Good afternoon. I would like to welcome everyone to the Plaza Retail REIT fourth quarter 2020 earnings conference call. At this time, all participants are in listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to advise everyone that this conference is being recorded. I'll now turn the conference over to Mr. Michael Zakuta, Plaza's Chief Executive Officer. Please go ahead, Mr. Zakuta.
Thank you, operator. Good afternoon. Thank you for joining us on our Q4 2020 results conference call. We are legally obliged to tell you that today's discussion includes forward-looking statements. We'd like to caution you that such statements are based on management's assumptions and beliefs. Please refer to Plaza's public filings for discussion of these risk factors. Our outlook is very positive as we've experienced a solid improvement in our business. Our tenant base of essential needs and value retailers operating in open air centers located in primary and strong secondary markets across a wide geography has allowed us to successfully weather this pandemic. Leasing activity continues to improve. In 2020, we leased over 1 million sq ft of space, 818,000 sq ft of renewal, 69,000 sq ft in newly created space, and 140,000 sq ft of backfill leasing of vacant space. 60,000 sq ft of backfill space in Q4.
We continued to see demand from dollar and grocery stores, pet retailers, value retailers, and fast food players for pizza, chicken, burgers, Mexican food. We have signed 10 new cannabis deals in Ontario for existing sites and new developments. We are starting to see demand from retailers who have been on the sidelines since the start of the pandemic. Please refer to the Q4 presentation that is now posted on our website for an update of our top 30 tenants, our rent collection numbers, and photos of projects under construction and recent openings. We continue to pursue ways of creating unitholder value through redevelopments and new developments, through non-core property dispositions, and to creative financings. We have a solid business plan to deliver real per unit growth going forward.
We are confident in our future prospects as we benefit from our highly engaged management team's capability to execute its business plan and our leasing and development team's ability to lease and develop high quality projects. Our core portfolio of pharmacies, grocery stores, dollar stores, and other essential needs tenants that have performed exceptionally well over the last year. Our value retailers who have shown that they can prosper in our open air retail centers during difficult times. Our large network of properties that are important part of any retailer's strategy to sell products through multiple channels. Our strategy being diversified across a wide geography with open air properties that often dominate within their community. Our pipeline, combined with our ability to backfill our vacancies, will provide solid growth going forward.
The source of future opportunities will continue to be, one, large property owners looking to reduce their retail holdings. Two, passive retail property owners that struggle to fill vacancies as they are poorly equipped to lease retail space. Three, redevelopment opportunities that convert enclosed malls to strip centers, empty box stores to multi-tenant strips, or any asset that requires a serious right sizing cure, usually a significant reset or redevelopment of retail space. Four, retailer demand for new space, whether it is for downsizing or upsizing. As a small cap REIT, we are nimble enough to adjust to changing market conditions. We are managing and allocating our capital carefully. We build what we lease, often in multiple phases, and are rewarded on our development program with attractive yields. We are successfully selling non-core assets well over IFRS values.
These assets are typically an old KFC, whereby the highest and best use for the site is not a QSR. These sales are made with very low hurdle rates and reinvest the proceeds at higher yield and higher quality new projects. We are observing real demand from investors for quality grocery, pharmacy, and dollar store open air centers or strategically located single use site. This demand should eventually translate into higher IFRS values for our assets. We had excellent collection results in the fourth quarter. We can highlight several factors for this success. One, our open air properties leased to essential needs and value retailers. Two, our geography with assets in suburban primary markets and strong secondary markets, combined with an exposure to Atlantic cannabis, with 60% of our assets located in this region. Atlantic cannabis has been very effective in managing and containing the pandemic.
Three, our culture of collaborating with retailers. As a development oriented REIT, we have grown through doing multiple deals with our retailers across our geography. You cannot do this successfully unless you have figured out how to collaborate with your retailers. Four, and last but not least, you have to have a very dedicated and capable people in your organization. I know a number of my Plaza colleagues listen to this call, so I wish to take the opportunity to recognize them for their efforts and thank them for the exceptional contribution over the last 12 months. We look forward to rebounding strongly in 2021 and beyond. I will now turn the call over to Jim Drake, Plaza's CFO. Jim?
Thanks, Michael. Although 2020 was obviously a challenging year for all, our business has fared relatively well. First, our rent collections recovered significantly to almost 99% in Q4, with January 2021 collections to date at 97%. We also continued to collect the vast majority of our previously deferred rent in accordance with the agreement repayment schedules. For Q4 rent, there were no additional deferrals granted, only nominal abatements, and no additional bad debt provision. Our write-offs from CECRA, bad debt, and rent abatements for the year totaled CAD 2.4 million. Offsetting this was an increase in straight-line rent as required under lease modification accounting of CAD 40,000 for the quarter or CAD 773,000 year to date. FFO and AFFO per unit for the quarter were CAD 0.102 and CAD 0.092 respectively, up 12% over last quarter.
Excluding COVID-related impacts such as the previously mentioned write-offs, severance payments, and wage subsidy, as well as new 100 lease buyouts, annual FFO and AFFO per unit would have been up 6% and 10% respectively over last year. Our liquidity remains sufficient and at year-end totaled CAD 46 million, including cash, operating line availability, and unused development and construction financing facilities. We also had unencumbered assets with a total value of approximately CAD 18 million. On long-term debt, during 2020, we placed CAD 51 million of mortgages at a weighted average interest rate of 2.4%. This resulted in a decrease in our weighted average long-term mortgage rate, now at 4.07%. We have CAD 67 million of long-term mortgages rolling in 2021. We just refinanced CAD 9 million of this yesterday at a rate of 2.38%. Over 40% of the remaining rollovers either have committed financing already in place or relate to grocery and pharmacy-anchored properties.
With an overall loan-to-value of 52% and expiring rate of 4.4%, we are confident we will refi these mortgages at a lower rate. Under our development program, during the quarter, we delivered new pads for Mr. Lube in Saint John, New Brunswick, and PetSmart in New Minas, Nova Scotia. We completed the addition of Pet Valu and Giant Tiger stores in Temiskaming, Ontario, and completed the conversion of a previous empty Sears box into a now fully leased multi-tenant strip in Chicoutimi, Quebec. The result was CAD 37 million transferred from properties under development to income producing during the year. We also remain very active on the development front, with numerous projects underway across our geography. For asset sales, we sold a few non-core QSRs and a non-core strip during the quarter, bringing our net proceeds for the year to CAD 10.5 million.
Finally, on fair value, we recorded a CAD 2 million gain on investment properties during the quarter, mainly as a result of appraisals obtained. This brings our total fair value write-down on investment properties for the year to CAD 47 million, with our weighted average cap rate currently at 7.19%. As Michael mentioned, we do anticipate some compression of that cap rate and fair value appreciation going forward. Those are the key points relating to our results for the quarter and year. We will now open the lines for any questions. Operator?
Thank you. Your first question comes from Leanne Chen from iA Capital Markets. Please go ahead, your line is open.
Hi, good afternoon.
Good afternoon.
I was wondering if you can further comment on your leasing activity for 2021. You've talked about demand for new space. What about the lease renewals and leasing spreads for this year?
We're very confident about lease renewals for 2021. We've done a number of them already and anticipate positive spreads and a pretty solid year for lease renewals.
Mm-hmm. That's great. Just last one from me. Just what are your thoughts on rising construction costs? Have they affected your expectations of yield on cost and ultimately if that's had an impact on your project development plans?
Yeah, no, we're definitely again, experiencing some pricing pressure for construction. It varies again, very much by region. As you know, we have a very wide geography.
typically projects going on in six provinces. Sometimes, we will see wide variances for similar projects, but there's clearly an uptick in construction costs. We try to make up for it in how we negotiate our rents and look for a bigger cushion. Probably what ultimately saves us at the end of the day is that our financing costs
are much lower than we would have anticipated and what we would usually put in our pro forma when we make a decision to move forward on a project. We have construction budgets. Sometimes they're over, sometimes they're under. I can say that they've gone both ways for us, but we're clearly budgeting for higher costs and trying to obviously make up for higher rents. Not always possible. We do have a cushion in typically the way we plug in our debt estimate. That's going to help. There's definitely an issue out there. There are definitely issues in obtaining materials, certain types of materials for our projects, which slows down delivery, which is always an uncomfortable situation. It's not alarming, but it's definitely there.
Right. That's great. Thanks so much. I'll turn it back.
Your next question comes from Jenny Ma from BMO Capital Markets. Please go ahead. Your line is open.
Thank you, and good afternoon.
Jenny.
Michael. Hi. Maybe just following on the same topic there. You've generally guided to development yields of 8%-10% on average, and it's good that you're able to offset some of the construction costs with lower financing costs. Net-net, could you share with us sort of where you've been trending in that 8%-10% range over the last couple of years, and whether or not you think that range is going to have to give a little bit given where things are going?
Yeah. I think the range will have to give a little bit. Again, I think we're trying to maintain that ultimate development spread, if you wish. I think that are we going to see 10%ers? We're going to have to be very lucky. You can get that if you luck out in some of your redevelopment assumptions. If it's a really simple one-user style project with very little risk, you're going to be lower. You're going to have a seven in the unlevered yield. If you have a good multi-tenant deal, you should have a solid eight-plus style return. I think you're going to see a little bit lower range than we've seen over the last few years as a result of construction costs and hangover from pandemic.
Where have you been?
Sorry. I'll just quickly add, as Michael mentioned, the financing is extremely accretive, so we're still meeting very attractive levered returns.
Great. Where have you trended in that 8%-10% range in the last year or so?
I'm not following your question. Where have we been?
Like in the last couple of years, what have you come in on for completed projects in the last couple of years?
I think typically we've been solidly within the range. If the project is a multi-tenant project, we've typically been at the higher end of the range. If it's, again, a simple single-use project, we're typically at the lower end of the range. You can have the odd miss when your construction costs go too high, and you could have the odd miss that blows your return above the range. I think we've been solidly within that range, and then that translates into some solid mid-teens levered returns. That's really what ultimately we're looking at is what are our cash-on-cash yields? Maybe a little old school, but that's what I look at.
Okay. That's fair. Then switching to the topic of the work that you've done on de-malling some enclosed malls. Just wanted to get your thoughts on sort of the future of the enclosed malls in some of these smaller towns, if you will. Whether or not there's a need for even one enclosed center at all, and if you think that sort of will create some more opportunities for Plaza to convert some of these projects.
Well, yeah, we're obviously following that very closely. We've done 16 enclosed mall to open-air center conversions over our sort of 20 years as a public entity. We're probably the most experienced people in the country when it comes to this type of project, and every project is different. We have our eye on certain assets. Unfortunately, a lot of the enclosed malls in secondary markets, for example, don't lend themselves to a conversion for a variety of reasons, the physical or there's too much revenue. The way I like to look at it is there are these, what were one day 100 store malls in secondary markets that today should be 50 or 60 store malls. To go from 100- 50 stores, it's very difficult. I think that's the big challenge.
I said to people recently, if you could figure out what to do with these challenged enclosed malls, you'd have a great business. We know what to do if it meets our criteria and we have a vision. I think there's a lot of malls that will not meet our criteria and our vision, and it's hard to predict how it's going to end up. I don't think there are enough fashion retailers in the market today to populate those 100-store secondary market enclosed malls, or even the 60-store secondary market enclosed mall that should be a 30-store enclosed mall. The enclosed mall operators have to be really, really thinking about their future, how to bring in other uses, how to downsize, redistribute your tenants within the property, keep it strong. It's a really, really tough challenge.
There will be some enclosed mall to strip opportunities for us. I think that's quite clear. It becomes a question of pricing. When we look at it, we try to work backwards. We know where we can bring it to. We can estimate what revenues we're going to earn. That gives us a value. We know what it's going to cost approximately to do it, and what's left over is what we can pay for it. That's where the challenge is when you're buying this stuff. Can you get to the point where your numbers can meet the expectations of the owner vendor? That's how I see it.
That's done. That's very illuminating. If I'm hearing you correctly, it sounds like there might be some incremental opportunities for Plaza to convert these malls, but it's not like the acceleration of the trouble that some of these enclosed malls are going to run into is going to create sort of an explosion of opportunities for Plaza, given some of these physical and technical constraints. Is that fair?
Yeah. Well, I think there are definitely more opportunities than we would normally see. That's quite clear. Whether we want to hit the button on the deal or not, that's a whole other question. We want to try to be selective and do it right. There's still going to be so much pain in the enclosed mall world. That, I'm certain of. I'd love to have a solution because we'd be out there kind of raising capital to go out and start buying them because I think there's a lot of willing vendors in the marketplace. That's really, really interesting. Some of them are just way too big, and I think the NOI hasn't hit bottom yet, and that's what I always say when the brokers call us. They've got a great opportunity for us.
I say, "Well, I think you're too early because I don't think you've hit bottom." That unless you want to discount it to what we think bottom is, it's really hard to transact. That's what we've seen to date. There are some opportunities, and we have our hit list, and we watch them. If the numbers work, we're there.
In some of the smaller towns that you operate in, do you think there is even a need for a mall? Do you think there's a minimum population size for a center to support an enclosed mall?
Well, a lot depends on how one looks and classifies an enclosed mall. You can have a smaller mall with an interior corridor, which I call a real estate complex. My idea of an enclosed mall is a whole bunch of CRU, commercial retail units, selling fashion. That to me is the enclosed mall. Then in some secondary markets, there are so-called enclosed malls, but don't have a huge vacancy, and they have an interesting community mix that works. Those guys are okay. We own a couple of small Quebec malls that do very well. They're isolated from competition. So there are malls that if we had the opportunity to own, I'd say, yeah, we'd want to own it because I think it's just so far from competition, that you're going to lease space and you're going to get a decent rent.
Even in those malls, we've seen falling NOI and occupancy challenges, and those occupancy challenges are not going away.
All right. Okay.
Tough plug for those landlords.
For sure. Okay. That's fantastic. Thank you very much.
Your next question comes from Alex Leon from Desjardins Capital Markets . Please go ahead.
Hi, guys. Good afternoon.
Good afternoon.
Just a couple quick questions from me. On the rent abatements and bad debt expense, was there any amount recognized this quarter or any even reversals of previously recognized?
Yeah. We had about a CAD 300,000 reversal. CAD 100,000 of that was actual recovery of rent that we had set up an allowance for that we collected, and about CAD 200,000 was abatements that we signed subsequent to setting up the original allowance. Those abatements moved to straight-line rent under lease modification accounting.
Okay, great. Second one for me, just on some of the land assemblies that are under purchase agreement at year-end, just wondering if you could let us know where those are and any details on pricing?
I don't think that we're in the habit of revealing that information at this point in time until the deals are firmed up. We have three sites in Ontario and one site in Quebec under contract. Three would be grocery anchored style developments. Will they all make it? Not sure. One project perhaps gets launched later this year. Others are 2022 or 2023 launches.
Okay. I appreciate it. That's it for me. Have a great weekend, guys.
Thank you.
Thank you.
Mr. Zakuta, there are no further questions at this time.
Well, thank you, operator.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines.