[Peter Slan, executive]

Thanks, Rudy. The financial results for the fourth quarter and the full year once again reflect a strong performance in our core retail business with improved occupancy and same-property NOI growth and the continued contribution from our mixed-use development portfolio.

For the 3 months ended December 31, 2024, net operating income increased by $12.3 million or 9% from the same quarter last year, primarily due to lease-up activities for retail and mixed-use properties and an increase in CAM recoveries relative to the same quarter last year. FFO per fully diluted unit was $0.53 in the quarter compared to $0.59 in the comparable quarter last year. The decrease was primarily due to a fair value adjustment on our total return swap, resulting from fluctuation in our unit price, partially offset by the increase in NOI.

For the 3 months ended December 31, 2024, FFO with adjustments, which excludes the townhome profits and the total return swap, was $0.56 per unit compared to $0.51 in 2023. This increase of $0.05 or 9.8% was primarily due to lease-up activity and an increase in CAM recoveries partially offset by an increase in net interest expense compared to the prior year period.

We maintained our distributions during the quarter at an annualized rate of $1.85 per unit. The payout ratio to AFFO for the full year ended December 31, 2024, was 91.7%.

Adjusted debt to adjusted EBITDA was 9.6x for the rolling 12-month period ending in Q4, which is a decrease from 9.8x last quarter, primarily due to growth in EBITDA. Our debt to aggregate assets ratio was 43.7% at the end of the quarter, a 10 basis point increase compared to the prior quarter. Compared to Q3, our unencumbered asset pool increased by approximately $100 million to $9.5 billion in Q4. Unsecured debt, including our share of equity accounted investments, was $4.5 billion at Q4, virtually unchanged from the prior quarter and represents approximately 83% of our total debt of $5.4 billion.

From a liquidity perspective, we remain comfortable with our current liquidity position. At December 31, 2024, we have approximately $833 million of liquidity, which includes both cash on hand and undrawn credit facilities, but excludes any accordion features. Subsequent to the quarter, we increased our liquidity through the issuance of $300 million of 4.737% Series AB senior unsecured debentures for a 6.5-year term. The proceeds from this offering were used to repay our Series N debentures upon their maturity earlier this month and to repay higher interest floating rate debt on our operating lines.

The weighted average term to maturity of our debt, including debt on equity accounted investments, is 3.1 years. Our weighted average interest rate was 3.92%, a decrease of 17 basis points from the prior quarter. Our debt ladder remains conservatively structured with the recent unsecured debenture offering extending our weighted average term to maturity. Approximately 89% 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. As in previous quarters, we have updated our MD&A disclosure focusing on those development projects that are currently under construction. As you will see on Page 17, there were 10 projects under construction at the end of Q4, up 2 from last quarter. The self-storage facility in Stoney Creek was completed and opened in Q4, so it came off the list, and 3 additional self-storage projects were added with estimated completion dates in 2026. The REIT's share of total capital costs of these 10 development projects is approximately $515 million with our share of the estimated cost to complete standing at $288 million.

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

[Operator]

[Operator Instructions] The first question is from Michael Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

Peter, just a technical one to start off. The $4 million variance in CAM recoveries that you noted, is that to say that you had a benefit this year, i.e., income recorded in Q4? Or was it that you had a penalty, sort of a negative true-up in the prior year? I guess just trying to get a sense of if there's any element of income that we need to strip out of the run rate going forward.

[Peter Slan, executive]

Yes, there was a true-up in the prior year in 2023. We did launch a new accounting package. I don't want to get too detailed in the accounting weeds, but we did use a new software package in 2024 that allows us to bill on actual CAM versus budgeted CAM with a true-up at year-end. So there was a little bit of that.

[Michael Markidis, analyst]

Okay. But for this quarter, is there any catch-up payment that will come off in Q1 or no, it's a clean...

[Peter Slan, executive]

No, this quarter is a good run rate.

[Michael Markidis, analyst]

Okay. Awesome. Okay. And then would that impact also help the same-property NOI comparison for the quarter?

[Peter Slan, executive]

Yes, a little bit.

[Michael Markidis, analyst]

Okay. Okay. And then I don't know if you break this out, it may be useful going forward. But do you have an extent of the developments that you completed in 2023? Because I think you do it on a -- your annual number wouldn't include those developments. But I guess you delivered something before Q4. It would get into your Q4 pool, Q4 of '23. Do you have a sense of what the developments that you delivered would be contributing to same-property NOI?

[Peter Slan, executive]

So the biggest one would be The Millway, which came on stream at the end of 2023. And so it would be in our same-property NOI when we compare Q4 '24 against Q4 '23. That would be the biggest one. And I would say it's about equally split roughly, Michael, between new projects, including Millway and self-storage, and the existing retail portfolio.

[Michael Markidis, analyst]

Okay. Awesome. And then I guess just more of a high-level question here maybe for Mitch. You mentioned -- congrats, by the way, on the -- getting the Costco deal at Winston-Churchill and Walmart at South Oakville. Just with respect to Walmart and their $6.5 billion announcement in dozens, and I think we're all trying to figure out what dozens means, of new stores over the next 5 years. Just curious if you are able to share to the extent any preliminary discussions you've had with them and what that opportunity set might look like for SmartCentres going forward in terms of opening or development of new stores.

[Mitchell Goldhar, executive]

Yes. I mean we're not able to talk about specifics, but I mean we'll be doing more than South Oakville, I can say that. So yes, obviously, we're tight with -- we're close with Walmart in terms of being a large landlord of theirs. And a large percentage of the Walmarts that we do have in our portfolio and beyond were developed by SmartCentres. So we'd be -- I guess it would be natural to assume that we'll do some. We certainly cannot do all of them.

And in terms of announcements, I mean, those will be sort of coming over the next foreseeable -- next year or so, mostly probably announced by Walmart. But in some cases, maybe we'll be in a position to announce some of them ourselves. [ There will be ] some ground-up [indiscernible] of vacancy, but there will be some ground-up new development, ground-up Walmarts, new developments across the country.

[Operator]

The next question is from Sam Damiani from TD Securities.

[Sam Damiani, analyst]

So just on the Winston-Churchill, I'm just curious, was that lease enabled by the relaxation of grocery lease restrictions? Just wondering why Costco is looking at that site now and not 2 or 3 or 5 years ago.

[Mitchell Goldhar, executive]

So Sam, I'm sure you've heard from all your contacts and relationships out there that it does take a while to do a Costco deal. So don't assume it's related to the discussions going on about grocery and grocery competition. But in any event -- and Rona did have that facility under lease for a long time even when it was vacant -- when it was not occupied or operated by them.

But -- so really, it's just, I think, a combination of a lot of things. And so we've taken it back. We've had it back for a little bit now. And we've been -- yes, we've been negotiating with Costco for quite some time. As you know, it takes a long time to do a Costco deal.

[Sam Damiani, analyst]

Absolutely. And just on the -- I think it said somewhere you signed around 200,000, 250,000 square feet of new retail leases for new construction. Can you be more specific? Does that include Laird, the Canadian Tire? What does that include? Is that over and above the current disclosed development pipeline? And what would be the timing on that?

[Mitchell Goldhar, executive]

Well, yes. No, it's not the Canadian Tire, which by the way, you should go by. You can see right now the garage -- underground garages fully formed basically and kind of see the kind of the order of magnitude of that Canadian Tire. But no, it's not including that. I mean, obviously, we're dealing with a variety of different-sized retailers. So it's across the board. The list I think we gave you, Rudy will speak to a little bit more in a second. So yes, I mean, as we said, we anticipate that momentum to continue. But yes, it is stuff that we do not have currently under construction. Rudy?

[Rudy Gobin, executive]

Sure. And I had mentioned a little bit of this before, Sam. Some of these were in our -- when we start construction, will be in some smaller markets, too, not just all urban markets. So we're pretty excited about that. And they include all of the TJX banners, Dollarama, the Shoppers, LCBO. So it's a wide -- sort of a wide variety of infill and adjacent to our existing shopping centers and all new construction, yes.

[Sam Damiani, analyst]

And that would come online over the next 1 to 2 years for the most part, Rudy?

[Rudy Gobin, executive]

Yes. We'll be starting construction this year on almost all of that. So yes, within the next -- end of this year and into next year. Yes.

[Mitchell Goldhar, executive]

Distinction is between that and some of the new -- potentially new Walmart sites, which will not be on existing sites for all intents and purposes. So what we were just talking about are mostly additions to existing sites, which is great. And then of course, in time, hopefully, we will announce the acquisition of additional lands to be anchored by Walmart.

[Sam Damiani, analyst]

Understood. That's helpful. Last one for me is just on sort of the residential development outlook. How would you characterize any change in the outlook or expectations for construction starts or asset dispositions versus last quarter?

[Mitchell Goldhar, executive]

I mean the only residential development we've got going on really is ArtWalk for all intents and purposes. And we are -- we don't anticipate going to market on anything new in the foreseeable future, foreseeable, meaning within our budget and plans or announcements. Anything can happen. But if market conditions change, we'll be ready to either go to market, sell some sites, et cetera.

We don't have any -- we sold Mascouche. We sold it to a partner that we own a building with in Mascouche. And so that one was done, I think, [ I can't remember ], fourth quarter. But we don't have anything to announce right now in the way of dispositions.

[Operator]

[Operator Instructions] The next question is from Lorne Kalmar from Desjardins Capital Markets.

[Lorne Kalmar, analyst]

Maybe going back to the Walmart announcement. I was just wondering, could you give us any additional color on the lease? Like if there's rent escalators or if it will be more akin to the historical leases you have in the portfolio.

[Mitchell Goldhar, executive]

Yes. I mean for the purposes of your question, no, they won't be akin to the old leases. There will be some escalations, that's probably what you're really asking, during the principal term. And at least that's the ones that are -- Oakville, Oakville is not a flat lease, if that's what you're asking. And I would -- I'm anticipating that it's always one by one in the circumstances, but visibility on some of the other ones will be some bumps as well.

[Lorne Kalmar, analyst]

Okay. And then would you -- like what would you need to see, and I know it's market-dependent, but maybe a rough idea, if you can, in terms of net rents to justify or to make a ground-up development work? And what kind of yields would you like to get? I don't know which is easier to answer.

[Mitchell Goldhar, executive]

Yes. No, I mean, I understand. I mean let's put it this way. I mean we're not doing freestanding Walmart stores on their own to own. I mean for the most part, there might be some circumstances, which we don't need to bother getting into. But -- so it's part of a larger shopping center. So you can't look at the Walmart in isolation.

But -- and we don't build the Walmart just the Walmart either. We build the Walmart and its parking. But we have to build -- pave forward for a lot of infrastructure and off-site road improvements, intersections, ponds, stormwater management. We prep the pads for future retailers and so on.

So -- but I would -- for the purposes of just giving you some guidance, I mean, we don't do Walmarts at -- we don't like Walmart stores to be dilutive, let's start with that. So you can -- but there is -- I don't want to get into any more than that. But for all intents and purposes, you can assume they're not dilutive.

[Lorne Kalmar, analyst]

Okay. I would hope not. And is there any more locations like you had with that old Target box where you could slot them in, in the portfolio? Or is that kind of the one that sort of worked and that was that?

[Mitchell Goldhar, executive]

Well, I'm going to call you after this call and see if you want a job in the leasing department, a very, very good [ where ] to go [ immensely ]. So there might be. There's certainly interestingly some potential for Walmarts going on to existing sites, ground up on existing sites. So we might be able to announce something like that.

In terms of existing vacancies, unlikely. But hang on one second, let me just fix something. Well, we have leased some large vacancies. They're not to Walmart mainly because they're very close by to their existing -- these vacancies were close to Walmarts. But for example, up here in VMC, we have a Rona, an old Rona store -- I'm sorry, Lowe's store that they did not renew in a year ago. We're not quite coming up to a year.

I think they were paying about [ 12 50 ] or something a foot on 130-ish thousand square feet, might have been 134,000. Anyway, we just leased it for plus or minus, let's say, on either side, let's say, high teens, 18, 19, 20, somewhere in there. I don't want to -- we don't publish specific rents. So just giving you a range. So in that range for that entire premises to a single user, just for example. So that's first quarter stuff.

We also -- hold on one second, let me just fix something. Nevermind. That's about it we can talk about right now. But there's activity going on in large former anchor tenant type space, potentially lease up [indiscernible] Walmart, but to others.

[Lorne Kalmar, analyst]

Okay. That's fair enough. And then one other question maybe for Peter. I was wondering if you could give us -- because I know the premium outlets are big contributors and they're doing really well. But maybe give us an idea of what the NOI from overage rents were in 4Q, how much that contributed to same-property NOI growth, something along those lines.

[Peter Slan, executive]

Yes. Lorne, I don't have that handy in terms of what that breakdown is in terms of the NOI from overage rents. But I can -- we'll have a look and get back to you on that.

[Operator]

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

[Matt Kornack, analyst]

Actually, this may be a follow-on to Lorne's question there. But just wanted to understand, there was a pretty good acceleration in base rent from Q3 to Q4, I think roughly 2%. And then also your miscellaneous revenue is high, but I think it maybe dips in Q1. But can you give us a sense of maybe the seasonality in Q4, if there's anything, and how we should think about the run rate number?

And also, like there wasn't a big change in the in-place occupancy, and I don't think there was a ton of leasing done. But we'll get more stats for next year in Q1. But if you could give us a sense to kind of what the drivers are and how much of it is maybe lease-up of storage assets versus kind of the retail component.

[Mitchell Goldhar, executive]

Yes, there's seasonality in some of that because of certain assets that pick up certain times of the year. And I guess there's some parking in there, which, I guess, also may have a little bit of seasonality. So Peter, do you want to...

[Peter Slan, executive]

Matt, what was your question on storage?

[Matt Kornack, analyst]

Yes. I'm just trying to figure out as well -- I mean, some of it, it sounds like, is apartment lease-up. But like where are the storage assets at? Like are they in your occupancy? Or are they separate...

[Peter Slan, executive]

No, they're not in our occupancy. They're not in our occupancy. We have 11 storage assets that are up and running. Eight of them are what we would characterize as stabilized, which means they've been open for at least a year. And we've been able to put term financing on them and pay off the construction facilities. And the other 3 have been open up for less than a year, and so they're not yet stabilized. But we'll -- we expect to add them to the stabilized portfolio later this fall as they season. And they're performing very well. We've disclosed separately the occupancy for just the 8 of the 11 that are stabilized. But it's not included in the 98.7% overall occupancy. That's retail only.

[Matt Kornack, analyst]

Okay. No, I appreciate that. And then maybe just in terms of the broader leasing stats. I know you're kind of into Q1. You probably know what the 2025 number looks like for the most part. But is it similar? Or have you seen further acceleration versus that kind of 6% total and 9% ex anchors on the new leasing spreads or new and renewal?

[Mitchell Goldhar, executive]

Similar. Good. Similar. I don't think we want to make any predictions quite yet, still a little bit early. But at the moment, things look the same, as in steady interest, strong. We're hopeful. Slightly, slightly sloping towards optimistic, but steady.

[Matt Kornack, analyst]

And I mean it doesn't seem like it, at least in conversations with some of your peers, but the dislocations or potential dislocations, if and when we ever get a sense as to what's coming out of the U.S., like do you expect that to impact the business or consumers at the end of the day or the retailers that you're dealing with? Or have any kind of expressed any concerns at this point about potential economic dislocations if there is a trade war?

[Mitchell Goldhar, executive]

Of course, I guess -- we assume that people will -- there'll be more emphasis on value even with the idea in the air. So we think we're quite protected and well aligned with what market we're in, the reality of -- the economic reality of the Canadian consumer. And if it does get really ugly, I guess, nobody can predict that. So that part, we really can't predict. But we think we're in good -- we're well positioned for everybody just budgeting and hunkering down.

And we like our covenants. I mean we're not a percentage rent company and we're not a short-term -- our leases are long term, especially the larger spaces. So -- with very strong covenants. So we're pretty -- feeling pretty good about rent collections even in a really -- in a period of really turbulent trade war scenarios.

[Matt Kornack, analyst]

I think if we're having troubles with Walmart paying rent, then probably got bigger issues than [indiscernible].

[Mitchell Goldhar, executive]

Yes. That's what we think, too.

[Operator]

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

[Pammi Bir, analyst]

Just -- I apologize if this was already answered. But coming back maybe to some of the Walmart lease in Oakville or maybe some potential new ones. Are you putting any additional capital or higher than typical capital into the space maybe in exchange for the rent steps?

[Mitchell Goldhar, executive]

We don't do that pretty much -- I mean, I don't want you to remind me that I said this someday. But for all intents and purposes, we don't do that for anybody. We don't -- I mean it is done. We don't do it. That is [ pave ] more towards tenant improvements for higher rents. So the short answer to the Walmart question is no, and to others, it's also no. We do improve units, though. We don't [indiscernible].

[Pammi Bir, analyst]

Yes. So fair to say that the [ NERs ] on these types of deals will be sort of market levels.

[Mitchell Goldhar, executive]

Yes.

[Pammi Bir, analyst]

Okay. In terms of maybe some of the new potential developments that you're undertaking or that you plan to undertake on some of these expansions, what sort of unlevered yields would you be looking to target?

[Mitchell Goldhar, executive]

We don't do it quite as a -- like we don't usually do one deal at a time. And so it doesn't work that way. We don't say we're targeting this return -- by the way, when you do a deal, you don't actually collect the rent for a year or 2, like with retail. Obviously, with residential, it's 3.5 -- 3, 3.5 years. But anyway, so you can target what you want thinking you know what you need, but you don't really borrow that money or lock into that money for a year or 2.

But generally speaking, for a variety of reasons, they're accretive deals going in. I mean we don't do deals just for the sake of doing deals. So they're accretive. I will point out that the retailers that we deal with for the most part, they know what their stores cost. They know what the cost of money is. And they know what it costs to develop in addition to the building of the stores. So it's not like -- and they want their stores. So they don't want to delay -- haggling. I mean there's no haggling. We're not going to develop a store -- and that's the other thing. We're not a start-up. I mean -- and we're not buying a site because of that tenant's interest. The site is operating for the most part, and it is what it is. So the good news is we can do things pretty competitively because we already own the land. But secondly, the good news is, I guess, we don't have to do the deal. And they know that. So they're accretive, they're fair to both sides, and they get done pretty quickly. So yes, that's sort of the color around the negotiation with those sub-anchors.

[Pammi Bir, analyst]

Okay. That's helpful, Mitch. Just on the -- I wanted to come back maybe to the same-property NOI. You closed out with a pretty good year. I guess I just want to clarify, you do include the self-storage sites and Millway in your same-property NOI figures? That's the first question.

And then just maybe coming back to -- I think last quarter, you talked about sort of a range of maybe 3% to 5%, the sustainable maybe run rate for organic growth as we go forward after, I think Q3 was pretty strong. So just curious if you still are comfortable with that target as we think about 2025. Any changes to your thinking?

[Peter Slan, executive]

So Pammi, on your first question, yes, we do include those self-storage projects that are stabilized, as I mentioned earlier, that have been open for at least a year in the same-property number. And then your second question, Millway is also included because that was opened in Q4 of 2023. And then I think the third part of your question was on the guidance that Rudy talked about on last quarter's call, 3% to 5%. I think that is still our view, albeit we'll probably be at the lower end of that range. But I expect we'll be within that range for 2025.

[Operator]

We have a follow-up question from Michael Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

Just with respect to -- I think Lorne asked the question, but I didn't get the answer. Like how many of those sort of dark anchor boxes that the former Target and the former Rona would be in the portfolio that you have that are -- you have the ability to backfill in this type of manner?

[Mitchell Goldhar, executive]

We have -- I'd say I call it 3. I mean we sometimes argue over what -- when does it become like an anchor sort of size. But I'd say we got Kitchener, Cambridge, and that's where we all agree. But we also have Aurora, which we own the old Canadian Tire. So we've rezoned that. We were in Aurora, which was a fantastic site for pretty much anything. So we got it zoned for residential. We were going to redevelop it. We're still considering it for residential, but we've kept that vacant because we're going to redevelop it -- Yonge Street.

But in 2 of the 3 cases, Aurora and in Cambridge, we have, I'd say, 5 to 6 out of 10 interest -- level of interest for those entire premises, in those cases. And so Cambridge is pretty big. Well, Kitchener and Cambridge are pretty big. But we hope that we will get Aurora and Cambridge leased this year. And if we're lucky, we might also get Kitchener leased. So our goal in here is that we don't -- we lease all 3 of those this year. And I feel pretty optimistic about that.

[Michael Markidis, analyst]

Okay. And then -- and that's in addition to South Oakville, Winston-Churchill and VMC that you noted, right? Those haven't contributed yet to...

[Mitchell Goldhar, executive]

Those are done. Those are leased. So those 3 are now leased.

[Michael Markidis, analyst]

They're not contributing anything to your...

[Mitchell Goldhar, executive]

No, no, no. But they're contributing to lowering our stress level.

[Michael Markidis, analyst]

Yes. And then just again, so I guess these sites are -- I imagine they're in development. So they're not in your occupancy figures. But from a cash flow perspective, when they come online, the impact could be pretty significant.

[Mitchell Goldhar, executive]

Go on reverse. Yes, they'll do something, for sure, although some of them were going to be developed. So it might be coming out of PUD, all of them were in the rezoning process to do residential. But in terms of earnings, in terms of NOI, in terms of FFO, et cetera, yes. Even occupancy will be affected because they're all 100% leased. So yes, it will contribute all the way around. Big spaces, reasonable rent, fully net on spaces that have been empty where we had no rent and [ nothing collecting ] taxes, et cetera. So yes, [indiscernible].

[Operator]

The next question is from Mario Saric from Scotia Capital.

[Mario Saric, analyst]

Just 2 quick follow-ups. First, maybe for Peter, on that same-property NOI expectation of 3% to 5% this year. Can you perhaps talk about the REIT's ability to increase the contractual kind of annual escalators on leases in '25? We've heard a lot in '24 with respect to more pricing power going towards the landlords and implementing these types of contractual rental escalators at above-average clip. Are you seeing that in your portfolio as well? And just maybe kind of share your thoughts on your ability to drive that.

[Mitchell Goldhar, executive]

I mean we have -- there's a lot of interest going on. It didn't stop with the year-end or the quarter end. I mean it's going on. So -- from strong retailers that we've listed there. So with those leases, the metrics, the data points will change for the better. So we're being cautious with our guidance. But we're feeling pretty -- we're feeling the same way now as we did a few months ago in terms of level of interest. And so you can sort of see it starting to kick in. I mean a year ago, we started talking about this. I think we were sort of warning you all, trying to anyway. So it's starting to materialize, and that's still going on, and it will continue to materialize. I don't know if you want to add anything, Peter.

[Peter Slan, executive]

Yes. Mario, like we were talking about earlier last year, as Mitch just said, these things take time to do, these deals. Like Mitch had mentioned about Costco and Walmart and food and what's happening in the grocery business. And all of this takes time, by the time the tenant deal is done and they get fixturing and before they open.

So while we don't want to sound very enthusiastic, we are very much believing that the market -- that 2025 will be a strong year, but it will take time for that to happen. So that's why we're erring on the side of being on the lower end of that range on the same-property NOI because it will take time for that to happen. But demand is good. Grocery is good. Tenant interest is strong. New build, like I mentioned earlier, the 250,000 square feet we signed for new build construction, which we'll start in 2025, probably won't open until the end or into 2026, will take place. But all in time.

[Mitchell Goldhar, executive]

I would like to add so you guys understand, like that 250,000, that was signed. But it's all food store, TJX, pharmacy. It's long-term leases, strong covenants, huge contributors to traffic. So that is also continuing to go on. We are negotiating quite a bit of that.

But the reason we're being cautious is that we live in it right now, it's a very volatile world. And we don't want to have the sort of hubris to predict that everything is just going to be status quo and continue on, I mean, because I'm sure we can all manage different scenarios. So if nothing changed and we lived in a static system, we'd be on the optimistic end. But we can't be -- we can't predict. So that's a little bit more color behind what's going on and how we're factoring in what we'll obviously get done given everything that's going on in this country and in the world for that matter.

[Mario Saric, analyst]

Got it. Okay. And then if you look at the '25 expiries, the mix between expiries with fixed rate renewals versus market rate renewals, is it notably different than historical average?

[Rudy Gobin, executive]

I don't have that in front of me, but I don't think so. I think our portfolio is pretty well consistent year-over-year. So I expect '25 to be relatively the same, Mario.

[Mario Saric, analyst]

Okay. My last question, and it's been asked, I guess, a couple of times today. Just on potential development yields going forward, Mitch, I think you mentioned they're accretive. I guess the definition of accretion could vary. So I'm just curious in terms of how internally you think about accretion, whether it's reference to the distribution yield, the FFO yield spread, the implied cap rate. How do you internally think about the definition of accretion, NAV accretion, for example?

[Mitchell Goldhar, executive]

Yes. I mean first of all, we're pretty conservative, I mean, with our cost estimates and so on. So hoping we're going to be on the right side of that so things will get better. I mean we always want to be accretive to FFO. And as I was saying earlier, we don't have to do these.

We are very -- we will be much more motivated on a vacancy, obviously. But new build, we do want to have some cushion there. So -- but we never know until we build, and we don't know exactly what the cost is going to be. We don't go to tender before we sign a lease, unless it's density -- if it was -- give us a tower today of any kind, we'd probably want to go almost all the way to tender. But for our bread-and-butter single-story stuff, I mean, we have a pretty good feel across the country what it's going to cost to build. And we leave some room there, and we're hoping we'll get some.

We just tendered something that were leased, and we're going to start building, and we came in really nicely under what we had estimated. And rents were based on higher construction prices. So somewhere between mid-high to high single digits would always be -- in this environment, would always be not a bad place to start for the kind of covenants that we get in the lease terms, on lease terms and with the multiple deals that we do. So [indiscernible].

[Operator]

We have no further questions at this time.

[Mitchell Goldhar, executive]

Yes. Thanks for participating in our Q4 call. Please feel free to reach out to any of us if you have any further questions. In the meantime, have a great rest of your day. Thanks.

[Operator]

Ladies and gentlemen, this concludes the SmartCentres REIT Q4 2024 Conference Call. Thank you for your participation, and have a nice day.