Good morning, and welcome to H and R Real Estate Investment Trust's 2023rd Quarter Earnings Conference Call. Before beginning the call, H and R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts or projections in the remarks that follow may contain forward looking information, which reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward looking information. In discussing H and R's financial and operating performance and in responding to your questions, we may reference certain financial measures, which do not have a meaning recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles and therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H and R's performance, liquidity, cash flows and profitability.
H and R's management uses the measures to aid in assessing the REIT's underlying performance and provides these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks and uncertainties that could cause actual results to differ materially from the statements in the forward looking information and the material factors or assumptions that may have been applied in making such statements, together with details on H and R's use of non GAAP financial measures, are described in more detail in H and R's public filings, which can be found on our website at www.sedar.com. I would now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H&R REIT. Please go ahead, Mr.
Hofstetter.
Thank you, and good morning, everyone. I'd like to thank you all for coming. Joining us on the call today. With me here are Larry Frum, our CFO Pat Sullivan, COO of Primerus Philippe Lapointe, CEO of Lantower Robin Kesterberg, Executive Vice President, Corporate Development and Alex Avery, Executive Vice President, Asset Management and Strategic Initiatives. A lot has happened since our last conference call.
The U. S. Selection is finally over, progress on treatments and vaccines for COVID-nineteen, continued recovery in employment, economic activity. It seems that society is getting better at living more normally as we wait for the end of the pandemic. We have continued to prioritize the safety of our employees, tenants and visitors to our properties following all of the recommended protocols, including social distancing and frequent cleaning.
From a business perspective, Q3 results reflect the high quality of our portfolio and appeal of our properties to the creditworthy tenants that occupy them. Rent collections averaged over 93% in the quarter and continued to improve. Q3 FFO per unit was down less than 5%, primarily due to bad debts in the quarter, absent which FFO per unit would have been would have risen by 5%. Net asset value per unit increased slightly, primarily driven by increased investment demand for Sunbelt Apartments. We are pleased with how well our portfolio has performed through these exceptional times.
We are clearly not through this pandemic yet and may feel a further economic impact over the next few quarters, But the stability and resilience of our business is clear. Our team continues to work closely with our tenants to find mutually beneficial solutions to support the success of our properties. Are confident that H&R REIT is adequately capitalized, owns great real estate and has the flexibility to take advantage of opportunities in the market that may arise over the coming quarters. And with that, I'll hand over the call to Larry, who will review our quarterly results, followed by Pat, who will provide an update on our retail portfolio and then over to Philippe, who will update us on our multi res portfolio. Larry?
Thank you, Tom. Good morning, everyone. Overall, we collected 93% of the rent build in Q3 2020, an increase from 90% in Q2. Q4 looks like the trend will continue as we've already collected 95% of October's total billings. We increased our bad debt provision by $13,400,000 in Q3 in addition to the $24,500,000 booked in Q2.
Dollars 5,000,000 was for tenants who had filed for creditor protection. Dollars 2,800,000 was for the 25 percent rent abatements we agreed to under the Canada Emergency Commercial Rent Assistance Program and $5,500,000 dollars was for other rent abatements we expect to grant and a general provision. Net of these provisions, our accounts receivable balance at September 30 at H and R's ownership interest was $23,600,000 down from $32,500,000 at June 30, 2020. As can be expected, most of our $13,500,000 provision for bad debts arose from our retail division, which accounted for 95% of the total and specifically in our enclosed mall portfolio. Split of our provision for bad debt amongst our 4 segments can be found in the press release and the MD and A.
As a reminder, we own 100 percent of 10 enclosed malls and own 50% of 7 other enclosed malls. These malls at our proportion of share ownership account for 21% of our total billings. Same asset property operating income on a cash basis decreased by 5.5% and 3.8%, respectively, for the 3 9 months ended September 30, 2020, compared to the respective 2019 periods, primarily due to the provision for bad debt. Excluding the provision for bad debt, same asset property operating income would have increased by 1.5% and 2.7%, respectively. Same asset property operating income from office properties increased by 2% and for the 3 months ended September 30, 20 20, increased 0.1% for the 9 months ended September 30 compared to the respective periods in 2019.
Included in the 9 months ended September 30, 2020 were lease termination fees of $3,200,000 compared to $5,800,000 for the 9 months ended September 30, 2019. Excluding these termination fees, same asset property operating income from this office division and would have increased by 1.1% for the 9 months ended September 30. The average term remaining on our office leases at September 30 was 11.7 years. Subsequent to the quarter, we extended Hess' lease on 2 thirds of our office tower in Houston for an additional 10 years beyond the original expiry of June 2026. Same asset property operating income on a cash basis from our retail properties decreased by 15.7 percent 17.2 percent for the 3 9 months ended September 30, 2020 compared to the respective 2019 periods primarily due to the provision for bad debt as a result of the impact of COVID.
Excluding the provision for bad debt, same asset property operating income would have increased by 5.3% and 2.1%, respectively. Same asset property operating income from industrial properties increased by 7.4% and 5.8%, respectively, for the 3 months 3 9 months ended September 30, 2020, primarily due to an increase in occupancy and rental rates. Our new tenant, Datcher Post, is busy fitting out the 1st industrial construction property, totaling just under 343,000 square feet on our Caledon land, and we expect rent payments to commence on November 14. Same asset property operating income cash basis from residential properties in U. S.
Dollars decreased by 12.7% for the 3 months ended September 30, 2020 compared to the respective 2019 period, primarily due to Jackson Park in New York, which has been negatively affected by lower than average lease renewals and apartment traffic due to COVID. Excluding Jackson Park, same asset property operating income in the respective compared to the respective 2019 periods. Over the course of the next 12 months, construction will be completed on 1 mixed use development and 5 residential developments, totaling 969 additional units at our share. Funds from operations FFO was $0.41 per unit for Q3 2020, up from $0.38 per unit in Q2 2020 20 and down from $0.43 per unit in Q3 twenty nineteen. Excluding the provision for bad debt, FFO would have been $0.46 an increase of $0.03 compared to Q3 2019.
Adjusted funds from operations FFO was $0.35 per unit in Q3 2020, up from $0.29 per unit in Q2 and flat with Q3 2019 of $0.35 per unit. Distributions paid as a percentage of AFFO, more commonly known as the payout ratio, was 49% in Q3 2020. Debt to total assets decreased to 47.2 percent at the end of Q3 2020 compared to 48.1% at the end of Q2 2020. As far as liquidity goes, as of September 30, 2020, H and R had $1,000,000,000 of unused borrowing capacity available under its lines of credit, had $54,000,000 of cash on hand and an unencumbered asset pool of approximately 3,500,000,000 dollars with only $39,000,000 mortgages maturing during the remainder of 2020. I will now turn the call over to Pat to give an update on our retail division.
Thank you, Larry, and good morning. During the Q3, the retail division incurred an additional $12,800,000 in bad debt bringing the year to date figure to 35,700,000 dollars Enclosed malls accounted for approximately 94% of this amount. As a result of this bad debt provision, the retail division has experienced a significant decline in NOI during the Q2. On a positive note, without this bad debt provision, the retail division would have experienced a 5 point 3% gain during the quarter. Further excluding bad debt provision, enclosed malls would have posted a 10.4% gain during the quarter and a 4.1% gain through the 1st 9 months of 2020 despite a significant decline in percentage rent and specialty leasing revenue.
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 beyond. In the Q3 of 2020, just under 80,000 square feet of large format tenants opened from former Sears premise with another 3 tenants opening in the 4th quarter from approximately 72,000 square feet. This is in addition to large format tenants that opened up from about 110,000 square feet in Q2. As we enter 2021, large format tenants approximately 75,000 square feet is committed to open and we are in the final stages of negotiation with several tenants for approximately 55,000 square feet more. Additionally, we are close to finalizing long term renewals and expansions with 2 tenants that will expand by almost 15,000 square feet in total and occupy almost 90,000 square feet in aggregate.
Collection of rents in the retail portfolio have trended higher since a low point in May. In Q3, we collected 72% from our enclosed malls and 80% from the retail segment. Collection for October, November in enclosed malls are trending above 80%. With respect to tenant failures, we've retained 65 percent of the stores that have filed for protection under CCAA and including those that have already been replaced with new tenants, this figure rises to 82%. Le Chateau would have occupied approximately 43,000 square feet from 13 stores, filed CCAA recently and will be closing all stores in our portfolio.
Le Chateau has indicated they will remain in occupancy until March or April of 2021, which will afford us time to source replacement tenants for their high profile locations. We're pleased with the fact that our enclosed malls are reporting sales in Q3 that are 86% compared to the same period last year, with some specifically in larger markets skewing lower, while several smaller market properties are posting sales above comparable months the year prior. Generally, those tenants that sell products that are associated with office work such as suits, formal footwear and even cosmetics are experiencing lower sales as compared to retailers that sell casual apparel, athletic footwear and household goods, some of which are posting higher comparable sales figures. With warm weather across Canada in August, sales during that month were somewhat lower than expected. However, September sales were solid as a result of schools opening.
Tenants continue to state that the most challenging properties are super regional malls in major markets that require regional draw to generate high sales volumes as well as urban properties that rely on daytime traffic. Most consumers are avoiding travel to major centers and shopping locally, which is benefiting malls in our portfolio that are typically located in secondary markets and include a higher concentration of essential services. Thank you, and I'll now turn the call over to Philippe.
Thanks, Pat. Good morning, everyone. I'd like to begin by revisiting our experience through COVID-nineteen's pandemic, successful by most metrics due to the complete and exceptional dedication of our on-site and corporate staff members. And so I'll begin with another encouraging collections update. Our Hyatt collections, as we mentioned on our last call, has persisted throughout the Q3.
I'm delighted to announce that our teams have continued their success as evidenced by our receipt of over 97% of billed to run for every month from August to October. Additionally, as of yesterday, Lantara had collected over 94% of build to rent for the month of November, keeping pace with their collections rate of over 97%. On the value creation front, I'd like to provide an update on our Smart Apartment pilot program at 3 of our properties in Austin and 2 properties in Charlotte. As of November 1, all hardware had been installed and the software is operational at our 5 properties. As expected, reception from residents and staff has been overwhelmingly positive.
And in light of this, over the next few months, we'll be studying the feasibility of rolling out the smart apartment platform across our portfolio. As a reminder, these smart apartment packages include smart locks, thermostats and leak sensors that will provide the resident full apartment control all from a single app. In addition, we expect operational efficiencies ranging from keyless and remote access to units in addition to expense savings via vacant unit climate control. On the development front, the Pearl, a 3 83 Unit Mid Rise Multifamily Development in Austin, Texas is expected to open its leasing office in the Q4 of 2020 and is scheduled to fully deliver in the Q1 of next year. Nightingale, a 263 unit mid rise development located in Seattle, is still estimated to commence pre leasing by the end of this year and will deliver towards the end of Q1 of 2021.
Phase 1 of our Hercules development in San Francisco, named The Exchange, received final CO and leasing velocity has been stronger than expected in part due to having secured short term leases from the U. S. Navy bringing current occupancy to 64%. Phase 2 of our Hercules development started construction during the Q1 of 2019 and is expected to deliver in the Q2 of 2021. Lastly, Shoreland Gateway, our 35 storey multifamily tower in Long Beach, California is on schedule and expected to be delivered in the summer of 2021.
The project has reached the 35th level and is currently topped out. On to River Landing. The 3rd quarter also saw the grand opening of our property in Miami Atlanta River Landing, a 5 28 Unit Multifamily Development Community in Miami, Florida. We're happy to announce that we've already signed nearly 95 leases to date well ahead of our budgeted occupancy. For context, we had anticipated securing 95 leases by the end of the month of May 2021.
Additionally, we believe the leasing velocity to be quite strong given that the leasing team did not move into leasing office until this week. Lastly, we expect to receive access to most of the amenities in the coming weeks, accelerating the desirability of the property. Simply put, we are beyond satisfied with the leasing velocity that we're experiencing at River Landing. Jackson Park. While Jackson Park experienced a lull in operating performance due to COVID-nineteen, we are encouraged with what we believe to be the start of a rebound.
From an operational perspective, the property gained more new move ins than move outs in the month of October, underscoring our belief that we're past the worst of the COVID-nineteen leasing impairment. Furthermore, lease expirations for the 4th quarter are only a small fraction of what they were during the summer months of 2020, and thus, we feel strongly about a more favorable trajectory going forward. Fortunately, Jackson Park community amenities are predominantly open with restrictions, which support a lifestyle competitive advantage within the submarket. Not to mention a private 2 acre park, yet another competitive advantage over the surrounding multifamily properties. Also of note, we expect a new grocery store to open across the street in Q4 of 2020, which we believe will be a major draw and selling point for prospective tenants.
On the operational front, at the end of the Q3, the Land Tower strong summer leasing season and above average retention rates supporting strong operational fundamentals. On the financial front, our same asset quarter end operating income decreased in U. S. Dollars from $19,904,000 in the Q3 of 2019 to $17,376,000 in the Q3 of 2020. While this equates to a same asset quarter over quarter operating income growth of negative 12.7 percent, This decline is attributed to the operational lull at Jackson Park.
When excluding Jackson Park, our same asset quarter over quarter operating income growth equates to a positive 4.1% for the Q3 and a positive 8.5% for the 9 months ending in September 2020 compared to the respective 2019 period. And with that, I will pass along the conversation back to Tom.
Thanks, Philippe. And thank you to the entire H and R team for their hard work and dedication in 2020. As the team has just reviewed, H and R's portfolio is performing well under challenging circumstances. We are confident our portfolio will continue to deliver stable and growing cash flows by the quality of our properties and our tenants. We'd now be pleased to answer your questions.
Operator, please open the line for questions.
Thank you. Our first question comes from Sam Damiani from TD Securities. Please go ahead. Your line is open.
Thank you. Good morning, everyone. First question, Tom, probably for you. When you took the large IFRS marks in Q1, did it contemplate the kind of incentive that might have been provided to Hess to extend its lease?
Yes, we don't believe that it did and we're fine with the value we put on Hess, nothing has changed. What we availed ourselves of is obviously finance ability that asset is debt free. And in addition, the liquidity on the asset to be able to sell the asset is obviously much greater. We've eliminated the future risk of the asset. So we can sell it, we can finance it, we can do whatever we want with it.
It's now an asset that's quite frankly quite liquid.
Okay. Just to clear, I'm not sure if I heard correctly, you think the lease that you did will not affect the IFRS for value as it currently stands?
I think it provided liquidity, which means that if anything, the value has gone up, but I think we're happy with the valuation we have then.
And then similarly, we have seen a return to activity within the investment market, specifically for shopping centers just in very recent weeks months. And I know in the press release and MD and A, you say you haven't seen enough transactions to revisit your valuation your valuations. But the transactions that you are seeing as few as they may be, do they support the big write downs that you did take back in Q1?
I think the answer is the same. I don't know what you're referring to. There has been almost no malls done. There's a one done in BC that we know that was called pre COVID that came back alive. I don't know of any other malls that have transacted.
I think you're still missing enough evidence of actual deals that have gotten done to have any to have first to change their opinion. I think we're comfortable with the value and valuations that we have.
Okay. And just last question is on the Mississauga Industrial. That looks to be adjacent to the Glaxo SmithKline building. Is it on the north side or the south side of the building there that lot that you bought?
The south side.
Southside. And was that an off market deal or was it widely marketed?
It was off market.
And when does construction start there?
Not for another year, 9 months, 12 months.
Okay. Congrats on that. Thanks very much. I'll turn it back.
Thank you. And our next question comes from Matt Kornack from National Bank Financial. Please go ahead. Your line is open.
Hi, guys. Thanks for the updates. On Jackson Park, it sounds like things are turning around. Can you speak to the type of tenants that you're targeting? And would you as universities reopen go after the international student market again in terms of leasing that up?
So I'll take that question, Matt. So two questions. I think the makeup one of the major factors as to why we're currently in a situation that we're in right now is due to the fact that at a heavy concentration of international students. To be honest, I don't think that we would have done anything differently. If we think about the pace and the velocity of the lease up, it obviously exceeded our expectations at Jackson Park and enabled us to get exceptional financing.
And so I'm not sure that we would have done anything differently. And then casting forward, my guess is, again, I don't think that the property was intentionally targeting international students. It's just at the end of the day, it was open whoever came in through their marketing efforts came in at least the units. I would anticipate that as New York City would unfreeze, no pun intended, you would see a rebound in that demographic and we would get right back to where we were pre COVID. Now as to what the exact makeup would be and would it be the same proportion of U.
S. Students, sorry, international students, I don't know. But my guess is it probably would get close.
But don't forget, it's also November right now and international students won't be coming back for quite a few months. By the time they come back, I shall have hoped that it will be leased to others. So in reality, just from a practical perspective, it's not going to be leased to the same proportion of students because the students aren't back and they won't be back even if COVID is over, they're not going to be running back for probably next September.
So what you're seeing now is young professionals probably that have started to migrate back to Manhattan or New York City?
Yes. I think that's a reasonable statement. I also want to underscore the importance of the amenity mix that Jackson Park has that to my knowledge no other property has in Lyon City, which is essentially a 2 acre park. And so if you think about potentially the city shutting down again and ultimately some of the businesses that tenants are accustomed to going to and then being closed, but you have a private park, so you're given the opportunity to a tenant to have some outdoor space, which is not closed, obviously, with social distancing. My guess is the desirability of that property over the short term will increase.
We have a very significant competitive moat to the remainder of the market due to those amenities.
And then with regards to River Landing, is that I mean Miami is a city and that's a semi urban asset, but the Sunbelt generally seems to be outperforming the Northeast in California at this point. Is that leasing traction there asset specific or is it due to the Sunbelt generally seeing reasonable demographics? And can you speak to the rental rates as well relative to your forecast or are they coming in line as well?
So the easier I'll deal with the rental rates. The rental rates are exactly very close to where we thought they would be and so there's really no material deterioration there. As it relates to the velocity, I think it's 100% asset specific. We have assets in Orlando and Tampa. We had lease ups.
Know what to expect or knew what to expect. There's also a couple of properties, not in the immediate submarket, but within a 3 to 5 mile radius of Rimba Landing who are also in lease up, pace is probably half of ours, which leads me to believe that it is probably 100% asset specific. We and when I say we, it's a big them, not so much myself, but we as H and R have built one heck of an asset. And the fact that frankly we have 95 leases 7 weeks in is a testament to the quality of the product.
Okay, fair enough. On the Hess lease extension, can you just where were rent? I don't know what you can provide here, but where were rents relative to prior levels in it? It's an extension for 2 thirds of the space, I think. So and I assume the full space will be rent paying until 2026, but how should we think of the remaining 1 third?
Well, the remaining 1 third is currently sublease other than 2 floors, which are currently on the market. So I think you can safely assume that the onethree debt being that they're not occupying is going to be sublet very shortly. As I said, it's all done other than 2 floors in either event. For tenants that you can assume will stay there for the long term, there's no reason that they wouldn't. So you can assume that the building will have a mix of a single to primarily obviously Hess 1 third mix of other tenants and it will be fully leased and should remain.
So it is one of the preeminent buildings in the market over there. It's platinum lead. So I expect that it will be a high profile Class A building and remain fully occupied.
Okay. And then last one for me on the retail side. It seems like you're actually getting some incremental tenants taking space. What type of tenants are leasing new space in this market? And how do you think about that going forward?
We're getting on the large format tenant size, it's kind of just a mixed bag of say Dollaramas. There's some office tenants, medical uses, some of your other typical big box guys. And inside the mall itself, not a lot of fashion activity. It's primarily electronics, some food, some home goods, stuff like that. But fashion activity is really on the smaller side is really light right now.
And going forward, I don't see us slowing down in terms of our volume with the larger format deals. We've got a lot of discussions on the go. And on the small tenant side, there is a lot of dialogue going on. I think some of the fashion guys are just waiting to see how the pandemic continues to evolve. But on the electronic side and some of the other uses, there's a lot more activity that should really kick into gear next year at the start of next year.
Okay, great. Thanks. Lots of moving parts in the quarter, but looks to be moving in the right direction. Take care, guys.
Thank you. Our next question comes from Sam Damiani from TD Securities. Please go ahead. Your line is open.
Thanks. And Pat, just following on the last question there. What do you see as the impact on your Winnipeg assets from the current situation in the province? Yes,
I mean the malls effectively are closing. We've arranged for online pickup orders from the store to be done inside the mall, which is good given the time of year it is. Hopefully, it's a short duration. The government rent assistance program helps subsidize a further 25% of rent for qualified tenants in the event of government closure. So that should help significantly for a lot of the tenants.
But those both malls we have in Winnipeg, we own that 50% level. So that will mitigate whatever exposure we may have. But hopefully, it's a short duration for the closures.
Absolutely. And just one last question. On the new rent subsidy program compared to SASRA, is it your view that, that will ensure a much greater incidence of 100% of the rent collections compared to SASRA?
Yes. My preliminary reading on it makes it leads me to believe that we should see a lot better rent collection from the tenants for their portion of that. So just simply because I believe they have to pay the rent in order to get the money from the government. And from an administrative point of view, it's a huge relief for us. I think we pushed through 900 documents related to circa last with the last program.
So it was a tremendous burden on our internal resources.
Thank you very much.
Thank you. And our next question comes from Jenny Ma from BMO Capital Markets. Please go ahead. Your line is open.
Thank you and good morning. Just looking at the debt stack coming up for 2021 and it looks like there's some few chunky maturities coming up between the 1st tranche of the mortgage bond and the securing a secured line of credit on the Primaris assets, the term loan and then of course the mortgages. Just wanted to get some additional color on how you're thinking about these pieces and if you intend to sort of roll them over in their current form or look at different ways of accessing debt?
Good morning, Jamie. It's Larry. If you look at our mortgage maturities of $832,000,000 odds for 2021, We expect we'll have to repay call it about $285,000,000 of that, and we'll be able to refinance the rest. As far as the other facilities that are coming due, I've spoken to some of our bankers and feeling hopeful or pretty confident that we'll be able to renew all of them. So it is really just taking care of $285,000,000 of repayment in 2021 of mortgages.
The rest, everything else we expect to roll or refinance.
So when we think about the line of credit that's secured against Primerus, can you remind me how many assets that's secured against?
Four assets.
Four assets?
Yes. Okay.
And you expect to sort of roll it over and have it secured against these 4 assets or I guess the basket of assets within Primaris?
We expect to roll it over, and we'll see what basket of assets have to be secured by it. I may have to give another asset a security, but that will not be a problem.
Okay. And you last did the unsecured debt in June. Just wondering if you can give us an update on some of the indicative spreads you're seeing today versus 5 months ago?
I don't think we've seen the debenture spreads come in that much in the last 4 months or so. I think they're kind of looking at the same kind of spreads on the unsecured market.
And what about the secured market?
The secured market spreads, I think, have tightened, not materially, but they probably tightened 10 to 15 bps, both on the 5 year end and the 10 year end.
Okay. And lastly, do you have a preference for being closer to 5 or 10 years? Do you want to extend the term out as much as possible notwithstanding the slight premium to that?
For our secured debt, I think we would like to for that, we would like to extend it as far as possible. The 10 year based bond rate is at a near all time lows. So why not take advantage of that?
And it's loaded, it really depends on you in order to get flexibility to sell assets, you want to have it shorter term. So it's not just a question of rates or locking in the rates for a long period time. It's giving flexibility to being able to sell assets over time. And for that reason, we use unsecured even though unsecured are more expensive.
Right, right. Okay, understood. And I guess just maybe one more question on the mortgages. Is there a certain timeframe in the year where a lot of them come due? Or is it fairly spread out in 2021?
For 2021, it looks just looking at the list now, it looks pretty spread out throughout the
year.
Okay, great. Thank you very much. I'll turn it back.
Thank you. And our next question comes from Mario Saric from Scotiabank. Please go ahead. Your line is open.
Thank you and good morning. My question just relates to the bow and whether since the last Q3 results call, has anything changed either in ability or appetite in terms of extracting equity from that building?
No update. There's nothing new yet at this point in time.
Okay. And then more broadly speaking, we're continually hearing a strong appetite in the market for long lease office buildings, single tenant, of which you have several. Any incremental thoughts on the ability to extract value through disposition of
We're in the business voting them. So answer the question, that's what we do for a living. So once we've extended hands to extended bell, we really have no rollovers to be concerned about and we're very happy clipping our coupons and keeping heavily leased buildings. So at this point in time, it's really the steady as she goes.
Okay. That's it for me. Thank you.
Thank you. And our next question comes from Sam Damiani from TD Securities. Please go ahead. Your line is open.
Hi, again. Just following on the River Landing, when will that be transferred into IPP? Will it all happen at once? And what would any guidance on the FFO impact at that time?
Sam, the commercial part of it, which is the retail part of it, will be transferred in Q4. The residential parts may be transferred in tranches, much like we do in the 2 buildings that we have, but maybe done in a building phase. So probably the first building will also be transferred in Q4 and maybe the second building in Q1. That's the timing we have now. I have no update in terms of the impact of FFO.
But I would expect that initially, while it's not fully leased, then there should be some FFO shortage until those assets are stabilized.
And are the retailers paying rent as they open their stores? Or is there a free rent period?
There is a standard 60, 90 day free rent period, but the answer is yes. All the majors are open other than TJ Maxx is still to be open shortly and Planet Fitness will be next month.
That's great. And how's the office leasing going?
We have good demand. Miami, I think you probably know is because of COVID has had strong demand than the rest of the country. There's many tenants that have left many occupiers that are leaving other states to go to Florida. So we're seeing good demand and we are still negotiating. We'll not finish negotiating, trying to wrap up through approval process for half to around half the building.
But we're seeing the demand.
Thank you.
Thank you. And our last question at this time comes from Dean Wilkinson from CIBC. Please go ahead. Your line is open.
Thanks. Good morning, everyone. Tom, maybe it's a bit of a philosophical question. The capital markets desire notwithstanding to have lower leverage on real estate and its balance sheet. In a world where a 10 year bond is 70 basis points and it doesn't look like that's been anytime soon, How do you guys sort of does it change your view on leverage in that flawed metric of debt to gross book value, which we've talked about can be anything you want it can to be, that your interest coverage could actually increase by actually levering up the balance sheet at this point?
And what's the view there in terms of sort of the practicality of that cost of capital advantage on the debt side of
things? Sorry, Dean. We're not sure of your question. Are you asking why don't we lever up? Is that your question in order to take advantage of the low rates?
Essentially, yes.
Because the capital market doesn't like it.
Well, that's what I'm saying. Capital markets aside, right?
Well, it's not capital markets aside. We're in the public arena from a private perspective. I think you do it all day long as much as you can, especially United States model, which is non recourse debt. But that's always been the case quite frankly. It's been low interest rates for a long, long time and the capital markets don't like.
We follow the United States lead in the United States lead in the capital market
market is
much lower. That's the full assumption.
Fair enough. You're right. From a personal perspective, I always believe load up a bit. But as CEO of a public company, I don't think I have no dream of doing that.
Maybe we should look to privatize.
Just for the debt reasons alone, right?
Just for the debt alone.
Yes, but then you never talked to me, Dean. Come on.
Yes, I have plenty of other reasons too. All right, thanks. That's it for me.
Thank you. And at this time, I'll turn the call back to management for closing remarks.
Thank you, everybody. Have a great weekend.
Thank you for joining us today, ladies and gentlemen. This concludes our call. You may now disconnect.