First Capital, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the first capital REACH Q3 2020 results conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star one on your telephone keypad. I would like now to turn the conference over to Alison. Please proceed with your presentation.

Thank you and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. A summary of these underlying assumptions, risks, and uncertainties is contained in our various securities filings, including our Q3 MD&A, our MD&A for the year ended December 31, 2019, and our current AIF, which are available on CDAR and on our website. These forward-looking statements are made as of today's date, and except as required by securities law, we undertake no obligation to publicly update or revise any such statements. During today's call, we will also be referencing certain financial measures that are non-IFRS measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call. I'll now turn the call over to Adam.

Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our Q3 conference call. Some of the positive signs we saw emerging towards the end of Q2 continued through the third quarter. resulting in FFO that was ahead of expectations entirely through higher than expected NOI. This is only to a number of things, including the resiliency of many of our tenants who are categorized as non-essential by governments. A good number of these tenants reopened and performed well, which is a tribute to both their ability to adapt and the quality of our real estate. Real estate fundamentals and consequently asset quality are paramount at FCR and have been since our start 20 years ago. I'll focus on that theme today with my comments. So let's start with leasing. Our leasing activity through the pandemic has been strong. In Q2, despite the fears raised by the pandemic, we did a substantial amount of leasing. Following reopenings that took place, Q3 was even better. Since both quarters were squarely during the pandemic environment, I'll speak to them on a combined basis. We completed a total of over 1.3 million square feet of leasing activity across 346 transactions during the last two quarters. This volume was comprised of two components. The first is renewal activity. which totaled 1 million square feet and spanned a wide array of tenant categories from grocery stores to medical to restaurants to gyms. Roughly 60% of this leasing was to tenants who were deemed non-essential by government and 40% that were deemed essential. For clarity, we consider all of our tenants essential to our efforts to create thriving neighborhoods regardless of how governments classify them during a global pandemic. Heading into this year, we had 38 bank expiries, totaling 213,000 square feet in 2020. We have now renewed all 38. The average rent increase across all 1 million square feet of renewals during the last two quarters was a healthy 9.2%, consistent with our 10-year average of 9.3%. our renewal volume also compares well to our historical volume. The second component is our new leasing activity. In Q2 and Q3, we completed just under 300,000 square feet of new leasing on vacant space. Roughly 70% of this new leasing was to tenants who were deemed non-essential by government. Net rental rates for the new leases in Q3 We're consistent with pre-pandemic levels averaging $24 per square foot, roughly 10% higher than in-place rents. We're also encouraged by our pipeline for space that is currently under active negotiation. As always, internal targets for lease-up and tenant mix have been considered and set for all vacant space. We do not operate in a take-what-you-can-get mode. We never have. Enhancing our tenant mix with new retail concepts, remains an important part of our strategy. We've added some unique retailers over the last few months. Couples Diamonds is one of our newest tenants in Yorkville Village Mall. This innovative concept is a leader in omni-channel retail and aligns well with FCR's ESG focus. For those who aren't familiar, Couples is a digitally native leading seller of lab-grown diamonds that are chemically identical to mine diamonds but with a much more positive environmental and ethical impact. Another new tenant that will soon join Couples in Yorkville Village Mall with a flagship store is Pulsar. Pulsar is a global, design-focused electric performance car brand. They have a new take on automotive retail, which utilizes carefully designed, unique retail environments instead of conventional dealerships. Both tenants are great additions to our offering in Yorkville and are indicative of continued demand for high-quality space in a very dynamic retail marketplace. In fact, our luxury retailers in Yorkville, such as Brunello Cucinelli, Chanel, and Versace sales over the last few months have exceeded the same prior year periods. The bulk of our leasing activity continues to come from uses more typical to FCR, including grocery, pharmacy, pet stores, medical uses, and restaurants, among others. Yes, we have been doing active deals with restaurants. We have many types of restaurants, and they have been impacted by COVID differently. So this quarter, we have broken the category down further in our MD&A and investor presentation to reflect these differences. Restaurants as a category comprise 14.6% of our rental revenue. Now the components. Quick service restaurants, or QSRs, have performed quite well with many of our QSR tenants experiencing sales growth over the same prior year period. This group is typically in smaller spaces, sometimes with drive-thrus, and are continuing to generate meaningful sales through takeout and delivery. and to a lesser extent right now, in-store dining where permitted. Coffee shops and national chains are other subcategories, both of which are generally comprised of retailers who have the wherewithal to come through this and prosper, even those in which sales are down. Together, QSR, coffee shops, and national chains are represent the vast majority of our restaurant category at 12.9% of total rent. The remaining ones are generally comprised of sit-down restaurants that were profitable pre-pandemic. However, this group continues to require support. We believe these restaurants will once again become vibrant hubs of the thriving neighborhoods in which we operate. Government aid is well targeted to this group including the new SERS program. At 1.7% of FCR's rental revenue, this is a fairly small category, but very important to our long-term tenant mix. So we will do our part as well to support them through. We continue to feel good about what we're seeing on the ground and specifically leasing. Market reactions to retail real estate since the start of the pandemic would indicate that many are taking a macro generalized approach. A great majority of investors have not spent time at our properties. This makes it more difficult to recognize the qualities which differentiates FCR from other real estate companies. These include the strength of our locations, our focus on demographics, the above average performance of our essential tenants, and our leasing and operations teams, among others. The physical interaction with real estate provides one with a very important perspective. I vividly remember the Great Recession of 2008 and 2009. Like today, there was a very significant disconnect between public market valuations of high-quality REITs and the value of their underlying real estate in the private markets, or said differently, their net asset values. Like every other crisis when this has occurred, private market values held and public market values rebounded, although that was never an obvious outcome in the midst of the crisis. I also remember how encouraging it was to spend time at properties and to see what was actually happening on the ground. Real estate has always been a local business and experiencing properties and neighborhoods has always been an essential part of assessing their health. My colleagues and I continue to do just that, although we do it in a larger bus these days. We allocate full days to tour properties together in a safe, socially distanced way. And what we're seeing is reassuring and encouraging. Our properties are busy. They're typically the most productive, gross re-anchored centers in each of the trade areas in which we operate. Our long-term commitment as the industry leader in property operations for our product type is shining through. whether it's the additional weather protection measures being installed to manage line queuing as winter approaches, or FCR's Quick Shop, which was rolled out nationally to facilitate curbside pickup and buy online, pick up in store, something that we have now made permanent. We don't just tour our own assets, we also tour competing properties in each respective trade area. We observe how well grocery stores are stocked, which is an indicator of their volume and turnover. We look at access, signage, cleanliness, energy efficiency, parking lot and building conditions, and much, much more. We focus on merchandising mix. We speak to store managers and gather valuable information on these tours, and we come away with an on-the-ground sense of how properties are doing, what we can do to improve ours, and a lot of raw material for valuable brainstorming sessions that result in action plans. We can't take you with us on these tours, so instead, we have started filming the typical activity at our properties and are releasing short videos of sub markets that cover our portfolio in attempts to bring the on the ground sense a little closer. At this time, please refer to page four of our conference call deck. There's a video link that's embedded in the slide and I would ask you to now please click on it to play the video. This is our GTA West portfolio. comprised of Oakville, Burlington, Brampton, and Mississauga. This video footage was all shot during the last two weeks, so you get a very current sense. While the activity is evident, I'll provide some additional details on this portfolio. It includes 11 properties totaling 1.7 million square feet on 160 acres of land. It represents roughly 8% of our total portfolio value and carries an IFRS value that is well below current replacement costs. The current occupancy of this GTA West portfolio is 97.6%. Every property with one small 20,000 square foot exception has a grocery or food store. The majority of our grocers report sales on an annual basis which averages $725 per square foot in this portfolio, a very healthy number that will increase substantially once 2020 sales are included. So in summary, an exceptional, well-positioned portfolio that I encourage you to visit. Seeing really is believing. While the video is wrapping up, I will finish with ESG. It's wonderful that many of our peers have started to focus on this topic. This is great for our industry. As an ESG pioneer in the real estate sector, we have earned our right as a leader in this area, which means we're able to leverage our position by holding more of our stakeholders accountable to our high ESG standards. We have a track record that includes 11 years of commitment to publishing an annual ESG or CRS report that outlines our activities in progress. Looking back, It included multi-year greenhouse gas emission reduction targets that started 10 years ago. That was also the timeframe when we started installing electric car charging stations at our properties. And in 2006, nearly 15 years ago, we committed to building all new developments to LEED standards. Our team members fully appreciate that being an industry leader in ESG is business as usual for SCR. It has been long embedded in our DNA and our culture. It is also deeply and naturally intertwined with our super urban strategy. Building on our ESG track record and platform, we are nearing completion of our new five-year ESG roadmap that is the most detailed, wide-reaching and ambitious set of targets that we have tackled. These targets are good for employee retention, recruitment and engagement, reducing our carbon footprint, and reducing operating expenses for our tenants. Simply, it's just good for business. We look forward to sharing further details in due course. Before I turn it over to Kay, I do want to touch on CFO succession. As you know, Kay is soon retiring from full-time executive life. I will hold my departing comments for her until our next conference call. We recently announced that Neil Downey will soon join us as EVP Enterprise Strategies and CFO. Given the opportunities and challenges that lie ahead, his unique skill set will be very beneficial to FCR and our stakeholders. We're thrilled to have someone of Neil's caliber join our leadership team, and we look forward to formally welcoming him very soon. So, there's been a lot going on at FCR, and the team has made very meaningful progress. With that, I will now pass things over to Kay to review our quarter in more detail. Kay?

Thank you, Adam. Good afternoon, everyone, and thank you for joining us today. As we mentioned in our press release, we collected 92% of the gross rent due in the third quarter. 86% of the rent due was collected from our tenants directly, and 6% was collected from the loan proceeds under the SECRA program. In Q2, we collected 75% of the gross rent due from our tenants. Subsequent to quarter end, we collected 7% from the SECRA loan proceeds, bringing our total cash collections for Q2 to 82%. To date, we have collected 90% of the gross rent due for the month of October from our tenants directly. We expect this number to increase as all final payments are processed, and as tenants receive funds under the new government support program referred to as SERV, which has not yet been launched but will be applicable starting with October rent. It's important to note that our cash collection rates for Q2 and Q3 do not include the application of any tenant security deposits nor any payments to tenants to secure development rights that were in turn applied to rent collection. We continue to support our small and medium-sized tenants by fully participating in the SECLA program for all applicable periods, including April through September. As a result, we recorded a total of $13.4 million of bad debt expense related to this program including $7.9 million in the second quarter and $5.5 million in the third quarter. As we mentioned on our second quarter conference call, we took a conservative approach to establishing our Q2 provisions as we were still accepting SECRA applications at that time and had not finalized deals with a number of our non-SECRA tenants. At the end of the third quarter, we trued up our provision for the actual number of applications received under the SECRA program, which was lower than our original estimate, for actual approved deals with our non-SECRA tenants, and for the Quebec SECRA support totaling $500,000 for the second quarter, as we received confirmation in the third quarter that this program was proceeding. This resulted in a $2.1 million reversal of our provision in the third quarter and bad debt expense of $3.4 million, which was much lower than the $16.8 million we recorded in Q2. Year-to-date, we recognize $20.2 million of bad debt expense representing 6% of our total revenue for the second and third quarters. The $20.2 million includes $13.4 million, the SECRA program, and 6.8 million for other tenants. As of today, 97.3% of our tenants are open in our portfolio versus 96% as of our Q2 reporting date. Now, turning to our third quarter results. On page eight of our conference call slide, FFO per diluted unit decreased 8 cents over the prior year period. A good portion of this decline was expected. given we recognize $8.7 million, or $0.04 per unit, of non-recurring gains and fees in the third quarter of last year. Of the remaining decline, $0.02 was due to the impact of our disposition program on NOI and on interest expense as a portion of the disposition proceeds were used to reduce outstanding debt. 1.5 cents was due to lower interest income due to reduction in our outstanding loans and mortgages receivable. Additionally, FFO was down due to lower same property NOI, primarily as a result of higher bad debt expense related to COVID-19. Moving to slide 9, same property NOI decreased 5.4% over the prior year for the reason I just mentioned. On slide 10, we highlight our Q3 lease renewal activity, which totaled 589,000 square feet of renewals completed at a record average rate of $25.20 per square foot. Our year-to-date lease renewal rate increase at 11% is very strong and above our 10-year average increase. On slide 11, our average net rental rate grew a record 5.8% over prior year. As our strong renewal lifts, built-in rent escalations, new tenants opening at higher rates, developments coming online, and the impact of our disposition program are all driving higher rental rates. Moving to slide 12, our total portfolio occupancy decreased 30 basis points from the second quarter. primarily due to the impact of COVID-19. It's important to note that some of this increased vacancy has already created attractive opportunities for us. We have negotiated replacement deals with stronger tenants paying higher rents in two of the largest locations that contributed to the increased vacancy. Additionally, one of the other larger vacancies will also allow us to add a youth that we don't currently have to one of our centers, ultimately enhancing the overall performance of the entire center. Based on what we know today, we are expecting our Q4 occupancy rate to remain relatively stable and will continue to capitalize on any future vacancy by improving our merchandising mix to drive higher rental rate growth. Slide 13 highlights our largest active developments, which are primarily residential projects located in Toronto. Year-to-date, we've completed $134 million in dispositions, bringing our total dispositions to $1 billion over the past 18 months, putting us just two-thirds of the way to achieving our $1.5 billion disposition goal. As of September 30th, average population density surrounding our properties surpassed our previously stated goal of reaching 300,000 by 2021. This represents an increase of 96,000, or 47%, since January 2017. And we remain the North American leader amongst our peer groups on this metric. Slide 14 shows the factors impacting SSOs and the year-over-year changes, which I previously discussed. Slide 15 touches on our other gains, losses, and expenses, which are included in FFO. Slide 16 summarizes our ACFO metric. ACFO for the quarter increased primarily due to lower capital expenditures as part of our cost reduction program, which I will discuss shortly. Slide 17 shows our financing activities. We continue to take proactive measures to improve our liquidity and maintain our financial strength, which provides us with greater flexibility to navigate through the pandemic. During the third quarter, we funded a $116 million mortgage at a rate of 2.7%, which is the lowest rate we have ever achieved on a 10-year mortgage. In addition, we completed a $200 million unsecured debenture offering with a term of 7.5 years. We used the proceeds from the new mortgage and the debenture offering to repay higher-rate maturing debt and outstanding balances on our operating line of credit, which enhanced our liquidity, which now stands at $835 million. Additionally, one of the measures we announced in the first quarter to maintain financial strength and flexibility with our cost reduction program. Through this program, we intend to achieve $75 million in savings versus our planned spend for the period April through December of this year. This program includes a reduction in property operating costs, general and administrative expenses, development spend, and elective maintenance capex. To date, we have achieved savings of approximately $67 million, or 89% of our goal, and are well positioned to exceed our savings goal by year end. Slide 18 touches on our financial strength and flexibility. At quarter end, we had approximately $7 billion, or 70% of our assets unencumbered, including the vast majority of our very best assets. Our liquidity position as of November 3rd remains strong and includes approximately $835 million of cash and undrawn credit facilities. Our term debt maturities are shown on slide 19. For the remainder of 2020, our maturities totaled just $3 million, with only 6.3% or $302 million of our total debt maturing in 2021, all of which could be funded by our existing liquidity. In terms of our credit ratings, earlier this week, S&T completed their annual review and confirmed their previously assigned rating of BBB- with a stable outlook. Before I conclude, I would like to recognize and thank our property management team across the country who are FCR's frontline workers. They have done a tremendous job managing our properties and demonstrating leadership in tenant relations and working closely with our tenants and service providers throughout the challenges of the pandemic to ensure we were providing a safe environment and adapting to government restrictions and protocols to meet the needs of our tenants, our customers, and the communities that we serve. At the same time, they were focused on implementing critical tenant support programs across our portfolios, including our quick pickup program, which facilitates convenient and safe curbside pickup, and administering the coordination of our FCR small business support program, and then transferring their efforts to support the SECRA program. A huge thank you to our entire team of frontline workers for their dedicated efforts and commitment over the past several months. I am also very proud to announce that last week, our urban property, Shops at Oakville South, located in Oakville, Ontario, won the BMO Award won the Beaumont, sorry, Canada Outstanding Building of the Year Award in the Retail Building Open Air category. This award recognizes excellence in property management and acknowledges performance quality and the people behind it. Judging is based on extensive criteria, including building standards, community impact, tenant relations, energy conservation, sustainability initiatives, and emergency preparedness, a well-deserved recognition of the hard work and dedication of our property management team members, which truly demonstrates the FCR values of collaboration and excellence and leading through proactive management. As we navigate through the pandemic, we continue to closely monitor and evaluate all aspects of our business with a focus on ensuring our portfolio is best positioned for future growth. We have been and continue to be fully committed to supporting our tenants through the pandemic. Through our small business support program and full participation in the SECRA program, we have invested in the financial health of these tenants and will continue to support them in our centers as we all adapt to new realities. We remain confident that the superior quality of our necessity-based urban portfolio will continue to differentiate us in the months and years to come. At this time, we would be pleased to answer any questions you have. Chris, will you please open the call for questions?

Certainly. Thank you. We will now take questions from the telephone lines. If you have a question using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device's keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star 1 at this time if you have a question. There'll be a brief pause while participants register for questions. Thank you for your patience. Once again, please press star 1 on your device's keypad if you have a question. The first question is from Pammy Burr. Your line is open. Go ahead. Pammy Burr, your line is open. Mr. Burr, are you there? Tammy Burr? Oh, yeah. Yes.

Yeah, I am. Sorry about that. I was on mute there. Just from a disposition perspective, what can you share with us in terms of the interest that you're seeing currently?

Hey, Tommy. On dispositions, we expanded on it last quarter, so conditions have improved a little bit since then. So we're engaged in several discussions. Some things are under conditional agreement. Some are in negotiations. We increased our help for sale assets somewhere in the neighborhood of $100 million from Q2. And so we're optimistic that we'll get some of these done. And, you know, everyone that we're working on we think is a good transaction for FCR. And, you know, they are taking a bit of time, but that's understandable for a variety of reasons. But we're making progress.

Great. Just I guess in terms of the $130 million, can you just describe the mix of that, I guess, those assets?

Yeah, it's a mix of some of our more mature, stable IPP assets that are more on the periphery of some of the super urban neighborhoods we have. So that's one group. The other is development and density related.

Okay. Yeah. And just in terms of, you know, as you kind of think of your budgets next year, do you have a target, let's say, in terms of, you know, what you'd like to get to from a debt to asset or debt to EBITDA perspective?

Hi, Tommy. We're still in the process of setting our final business plan for next year. So at this stage, we're not giving guidance on specific targets. You know, what I've said previously is we're still committed to the targets in terms of debt to assets and debt to EBITDA that we had previously stated, which is returning the metrics to where they were at the end of 2018. Obviously, it's going to take us longer in light of the pandemic, but those targets remain unchanged.

Got it. And I guess just in terms of the development spending for the year ahead, how do you see that shaping up for 2021 and If you could just comment on, I guess, your expected sources of funding.

So, again, sorry, go ahead, Kay.

So, Pami, as I just mentioned, we're still in the final stages of setting our business plan for next year, so we're not going to give specific guidance on development spend for next year. We'll hope to provide more of an update with our Q4 release. In terms of funding and any development spend, our primary source of funding would be retained cash flow from operations as well as proceeds from our disposition program.

Got it. Thanks. I guess maybe just one last one. You know, nice to see, I guess, some of the encouraging signs on the leasing front, even at Yorkville. So can you just comment on those leases at Yorkville Village? You know, the terms or how do the rents compare to the existing in-place rents at that property?

Yeah, look, the mall, as you know, has gone through a massive transformation over the last number of years. And as a result of that, market rents have increased annually at a much higher rate than the general market. That's how through right through the pandemic. So the two leases that we spoke of are the highest rents we've ever done in the mall on a per square foot basis. But I just want to clarify, they're very much reflective of market rents and the trend that's evolved in that neighborhood.

Thanks very much. I will turn it back. Thank you.

The next question is from Tal Woorie. Your line is open. Go ahead.

Hi, good afternoon. Hey, Tal. Just wondering on the entitlement side, How progress is going there? Do you have any sight lines to any announcements? I just wonder if the sort of municipal infrastructure to do all that stuff is kind of gearing back up at the same pace you expected?

Hi, Paul. It's Jody. Thanks for the question. So, as you know, we've made a number of entitlement submissions prior to 2019. a lot in 2019 and of course in 2020 as well. All of them are going according to plan. I can't get into too much detail, of course, because we don't want to prejudice our position as we're working through them with the municipalities across the country. But all of them are proceeding. We really didn't see any material downtime at all during the earlier days of the pandemic. So we're feeling pretty positive about the whole program.

Okay. And then just in terms of the operating performance of the portfolio, you know, you've got some obvious properties, like I'm thinking of like the hotel, the Hazleton hotel, stuff like that, where there's clearly been a change in the operating environment. And are those like, is a property like that still like contributing net dollars to NOI at current, at current points? Cause I'm just trying to see if, you know, like we could expect sort of a, you know, as that business ramps up a significant jump.

I know. No, I mean, the, the, When I say no, what I should say is obviously the NOI in the hotel is down, but in terms of the bigger part of your question about should we see a material uptick on the other side of this, the hotel is exceptionally strategic from a real estate perspective, but it's a 77-room hotel, so we've got to put the size into context. Yeah. You know, I wouldn't expect, you know, it's not going to materially impact on, you know, the down part of this environment, which we're in the midst of now. And conversely, you know, we started it, we had the best year the hotel's ever had in its history coming into this. And, you know, we expect to get back there. We don't know exactly when. But it's going to be similar on the upside where it's not that material either.

And the same thing would be true for like a development asset that's still kind of leasing up like King Highline. Like it is contributing that NOI dollars right now into the overall portfolio.

Yeah, it is. And we've actually done a bunch of leasing there in the last quarter. So we're actually up, we're about 75% lease there now. So we've leased about 50 units since last quarter, still on track and targeting around a $4 square foot rental rate. And what's the last piece of that project to be completed? The bridge.

It's the bridge.

The bridge that connects – yeah, so you would have seen a bit of a delay in what we call the completion point. So one of the things we're revisiting is whether we can lay out some of those timelines in a more meaningful fashion because the bridge that connects – really not only that project, but the neighborhoods on the north side of King Street to the main Liberty Village neighborhood that's south of King Street where our offices and where our larger holdings are. That'll be the last piece that gets completed.

Okay. And then just, you know, maybe following on where Pami was going with development, should we expect, like, a... more meaningful update to the development pipeline at the end of the year too?

When you say a more meaningful update to the development pipeline?

Just on the active side because there's a number of projects there that are sort of smaller and the similar projects have sort of been there with these smaller tail pieces like King Highline on it and I just wondered if there will be kind of a more a meaningful refresh of that as we move out into like 2022 and beyond.

Yeah, well, are you getting at new projects being added to the pipeline as active projects? Yeah, I mean, look, we're going to be very careful on new development starts. There's no question it's a more cautious approach right now than it was, you know, say nine months ago. Our decision to proceed on projects at the time that was, I guess, originally planned, will be impacted by a variety of factors, including our progress on dispositions, the position of our balance sheet, the risk that we perceive in the development, whether it be on the cost or revenue side, managing the size of any individual project within the context of our overall program and just general market conditions. I mean, as great as things have been progressing inside the business, you know, it doesn't take more than us looking at the stock screen to say we're not in a normal environment here. And so that's not lost on us. And decisions like starting multi-year development projects certainly are impacted by that. And, you know, we'll have to make those decisions at the time. But And, yeah, there's definitely the environment's different than it was nine months ago from development for a whole bunch of reasons. And, you know, as Kay mentioned, we still have our deleveraging targets that are a high priority for us. So that's going to weigh in. And the progress we make on that and the progress we think we will continue to make going forward will be important parts of those decisions as well.

Okay. That's great. Thanks a lot, Adam. I appreciate it. Okay. Thank you, Tom.

Thank you. The next question is from Sam Damiani. Your line is open. Go ahead.

Thanks, and good afternoon, everyone. Just wanted to touch on market rents and leasing costs. Where would you say they are today relative to pre-pandemic, and has there been any change versus maybe in the summer in Q2 versus your expectations?

Sam, we've done a lot of leasing, and I've got to tell you, we have not seen much of a change, both in terms of market rents or leasing costs. The only area where we've seen a change is we've done new leasing with categories that are amongst the most challenged in this current environment, which includes gyms and some restaurants. In some cases, you know, a typical fixturing period may have been, you know, 45 or 60 days. Now it's kind of 90 days, in some cases 120 days to give ample time to not only get the space ready, but also provide a bit of a buffer, you know, given some of the targeted restrictions that have been put in place. I know on the cost side and the revenue side, things have been very consistent. We've seen a bit of an uptick in some of the fixturing periods, but very targeted to some of the more restricted categories. Anything else that we're seeing?

You know, early on during COVID, we saw some tenants being apprehensive. Now coming out of the quarters, we're seeing a much stronger tenant demand. especially from categories like QSRs, like gyms, valued retailers. So the demand is still there, and it's getting stronger every month. And we're building a pipeline. The pipeline is, I would call, normal.

Yeah, when it first hit in the spring, I think, you know, it was a really shocking environment for everyone, including our retailers. But You know, notwithstanding there's been a spike in cases, this wave is very different than the first wave, and it feels very different in our business. A lot of our tenants have adapted quite well, and they have an eye on the future. And to Carm's point, the activity has been decent. But to your original question, we have not seen a big change in terms of rents or costs. And we've done a very significant amount of leasing. So I think we have a good data set to look through.

Yeah, that's excellent color. And I believe you were mentioning Q4 occupancy should be relatively stable. The same property in a wide growth has been down notably in Q2 and Q3. But if you just set aside bad debt expense, which is always a bit of an unknown, and just look at Q4, obviously you'll have the hotel in there moving the needle a bit on same property. But what would you guess would be a good same property in a wide growth target for Q4?

If you adjust Q2 and Q3 for bad debt, we generally came in low single-digit growth. And that's probably our best guess right now.

That's helpful. Thank you very much.

Okay. Thanks, Sam. And I'll note we did that low single-digit growth on lower occupancy. Okay. Next question, please.

Thank you. Once again, please press star 1 on your device's keypad if you have a question. The next question comes from Jenny Ma. Your line is open.

Thank you. Good afternoon. Hi, Jenny. Hi. I wanted to dig into the bad debt reversal or the total for Q2 and Q3 a little bit. Kate, you had mentioned there was a bunch of true-ups on both the bad debt and the SECRA, so I just wanted to confirm that the $13.4 million total for SECRA is a clean number, which means the bad debt of $6.8 million for the two quarters is also a clean number, that they're in the right bucket.

Yeah, so the SECRA program has now closed. All applications have been submitted, so that is a complete and final number. The number for the other tenants is still an estimate because within there, there's rent deferral, and we've assumed, you know, some of it's not collectible, for example. So that's still an estimate. Some of it is yet to be determined. So in Q4, we will continue to assess things and we'll make up any true-ups if required. Okay.

I'm just trying to think of how you would – and I don't – you probably don't have a perfect split, but how you would look at the trend of how bad debt moved from Q2 towards Q3. And what I'm really getting at is sort of how to think about it for Q4 because I would presume there would be some residual bad debt trend I'm just wondering how you're seeing a trend.

Oh, sorry. I was on mute. I was talking to Jenny, and I guess you couldn't hear me. So sorry, we decided in our conference call, Jack, the amount of abatements for non-sec retainers and the amount of deferrals for non-sec retainers, both in Q2 and Q3. So if you look at those numbers, you can see that they are trending down, and that is what we would expect in the fourth quarter as well. We would expect a further trend downward.

Great. I'll take another look at that. With regard to the new program with SIRS, This is probably just anecdotal, but I'm wondering how the, I guess, former secret tenants have done in terms of paying October rent. I know it was pretty strong in October as well. This is a little bit of a downtick, but just anecdotally, have you seen any sort, you know, have those secret, former secret tenants been able to sort of pay the full October rent and then, you know, deal with the government funding at a later time?

So, what we're seeing in terms of the SECRA tenants paying October rent, about 70% of them are paying October rent. As I mentioned in my comments, we do expect that a number of them are waiting for the funds to flow in under the new CSRS program and that that will ultimately increase over time as those government funds flow.

Okay, great. And then moving on to the assets held for sale bucket, you talked about the different sort of types of assets in there. Is there any sort of delineation between locations or is it concentrated in the GTA? Are you able to give us any color on that?

It's not concentrated in a specific geography, Jenny. It spans pretty much every market that we're in.

Okay, great. And then lastly, could you comment on what you're seeing in the transaction market in general? You know, we've been hearing a lot about bid-ask spreads on lots of different kinds of retail assets being quite wide. And we've seen some tickups in cap rates in certain markets, although the transactions aren't happening, it's hard to put these data points in. So what have you been seeing come across your desk? And perhaps maybe in some of the health for sale assets, have you seen any sort of moves on cap rates for retail assets?

Yeah, look, we can only speak to the assets we own and the assets we're selling. We're not experiencing what you noted. So the length of time that the transactions are taking are less about a spread between bid-ask, more around more in-depth due diligence for people to get comfortable on cash flows. You know, look, there's talk of, you know, cap rates, cap rates going up. The reality is the impact of a low interest rate environment is very beneficial to cap rates. Clearly, that's not been factored into cap rates or valuations at this point. But I think once people get more and more comfortable with the durability of cash flows, there's no question that based on financial theory, a dollar of cash flow earned today in this interest rate environment is worth more than it was before. So that's a bit of a bull case scenario that can very well play out. We'll see what happens. But at this point, we are not seeing what you indicated, Jenny.

Okay. Thank you very much. I'll turn it back.

Great. Thank you.

Thank you. Next question is from Dean Wilkinson. Your line is open. Go ahead. Thanks. Afternoon, everyone.

Hey, Dean.

Adam. Maybe more of a theoretical question or something to pontificate. You issued debt this quarter, long-term debt, the cheapest that you've ever been able to. Your equity is arguably the most expensive. The equity is arguably the most expensive it's ever been for you. Looking at that dynamic and if we stay in this kind of borrowing environment, could that or would that change the view on how you look at leverage and that near-term target of bringing your debt metrics back to what they look like in 2018, just given that cost of capital advantage from the gearing?

Look, there's a lot of things that go into those types of decisions. At this stage, we do think there's a long-term benefit of bringing our leverage down, as we indicated. You know, we certainly can understand the case for doing something very different at this stage. Our board and the management group continue to be focused on the stated objectives that we've had for some time now.

Fair enough. And your debt rolls, I'm sure it's in the disclosure, but the cost of debt maturing in 2021 was fairly high, wasn't it? So there's going to be a substantial... savings that come?

Yeah, I mean, look, the current forecasts are that interest rates are staying low for a while now, and so we will be a beneficiary of that. I know the focus in general in the capital markets right now is more on the risk side, but if you look at the debt rolling over the next few years at FCR and the cost of it, there's a tailwind of certainly in this interest rate environment, but even if they started to creep up a bit, there's still a tailwind.

They'd have to go a long way, either debts mispriced or equities mispriced. Something will square on that over time. Okay, that's great. Thanks, everyone.

Okay, thank you very much.

Thank you. No further questions registered at this time. I'd like to now hand it back over to Adam Paul.

Okay, thanks, Chris, and thanks, everyone, for taking the time to spend with us during our conference call. That concludes the call and the Q&A. Thank you. Have a great afternoon. Bye-bye.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.