H&R Real Estate Investment Trust

group of chips. Good morning and welcome to the quarter earnings conference call. Before beginning the call, H&R would like conclusions, forecasts, and projections in the remarks that follow may contain forward-looking information, which reflect the current expectations of management regarding future events and in our financial and operating performance and in responding to your question. Meaning recognized or standardized under IFRS or Canadian General Accepted Accounting Principles and are therefore unlikely to be comparable to similar measures presented by other reports. as indicators of H&R's performance, liquidity, cash flows, or profitability. H&R's management uses these measures to aid in assessing the rent's underlying performance and provide and assumptions that may have been applied in the making such non-GAAP financial measures are described in more detail in H&R's public filings, which can be found on our website. I would now like to introduce Mr. Tom Hofstadter. Please go ahead, Mr. Hofstadter.

Good morning, everybody.

EVP asset management and strategic initiatives. All of our lives continue to be disrupted by the COVID-19 pandemic. It's created huge economic disruption, restricted travel locally and internationally, triggered dramatic changes in capital markets and changed the rhythm of day-to-day life to say nothing. Like other responsible organizations, we are following all of the recommended protocols of government-assisted programs and some notable tenant filings. Our focus on well-located properties, creditworthy tenants, and long-term leases and financings is evident in our latest rent collections exceeding 90% and limited scope of tenant closures in our portfolio. Less than half of 1% in the next few quarters, but we are quite pleased with how limited the impact has been so far. Our team continues to work closely with our tenants to find mutually beneficial and provide customized solutions to the unique challenges they are currently facing, all the while continuing to form their normal duties. One interesting side effect of the high volume of activity is that there's a backlog of rent collection. It's just one more small positive data point suggesting further rent collection improvements as circumstances slowly return to a more normal state. Next up, Larry will summarize our quarterly and annual financial results. Pat will then provide an update on our retail portfolio, followed by Philippe, who will update us on our multi-res portfolio. And finally, I'll conclude with some closing remarks.

Good morning, everyone. I would like to begin by discussing the three unusual items included in this quarter's results. The first two almost offset each other. Firstly, we received $3.3 million in lease termination fees. Normally, all of it was from a tenant in one of our Dallas, Texas office properties. This income is included in rentals from investment properties. Largely due to COVID, we wrote off $3.9 million of costs incurred for abandonment. This has increased our trust expenses this quarter. Thirdly, we increased our provision for bear debts from $334,000 in Q1 2020 to $24.5 million for Q2 2020. 2.9 million is for tenants that have filed for creditor protected filing. Secondly, $3.1 million commercial rent assistance, the secret program, implemented by of the April, May, and June rent for tenants that qualified for the program. Tenants making up about 16% of the rent due from an enclosed mall portfolio qualified for the program. And finally, we have set aside an $18.5 million provision for expected rent abatements and a general provision for tenants that may still file for credits of protection. Net of the provision, accounts receivable at June 30th was $32.5 million, which includes our share of equity-accounted investments. As can be expected, most of our $24.5 million provision for bad debts arose from our retail division, which accounted for 93% of the total provision, and specifically in our enclosed mall portfolio. The split of the provision for bad debts amongst our four segments can be found in our press release and We own 100% of 10 enclosed malls and own 50... May, June, and July, and based on these filings, are expected to receive $8 million from the government. on a cash basis decreased by 7.1% and 3%, respectively, for the three and six months ended June 30, 2020, compared to the respective 2019 periods, primarily due to the provision for bad debts. Excluding the provision for bad debts, same asset property operating income would have increased by 5.9% and 3.4%, respectively. Breaking this down between the segments, Same asset property operating income on a cash basis from our office segment increased by 3.8% and for the three months end of June 30th, 2020 decreased 0.9% for the six months end of June 30th, 2020 compared to respective periods in 2019. Included in the three and six months end of June 30th, 2020 were lease termination fees of 2.9 million compared to 0.1 million and 5.9 million for the three and six months ended June 30th, 2019. Excluding these termination fees, same asset property operating income increased by 0.5% and 0.8% respectively. The average term remaining on our office leases is 11.9 euros. Same asset property operating income cash basis from our retail properties decreased by 34.7% and 18% for the three and six months ended June 30th, 2020, compared to the respective 2019 periods, primarily due to the provision for bad debts, as we have already discussed. Excluding the provision for bad debts, the same asset property operating income for our retail division would have increased by 2.9% and 0.5% respectively. Same asset property operating income on a cash basis from our industrial properties increased by 7.2%, and 5% respectively compared to the respective 2019 periods, primarily due to an increase in occupancy and rental rate increases. Same as the property operating income from residential properties in U.S. dollars increased by 11% and 21.5% respectively for the three and six months ended June 30th, 2020. And Philippe will provide more color on this during his remarks shortly. Turning to funds from operations, SFO was 38.1 cents per unit for Q2 compared to 42.5 cents per unit in Q2 2019. Excluding the provision for bad debts, SFO would have been 46.2 cents compared to 42.6 cents per unit in Q2 2019, an 8.7% increase. As far as liquidity goes, H&R had $996 million of unused borrowing capacity available under its lines of credit and $131 million of cash on hand and only had $99 million of debt maturing during the remainder of 2020. In addition, the REIT had 94 unencumbered properties with a fair value of approximately $3.4 billion at June 30th, 2020. And I will now turn the call over to Pat to give us an update on our retail division.

Thank you, Larry, and good morning. Over the past two years, we've completed almost 800 lease transactions, including 250 new deals, of which 35 were new large format stores. In the last quarter of 2019, over 200,000 square feet of new large format tenants opened, contributing significant rental revenue. Earlier this year, a new 35,000 square foot Best Buy opened at Sunridge Mall and another of 180,000 square feet of large format tenants has recently or will open shortly, primarily in space formerly occupied by Sears. Moving into 2021, we have approximately 80,000 square feet committed to locate in former Sears locations with several additional transactions under discussion. With most of the hard work replacing Sears and Target behind us, we are now confronted with the COVID-19 pandemic. Our retail partners have faced significant challenges since malls began to close, and we have not hesitated to work with them to navigate this difficult period. Within the Primaris division, we utilized the Circa program for more than 530 tenants covering the period from April to July 2020. The gross rent paid by tenants in the Circa program amounted to approximately 16% for Primaris and 3% for the overall H&R portfolio. We expect to apply for the CERCA program in August. However, with tenants open and operating and reporting sales, we're reviewing tenant applications on a case-by-case basis. Due to mall closures and hardships faced by many tenants since reopening, we have negotiated tenant assistance agreements with many of our tenants, which has resulted in a $22.8 million bad debt provision in the retail division, with the majority being allocated to enclosed malls. As a consequence, the retail division has experienced a significant decline in NOI during the second quarter. On a positive note, without this bad debt provision, the retail division would have experienced a 2.9% increase during the quarter despite a significant decline in percentage rent and specialty leasing revenue, which is associated with the malls being closed. Significant leasing in prior quarters and new store openings has resulted in a notable gain in our retail rent, and recovery ratios, which we will continue to benefit from during the duration of 2020 and beyond. Collections of rent in the retail portfolio have trended higher since a low point of 64% in May. In July, we collected 77%, and we expect to exceed that figure in August. The enclosed mall portfolio follows a similar trend with collections of 49% in May, rising to 66% in July, with August collections expected to improve further. The circuit process monopolized much of our team's time recently, but with it nearing completion in terms having been finalized and documented with the majority of our tenants regarding outstanding rents, we will focus on updating our expected rents and receivables, which will in turn improve our collection statistics further. While there have been a number of CCAA filings, we managed to mitigate our exposure and have realized a limited reduction in square footage. While new leasing activity has been light during the past few months, some of the space vacated by tenants filing CCAA is of high quality, and as a result, we have progressed discussions with replacement tenants already. With all malls essentially being closed in April, properties began to reopen in Manitoba, New Brunswick, Alberta, and B.C. in May. Our Quebec property in Chakotay opened in June, and our Ontario properties opened mid-June, except for Dufferin, which opened at the end of June. Tenants have been confronted with issues since reopening, including additional costs for PPE, staffing, and maintaining inventory levels. While food tenants and personal care tenants continue to report sales in the 50% to 70% range of prior year comparable sales on average, other tenants, including many electronic, fashion, and footwear tenants, are performing well, with some posting comparable sales greater than last year. Generally, malls open since May are showing sales of approximately 70-80% compared to the same period last year. Smaller market properties typically enclose malls that are the only one in its respective region, such as Park Place in Lethbridge and Plaster Royale in Chicoutimi, are performing better than malls located in major markets. Tenants are stating that the most challenging properties are super-regional malls in major markets that require a regional draw to generate high sales volume. as well as urban properties that rely on daytime traffic. With the majority of our discussions completed with tenants regarding outstanding rents and our major capital program associated with Sears and Target nearing completion, we look forward to focusing on a redevelopment of Duffer Mall that incorporates approximately 1,000 new residential units, as well as other intensification opportunities across our portfolio. Thank you, and I will now turn it over to Philippe.

Good morning, everyone. As you can imagine, we spent most of the first half of 2020 primarily focused on supporting a high collections rate, and just as importantly, value creation through active management. I'd like to begin, however, by highlighting that our success through COVID-19's pandemic can be attributed to the unbelievable work and complete dedication that our onsite and corporate staff have demonstrated. And so I'll begin with collections. As mentioned last quarter, collections have been top of mind, and so we've enacted a few strategies to support our collections percentage and assisted our residents through this period. Thankfully, our high collections rate mentioned on our last call has persisted throughout COVID-19. I'm delighted to announce that our teams have continued their success as evidenced by a receipt of approximately 97% of billed rent for every month from April to July. For comparison, the National Multi-Housing Council's Rent Payment Tracker, which is tracking 11 million apartments across the U.S., has reported a collections rate of 95% over the same period. Additionally, LandTower had collected 90% of August rent compared to the industry average of 79% as of the 6th of this month, and has collected over 93% of August billed as of yesterday. I'd like to briefly touch on eviction moratoriums. While enacted in an earnest attempt to help renters, eviction moratoriums have yielded an unfortunate moral hazard. Some residents, aware of the temporary eviction laws, appear to be gaming the system by electing not to pay rent even though they possess the financial means to do so. Upon the release of some local moratoriums, Landtower sent eviction notices to residents who were delinquent multiple months' rent, many of whom were suspected of this nonpayment strategy. Within a few days, nearly 40% of those notified residents paid a portion of the delinquent balances. Unfortunately, this is a well-documented trend across the U.S., and in our opinion, represents a policy failure and strategy to provide aid to residents in need. Having said that, evictions across the country remain low, even where moratoriums are lifted, and collections remain high. We mentioned on our last call that we had been implementing specific technology enhancements to a few land tower properties. In light of the advancement of property tech and the shift of resident preferences, we've moved forward with a smart apartment pilot program at three of our properties in Austin and two properties in Charlotte. These properties are in the process of receiving smart locks, smart thermostats, leak sensors that will provide the resident full apartment control all from a single app. Furthermore, we expect operational efficiencies ranging from keyless and remote access to expense savings via vacant unit utilities control. Lastly, our smart tech initiative and software integrates very well with our enhanced self-guided tour initiatives that we've begun deploying in early 2020. and I look forward to sharing updates next quarter regarding the reception of this initiative. On the development front, The Pearl, a 383-unit mid-rise multifamily development in Austin, Texas, commenced pre-leasing in August and has begun signing leases. The project is scheduled to fully deliver later this year. Despite COVID-related construction shutdowns throughout the state of Washington, Nightingale, our 263-unit mid-rise development located in Seattle, Washington, is still estimated to commence pre-leasing by the end of this year and will fully deliver in the first quarter of 2021. Phase 1 of our Hercules development in San Francisco, named The Exchange, received final CO in July of this year and has fully opened its leasing office. Phase 2 of our Hercules development started construction during the first quarter of 2019 and is expected to deliver in the second quarter of 2021. Lastly, Shoreline Gateway, our 35-story multifamily tower in Long Beach, California, is on schedule and expected to be delivered in the summer of 2021. the project has reached the 29th level and should top out in the fourth quarter of this year on the operational front at the end of the second quarter the land tower portfolio excluding jackson park was 90.6 percent occupied it was over 92.1 percent occupied when excluding our lease up properties perhaps more importantly we've recently seen an improvement in leasing velocity and retention rates As of this week, the Lantara portfolio is 92.5% occupied, including lease-ups, and over 93.3% occupied, excluding lease-ups, representing fundamentals moving in a positive direction and hopefully leaving the second quarter in the rearview mirror. By way of example, in July 2020 alone, we secured nearly 60% of the total number of new leases secured in the entire second quarter of 2020. On the financial front, our same asset quarter end operating income increase in U.S. dollars from $18,210,000 in the second quarter of 2019 to $20,217,000 in the second quarter of 2020. This equates to same asset quarter-over-quarter operating income growth of 11%, partially due to the inclusion of Jackson Park's lease-up stats. When excluding Jackson Park, our same asset quarter-over-quarter operating income growth equates to 5.6%. We're proud to announce and highlight that our second quarter operating income growth represents 10 consecutive quarters of same asset quarter over quarter NOI growth. Aside from focusing on collections and operating income growth, LandTower and the REIT have increasingly moved to a more sustainable business approach that recognizes the financial and social benefits of ESG. Our smart apartment initiative will inherently make a double bottom line impact via the utility savings and efficiencies. In addition to the environmental initiatives being pursued, Landtower has also taken positive steps on the social front. We have recently launched two national committees led by company leaders from various levels that will be geared towards promoting diversity, inclusion, and active employee engagement. As a tidbit that I'm quite proud to share with you, at Landtower, approximately 45% of our employees and over 50% of our executive team consist of women. While our achievements on that front are and will continue to be a work in progress, I'm delighted to say that these initiatives stem from an organic movement within our organization that admittedly are representative of our company culture and values. And with that, I will pass along the conversation back to Tom.

Thanks, Philippe. With those updates out of the way, I only have a few final remarks. Firstly, we didn't see any significant changes to fair value properties. Last quarter, we recorded a significant reduction in fair value. While there still haven't been many market transactions to benchmark off, we believe we have adequately provided for the impact of the pandemic on our portfolio. Second, our unit price. We believe the current roughly 50% discounts to our best fair value that our units are trading at is excessively discounting the risk in our business. We hope our Q2 results provide some comfort to investors that our cash flow and portfolio value is more resilient than our unit price would suggest. As noted in the past, we are always looking at ways to improve our business and the variety of options we look at is broad. With the unit price trading where it is currently and with the REIT's adequate liquidity, the option of buying back our units has become very attractive, particularly relative to other investments we might pursue. Over the rest of 2020, as visibility improves and economic conditions return to a more normal state, we expect to have excess liquidity and will consider buying back units if current price levels persist. And with that, operator, please open the line for questions.

My pleasure. If you'd like to ask a question, please press star, then the number 1 on your telephone keypad. That is star 1 to ask an audio question. We will pause for just a minute to compile that Q&A roster. And again, that is star 1 to ask an audio question. Your first question comes from Matt Cornack.

Good morning, guys. With regards to same property NOI growth within the retail segment, I understand that it is mostly a provision, but as you look ahead and things normalize, what would you think are the at-risk portion on a longer-term basis, not necessarily relative to collections you would have had historically? Looking at sort of the plus 3% excluding COVID and minus 30 with COVID, where should we think of it in that range?

It's Pat. We've done a lot of leasing, and a lot of that rent, as I mentioned in my speech, is starting to kick in, and we're starting to see the benefit. We really were going to experience significant growth over this year and next year in terms of... rental rate growth just from all the box stores and development work we've done. And that's not going to change. I think in terms of the small format stores, I think in the short term, we're going to experience some pressure on just having rates remain flat in some cases. And we're going to have issues with some further CCAA filings potentially. But I think over the longer run, Our malls are generally smaller, and they're the only game in town, and I think we're going to maintain our occupancy, and we're going to be able to grow rents over time.

So you don't see this as permanently impaired vacancy, it sounds like. And then also, do you have a sense as to how much of that would have been actual cash rent abatements versus just a deferral and a write-off against the deferral?

In terms of the bad debt? Yeah. Yeah, deferrals aren't included in that. We did do some deferrals. They're not provided for. But generally, all our deferrals are either paid back this year or within, you know, early next year. We didn't do any long-range deferrals for the most part.

Okay. Larry, you have – I mean, your liquidity position – materially improved with the bond issuance, but also some further credit facility capacity. It doesn't sound like you have much coming due in the way of mortgages. Just wondering why take out such a huge insurance policy in terms of liquidity.

Good morning, Matt. It's just uncertain times, and in uncertain times we want to be as liquid as possible and look forward to not necessarily just 2020, but into 2021 as well.

And from a financing standpoint, do you have any sense as to where bond yields have gone as well as mortgage financing? It seems like you've done both at fairly attractive rates, but have those improved since the height of the COVID crisis?

Yes, lender spreads have definitely come in since the heart of the COVID crisis. We did a large mortgage just in the heart of that crisis, and for sure lender spreads since then have narrowed, as you all know. So, yeah, it is cheaper financing available still than there was in April of this year.

Okay, so needless to say, I guess going forward, you'd think that you'd have access to cheaper capital, assuming, again, no second wave, et cetera, et cetera?

Cheaper than the financings that we did in April, yes.

We have nothing really rolling of any consequence. So it's not really impactful on our financials in the near term.

I guess for 2021, with regards to the maturities that you have there, would you be replacing mortgages with mortgages and bonds with bonds? Or how should we look at your approach to those financings?

I think it's right now to wait and see. We'll wait until we're a bit closer. We'll see where we are in the unsecured world compared to the secured financing world and and we're still too far out.

If our financing can also be partnership driven where our partners require financing, that can't be unsecured. So for example, the retail partnerships with Montez and a lot of the PSP industrial portfolio, they have to be secured financing rather than unsecured just because our partners don't have access to our unsecured. So that's going to dictate to a great degree where we're going to do secured versus unsecured.

Okay, that makes sense. And then, I mean, Even so, I guess when you look at the cost of debt capital relative, and you've got cash as well relative to your current price, your comments on buying back shares, do you have a sense as to how long you're willing to wait to see that discount compressed before you start buying back, or is this something we should expect imminently?

Definitely not imminently unless the vaccine. There's too much grayness in the market right now to give you definitive answers. So we have the capacity, and we're waiting, just like everybody else is, for some light at the end of this tunnel, and we'll act accordingly.

Okay. Thanks, guys.

Thank you.

And your next question comes from Jenny May.

Thanks. Good morning. Maybe just a bit further, Tom, on the comment about buybacks. I know you said that you're going to wait until there's light at the end of the tunnel, but in terms of more concrete thresholds, would you say that the liquidity position that you're in currently and combined with the unit price is enough of a threshold for you to act on if you can see an improvement in the environment?

Absolutely.

Okay, great. And then with regards to the fair value loss in the office portfolio, I'm not sure if maybe I missed this, but was it a little bit of a change across the portfolio or was there a certain type of office asset or assets in particular that drove that move?

Morning, Jenny. It's Larry. No, we basically kept our fair values exactly the same fair value. Our valuations team kept it in the same value as last quarter. But what happened in a few properties, we had CapEx and leasing and CapEx charges. So if our valuation started last quarter, let's say at $100 million, and we kept it the same $100 million for the valuation scheme, but we had CapEx incurred in the quarter of $10 million, it resulted in a fair value decrease of $10 million. In other words, we didn't increase the fair value by the CapEx work we had done during the quarter.

Okay, so no major fundamental changes, just some tweaks here and there, I guess.

Yeah, there were no changes to our assumptions or anything, evaluation assumptions that we had made last quarter. We kept the same evaluation assumptions as we did last quarter.

Okay, great. And then my next question is for Philippe with regards to the land tower portfolio. Just wondering if we can get some on-the-ground insight in terms of what you're hearing from your tenants regarding their ability to pay rent. I know it's been pretty strong, but maybe it's a timing issue. It looks like it's come off a bit in August, and it very well could be timing. But any sense of your tenants' ability to pay, and do you collect any employment data from them? Anything that you could share with us?

Philippe, I think you're on mute.

I am on mute, the cardinal sin of all Zoom calls. I'm sorry, I didn't quite understand your comment that August was a little bit off.

From what I see, the collection was at 90% compared to some of the earlier months in the high 90s. I'm not sure if that's just timing or if there's been a change given that some of the benefits have come off or maybe there's been some changes in employment for some of your tenants. Just any insight on that.

Yep. Okay. So, listen, if I was to wager a bet, I would probably say that we're going to end August exactly where the last four months have ended. I think that's just purely a timing issue in that we're having a call today as opposed to in a week from now. As it relates to your question, I think that's the million-dollar question that everybody in the Class A space is kind of wondering, right? Most of our folks, we have employment data. We know where they're employed, which leads us to believe that the vast majority of our tenants are still employed and either going to the office or working from home. We've noticed a small uptick in credit card usage to pay rent, which I think was more prevalent in April, and then petered out as we got further into the summer. And so I would try to answer the question as quickly as I possibly can without going on. I would probably tell you that our residents, and this is probably true for most Class A residents in the gateway cities, are less sensitive to what ends up happening on the unemployment side. And so if we are staying the course and there's no improvement, but there's no material deterioration, I wouldn't anticipate there being any material effect to our collections. Does that answer your question?

Yeah, yeah. I just want some additional color. Turning to Jackson Park, Could you comment on the physical occupancy there? I mean, we've been hearing a lot about some segments of New Yorkers moving out of the city. Have you seen that occur in Jackson Park? And if you could remind us when the bulk of the move-ins were from the stabilization. Basically, I'm just wondering if there's a big bump of tenants whose leases are starting to come to expiry shortly.

Hey, Janice, Larry. The occupancy at Jackson Park was kind of flat, maybe slightly down at June 30th. But the bulk of the leases are coming up. Well, not the bulk. A lot of leases come up in the summer. So July, August, September, there's a lot of leases coming up, which, you know, that's the way just the New York apartment building goes. So we're waiting to see how we do with those renewals.

Jenny, a significant portion of our property, Jackson Park and LIC, are foreign students and universities aren't opening. So we're expecting that the vacancy rates will rise because those residences are just not going to renew. They're not in New York anymore. I don't think that's indicative of anything other than our particular location, which was very attractive to foreign students.

That's fair. Do you have a sense of what the percentage of I guess, non-resident tenants would be in Jackson Park?

40% are students, foreign students. So you can expect that the occupancies are going to drill down to the low 80% in the short term in either event, and we'll have to ramp up again as universities start opening again.

Okay. Is that... I'm not sure if you know, but are they intending to open in person for the most part, or...?

They are not. They are not.

Yeah, that's what I thought.

Right. You can have a lot of Zoom classes. So we're going to take a hidden occupancy in the short term for sure, and we'll have to build up from there, basically ramping out of the student market and attracting the typical LIC Manhattan market.

Okay. Okay, great. That's all for me. Thank you.

Thanks, Jenny.

And your next question comes from Sam Damani.

Thanks, and good morning. Maybe, Pat, just for you, you mentioned you see maintaining occupancy in the malls. Can you just be a little more specific as to what sort of timeframe that comment was referring to?

We haven't had a lot of follow-up at the moment, and we have actually, I just signed one this morning, we have transacted some new deals Most of our properties didn't have a lot of vacancy. A lot of our vacancy was being carried in the anchor boxes, which we're filling up. The one strong benefit of our properties, there are a couple benefits. One is we're typically the only mall in town, so if you want to be in a region, you're coming to our property. And the second thing is our malls are generally affordable. I would suggest to you that we've been one of the better shopping center managers at controlling our costs. Our average cam is... CAMA tax package is significantly below a lot of the other shopping centers in other regions. And so we're very affordable for tenants and our grok levels are very reasonable. And for that reason, that's one of the reasons we haven't seen a lot of fallout throughout the CCAA filings. And I think as we move forward and tenants continue to rationalize their store counts, they're going to look at our market and say, I want to be in that market and I make money there. I think where you're really going to see the pressure is the larger markets, the super regionals where the rents The gross rent packages are completely out of hand and unaffordable, and that's where you're going to see a lot of the store closures. So for us, I don't really see occupancy being a challenge going forward because we are really the only alternative in the region we're in.

Okay, that's helpful. And you made a comment, I think, on malls that have been open since, sales levels or traffic levels are in the 70% to 80% range. I just wanted to clarify that and wonder if there's any more color you could provide in that regard.

Yeah, I think right now sales reports are a little fuzzy, right, because for a number of reasons. One is although the malls might have opened on a specific date, not all the tenants opened on that date. That's one. The CERB program has really caused a lot of problems with tenants in that they are having trouble getting staffing. So some stores are not opening seven days a week. They're not opening full mall hours. And so their sales are being squeezed by that as well. In general, as we dissect kind of the sales reports and look at who's doing what and who's been open for what period of time, the guys who are basically open full-time and opened back in May, They've been able to ramp up. They've got their staff in place. They've got their inventories kind of at a stable level, and they're doing well. I think generally what we've seen is it takes about 30 days for the mall to kind of get back into the swing of things before people really start coming back and feel comfortable there. So Dufferin Mall, for instance, has had a slow start, but we're starting to see it pick up now because it didn't open until the end of June.

Right. And so do you know what percentage of your stores are open today? or your GLA is open today?

Well, it's saving except for the stores that filed CCAA and might have closed for that reason. I would suggest we're 99% plus. Like, we're virtually entirely occupied.

And everyone's opened up.

Everyone's opened, yeah. The hours and the number of days per week is still a little hit and miss.

Thank you. And my last question, just on River Landing, I wonder if, Tom, perhaps you could just address the reasoning for the cost increase on the project this quarter.

Well, basically, it's primarily COVID delays. We haven't really opened the residential yet. It's waiting for its occupancy permit. And it's just carry costs. We haven't leased any of the restaurant space. It's impossible to do so during this period. The first occupancy is commencing over the Labor Day weekend. Hobby Lobby is opening up. Publix is opening up September 17th. And most of the 70% of committed retail tenants will be opening up towards the end of the year. But overall, the office leasing is, again, we're still with that 50,000 square foot tenant. But all these delays are basically added to our costs. So it's primarily just COVID-related.

Thank you.

And your next question comes from Irina Prokovia.

Yes, hello. Thank you for taking my question. I wanted to ask you for an update on your tenants in the mall space, just to follow up on Sam's question, for example, of Good Life Fitness, movie theaters, and Hudson Bay.

Sorry, just to clarify, you're asking about HPC?

Yes, so what's the outlook there and how's business going there?

Hudson Bay stores are all open and operating in our portfolio. They're reporting that their sales are trending up. They had a slow start, but they're doing better now. They have not indicated they're prepared to close any stores. I know that there's been discussions with other landlords where landlords have actually requested them, asked if they would close, and they said no. So as far as I'm concerned, it's just building their business back to normal and everything will be open and operating.

And what about Cineplex and other movie theaters and the fitness clubs?

The movie theaters and fitness clubs? Movie theaters right now are open. Their biggest challenge is that they don't have any new releases. The setback they faced was when the U.S., COVID-19 reared its head, and basically theaters down in the U.S. shut down. The Hollywood studios put the movies on hold. So the new releases are really key to getting their business moving forward. There are new releases scheduled to come out later this month. I think it's the third week of August, which will help significantly. I mean, it's a tough time to open a theater when the weather's nice outside. and you're being asked to go sit indoor and watch a movie that was on TV 10 years ago. So there's challenges in the short term, but I think once they get the new releases, they'll see a marked increase in traffic. The fitness facilities, surprisingly, are all telling us that they're surprised at how well they're doing. We thought that would be a significant struggle, but they weathered the storm, they got reopened, and they're not complaining at all.

Thank you. And so in your enclosed malls, do usually tenants, the smaller tenants, do they have in their leases co-tenancy clause with regards to anchor tenants?

Some tenants do have co-tenancy clauses. One of the goals that we've done going through this pandemic and part of our negotiations with tenants regarding their rental arrears or outstanding rents has been to work to eliminate those clauses or defer them for an extended period of time. And we've been very successful in doing that. So I'm not really concerned about any co-tenancy and it doesn't look like it's really going to be an issue anyways as our malls are basically fully open at this point.

Okay, thank you. And I wanted also to ask about the office, the break-up fee that you got from tenants in Texas in the office space. What was the reason that Tenon decided to break up? Did they decide to smoke from home, or they've been bankrupt, or I don't know, some other issue?

It was a tornado, basically. A tornado basically demolished the building, effectively. So the building's going to be demolished, and we got insurance proceeds.

Okay. Okay, thank you. Thank you.

And again, if you'd like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from Dean Wilkinson.

Thanks. Morning, everybody. Morning. Pat, I'm actually looking forward to seeing E.T. in the theater because I missed it the first time around. So don't discount that fully. Questions for Philippe. I'll give him a second to get off mute. On that couple of percent question, that you haven't collected, and you mentioned some eviction notices. How does that break down between tenants who are in a position to evict and tenants that you are working with on some kind of deferral payment to sort of help them get through this?

Yeah, so that's two buckets. There's a third bucket, which essentially is the folks that can pay but know that they don't have to, so they wait until the very last minute for the moratoriums to be lifted, and all of a sudden, rush for the leasing office, which I would say is close to half of the bad debt that we're carrying. So if I'm using round numbers, if we collect 96%, then that 2% of the 4% is, and I want to be polite here, but just folks who are being strategic with the policies. And of the other half, I would say, are definitely folks that we're having conversations with that are roughly still employed, that are on some payment plan. I don't – I was looking at the stats the other day. From a pure bad debt, I'm not paying, I can't pay, I lost my job, and I want to leave, it's a very immaterial uptick versus where we were at pre-COVID.

That's what I would have figured. Less than one would expect. How does that, and then you look at the sort of the stabilization of the lease up and some moving parts around there, and I know it's very hard to say from a guidance perspective. What do you think the timeframe is to sort of stabilize occupancy across the portfolio? Because it looks like there's a lot of juice there, right? Like there's, you know, on a stabilized basis, I don't know, maybe seven, 8% of occupancy left that you could capture here.

Yeah, if you recall, since the very beginning, we've always said that we do not manage to occupancy. We manage to NOI and specifically NOI growth. And so to be completely blunt, I don't really care if our portfolio is 90% or 96% as long as we're seeing NOI growth and we're getting the rents that we believe we should be achieving. I think that ultimately the fallacy in occupancy rates is ultimately if you're managing to occupancy the risk is you're leaving money on the table, and you're not turning your units as quickly as you ought to be. So that's – I mean, everyone has their own investment philosophy, but ours has always been managing 10 and wide growth.

Yeah, well, no, that's what drives the bottom line. So that's it. I will hand it back. Thanks, guys.

And there are no further questions.

Thanks, everybody. Enjoy the rest of the summer, and we'll see you next quarter. Thank you.

That does conclude today's call. You may now disconnect.