Ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust First Quarter 2021 Conference Call. At this time, all participants are in a listen only mode. After management's presentation, there will be a question and answer session and instructions will follow at that time. I would now like to hand the conference over to Jennifer Suth, Senior Vice President and General Counsel. You may begin.
Thank you, and good morning, everyone. I am Jennifer Su, Senior Vice President, Call, which were posted together with the MD and A and financials on RioCan's website earlier this morning. Before turning the call over to Jonathan, I am required to read the following In talking about our financial and operating performance and in responding to your questions, we may make forward statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to differ materially from the conclusions in these forward looking statements. In discussing our financial and operating performance and in responding to your questions, we will also be referencing certain Financial measures that are not generally accepted accounting principle measures, GAAP under IFRS. These measures do not have any standardized definition Profitability.
RioCan's management uses these measures to aid in assessing the Trust's underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we apply in making these forward looking statements, together with details on our use of non GAAP Financial measures can be found in the financial statements for the period ended March 31, 2021, and management's discussion and analysis related thereto as applicable, together with RioCan's most recent annual information form that are all available on our website and at www.sedar.com.
Thank you, Jennifer. Thanks so much for that opening and thanks to everyone for joining us today. I'm so pleased to be surrounded by RioCan's senior leadership team, my colleagues, Chi Tang, Andrew Duncan, John Valentine, Jeff Ross, Oliver Harrison, Jennifer Suess, who you just heard from and Franca Smith, who I'll introduce you to in a few moments. This is the team that leads the This bold, adaptable and entrepreneurial team is RioCan's greatest asset. They made it significantly less daunting to navigate this very tricky environment.
I'm grateful for their support and constantly impressed by their innovation, drive an unwavering commitment to our business. As I focus now on the Q1 in the business environment, I also want to share my confidence and RioCan's long term value creation strategy. Now the circumstances that have been brought on by COVID are indisputably tough, but I'm an optimist by nature. Metrics continue to be distorted a little by this pandemic, but when we reflect only on the current conditions, we're overlooking The vast number of levers for future growth that we at RioCan have at our disposal. Our focus is obviously on responsibly managing through crisis.
However, we're also looking beyond it. With the acceleration of this vaccination rollout, we will emerge poised to Capitalize on the pent up consumer activity that will benefit our tenants and ultimately you, our unitholders. The existing conditions are short term and simply do not reflect or alter our long term growth potential period. Now I'm going to focus on our Q1 operating results. And despite forced closures during a significant portion of the Q1, RioCan collected A total of just under 94%, 93.9 percent of our rent for the 1st 3 months of the year.
And for April, we were at 93.6% of gross rent. Rent collection will continue to improve as tenants receive funds from SIRS and CUES, which have been extended now till September 25, 2021. Now rent collection has taken center stage in our results for I'm pleased to talk offense for a moment and shift the focus to our very strong leasing efforts. We're seeing a stronger leasing environment and this has been evidenced by our completion of 1,100,000 square feet of leases and renewals in the Q1. For context, Our new leasing in the quarter exceeded that of the same quarter last year, which was, as you can all remember, pre pandemic.
We completed 86 new deals totaling 435,000 Square Feet. The average rent per square foot was $23.19 Now I'm reciting these statistics because this is well above our portfolio average of $19.87 a square foot and quarter over quarter demonstrates trend in our ability to organically grow rents even in the midst of these pandemic lockdowns. The resulting new leasing spreads of 14 2% for the portfolio and 18.6 percent for major market properties far exceeds the pre pandemic results of Q1 2020. The majority of these new leases were completed with strong covenant tenants, primarily value, furniture, home and essential retailers. In addition, deals were done with sit down restaurants and personal service providers indicating that while these categories have been impacted by the pandemic, well capitalized Furthermore, while the narrative around office leasing has been somewhat bearish over the past year, RioCan has managed to backfill 2 units at Yonge Sheppard Center this quarter alone totaling 22,000 square feet.
Now our leasing spread on the 6 7,000 square feet of renewals completed in the Q1 was 5%. Leasing spreads such as this are a clear indication of the healthy upside between our average portfolio and the market rents. Our FFO per unit excluding the debenture prepayment costs was $0.36 in the quarter. Given the ongoing pandemic and subsequent lockdowns, this result will have met our expectations. It was impacted by one time G and A expenses that will not be present in the normal course.
We're confident that our encouraging leasing and operating metrics along with the absence of these one time expenses, They're going to result in organic FFO growth over the next three quarters. Our FFO result also reflects the $6,400,000 provision that we have to take for bad debts in the Q1. As the pandemic subsides, this too will be a negative factor that will eventually dissipate sooner rather than later. Same property NOI growth also continues to be impacted by the pandemic. We ended the quarter at negative 4.6%, largely due against the pandemic related provision.
It's important to note the impact on same property NOI is a direct result of the immediate effects of And this is not a reflection of long term reduction in revenue. SPNOI will Also improve as we bring our occupancy levels back to their historic norms. As of May 3rd, we rose to 96% occupancy, a key milestone in our journey back to our pre pandemic norms of well over 97%. Now we can't predict the length and the extent of the mandated But more than 90% of RioCan's annualized rental revenue is from grocery anchored mixed use and open air centers. Given their higher ratio of essential service tenants, these asset classes are more insulated from the impact of pandemic related lockdowns.
It's worth noting that close to 80% of our tenants are classified as strong or stable. These are primarily grocery, pharmacy, Liquor, essential services and value retailers that have strong covenants and demonstrated a whole lot of resilience in volatile economic cycles. Their stability is highlighted by our collection of nearly 98% of these tenants' total 1st quarter gross rents. As always, I'm realistic. I'm not going to downplay the volatility in the industry, but I want to be clear that the relative impact To date on RioCan's revenue, it's been manageable and we're positioned to see improvement as the impact of COVID-nineteen start to dissipate.
I'd like to briefly highlight our very active capital recycling initiatives. Season on a sizable disconnect between firm and conditional deals so far in 2021, we've netted proceeds of over $543,000,000 at an average cap rate of 5.15 percent. The assets range from conventional retail to mixed use to non income producing length. We'll put the proceeds to good use, allocating the capital towards paying down debt and funding development. Doing so will set us up well for our future.
Turning to residential, we collected over 98% of our residential rents in the Q1, which we attribute to the desirability of RioCan Living's offerings. We also established a dedicated RioCan Living department, which is solely responsible for maximizing the value of our growing portfolio of rental apartments and condominiums. This team is comprised entirely of existing RioCan talent and each member has a tremendous amount of experience in residential, including experience in marketing, sales, product development, asset management and residential operations. Our RioCan Living portfolio continues to grow. We've completed 755 condo units in 2 projects in Toronto so far with our partners at Allied REIT and Metropia.
We also have more than 1200 existing residential rental units across 4 buildings, eCentral and Pivot in Toronto, Frontier in Ottawa and Brio in Calgary. This quarter saw the successful closing of the sale of a 50% non managing interest in eCentral and commercial component of ePlace at attractive 3.6% and 4.6% capitalization rates respectively, and this is based on stabilized NOI. The transaction represented capitalization rates and a value far above our cost. This further underscores the strategic importance and net Asset value growth potential of our development pipeline and residential rental business. We're confident that all RioCan Living offerings will thrive in the long term.
Enhanced immigration and a resurgence in economic activity should lend to strong market dynamics In addition to the completed projects I just referenced, we have more than 14 50 residential rental units currently under construction between 6 projects and we estimate we'll have an additional 10 14 residential units in different phases of development by 2023. The total NOI from our residential rental operations will continue to increase as new projects are completed throughout the course of this year. We also have 3 condo projects comprising nearly 12 50 units currently under construction. Now the proceeds from these condo sales provide source of revenue and an important bridge of FFO to supplement our very productive core commercial portfolio. RioCan Living projects remain a cornerstone of RioCan's development program.
Residential development represents The team completed 30,000 square feet of development primarily related to the first phase of the retail component of Winfield's farm site in Oshawa, Ontario. The first retail phase is just about 90% leased to grocery and other necessity based retailers. It's part of a much larger Winfield Farm mixed use development The RioCan development with our partner Tribute Community. The development includes 3 92 units of townhomes in 3 phases. The first phase is complete and the second phase And its 500 units are 100 percent pre sold as well.
The success of retail leasing and residential sales at Wingfield's farm site with profit margins of up to Well, it simply illustrates RioCan's ability to generate net asset value growth in all circumstances. Moving to downtown Toronto, construction of the 36 storey office tower at the well remains on track for initial tenant possession this year and approximately 85% of its Square feet of retail space has been leased to forward thinking tenants that really do reflect the vibrancy of the King West neighborhood. Now I'm highlighting the progress of Windfields Farms and The Well to emphasize RioCan's ability to create exceptional and successful communities in any context. Suburban or urban, commercial or residential, we've got the creativity and sophistication to create value. The overall pace of RioCan's mixed use development projects was not significantly impacted by the pandemic and development spend for 20 is estimated to be in the range of $500,000,000 Now this spend in future years is targeted to be a little bit lower due to the completion of a significant portion of the well in 2021 as well as staggered development starts and of course the sharing of development costs and risks with strategic partners.
As always, We continue to look ahead to ensure growth through sustainable development. Our pipeline of zoning entitlements is one of the largest in the industry. And as we complete developments, we break new ground sorry, we break ground on new ones, achieve zoning on others and initiate the zoning approval process on Our pipeline translates into lucrative opportunities, a proven and virtuous cycle that will continue to be demonstrated through While our focus continues to be on managing our business and tapping into opportunities, our commitment to sustainable growth hasn't diminished. RioCan continues to lead the Canadian Real Estate Industry and ESG. We're recognized as one of Canada's greenest Lawyers in 2021 direct acknowledgment that we're leading the nation in creating a culture of environmental awareness.
We recently published our 1st Green Bond report confirming the full allocation of the net proceeds of $348,000,000 from our We also announced an exciting new partnership with Contec in collaboration with the City of Toronto and TCHC And add much needed housing for all income levels. In addition, it will contribute to Toronto's community economic development initiatives, including $100,000 scholarship fund for affordable rent tenants, a $250,000 economic and social development fund and a minimum of $500,000 in value for job opportunities. RioCan also completed key Diversity, Equity and Inclusion Initiatives, including a governing charter and our first ever DEI employee survey. We're going to continue to build our momentum and take action to maintain our status as an industry leader in sustainability. With that, I'll pause and turn the call over to Qi to discuss our Q1 financial performance in more detail.
Qi, over to you.
Thank you, Jonathan, and good morning, everyone. Thank you all for joining us. When COVID-nineteen was declared a global While the end is in sight with the rollout of the vaccines, the pandemic continued to impose As Jonathan highlighted, despite this operating environment, RioCan delivered strong Q1 Now let us take a closer look at the drivers of our FFO per unit for the quarter. Q1 2021 FFO per unit was $0.36 excluding the $7,000,000 debenture prepayment cost. This was $0.03 lower than the $0.39 for Q4 2020.
This quarter over quarter change was largely driven by a one time $5,800,000 general administrative expenses, which were mostly related to the accelerated Expensing of certain unit based compensation and represented approximately $0.02 in FFO per unit. The remaining change was primarily due to lower residential inventory gains and lower lease cancellation fees, partially offset by a low pandemic related provision. During Q1, we continued to service Capital for RioCan to fund value creation initiatives such as development. As Jonathan touched on earlier, Year to date, we have in aggregate RMB 543,000,000 of closed or firm unconditional deals. This includes RMB421 1,000,000 of income producing properties at the weighted average Capitalization rate of 5.15 percent based on in place NOI and about 122,000,000 of development Properties with no in place NOI.
These deals demonstrate the quality of Ryokan's assets as evidenced by the pricing negotiated and the well established partners we have attracted in spite of the challenging environment under the pandemic. We remain committed to our development program and unlocking the significant value inherent in our portfolio. The vast majority of our pipeline is focused on mixed use residential development. It will serve to diversify Ryokan's income, while addressing the growing demand for housing as Canada's population grows, particularly when the government resumes its immigration plan. The Canadian government is targeting to welcome and Fuel Retail and Residential Growth Post the Pandemic.
We manage our development program prudently, we expect to keep total IFRS value of properties under development and residential inventory Despite the 15% limit permitted under our credit facility agreements, as of the quarter end, this metric was 10.7%. Our development program consists of both residential rental and residential inventory projects. The letter refers to condominium or townhouse developments. In addition to meeting market demand for housing ownership, Condominium or townhouse projects enable us to accelerate capital recycling to further fund our development program. Currently, such projects under construction or presale include UC Uptown and UC Tower at our Winfield Farms development, 11YV in Yorkville and QA Condos at Queensland, Coffeywell, all in the Greater Toronto Area.
These projects are estimated to provide $133,000,000 to The first three projects are effectively 100 percent pre sold and are under construction, while the new QA condo project is already 89% pre sold. Now let me turn your attention to our balance sheet metrics. Subsequent to the quarter, the trust extended the maturity of its revolving unsecured operating facility by 2 more years to the end of May 2026 with all the terms unchanged. Our mortgage maturities for 2021 total RMB380,000,000. By now, only about RMB102,000,000 remain to be refinanced.
They are due later this year and are expected to be refinanced in due course. Overall, we expect to continue to maintain strong liquidity throughout the year. In addition, we continue to have a large unencumbered assets pool of RMB8.7 billion on proportionate share basis, which generates close to 60% of our annualized NOI and provided 2.2x coverage for our unsecured debt as of the quarter end. Also at the quarter end, our debt to adjusted EBITDA metric increased from the year end to about 10x. This increase was primarily due to its 12 month rolling nature, with Q1 results reflecting 4 quarters impacted by the pandemic versus only 3 quarters that were impacted by the pandemic in the year end metric.
Debt to total assets was 45.3%. While we expect these 2 debt metrics to increase marginally in the In the near term, RioCan maintains its long term goal of keeping leverage and debt to adjusted EBITDA Over the long term, Real can target to shift its unsecured versus secured debt composition to seventythirty on a proportionate share basis. This transition will take time and will be balanced with credit rating implication, cost of debt, debt letter and liquidity needs. As of the quarter end, this ratio was 56 versus 44. Ryuken is committed to a disciplined approach to maintaining its balance sheet and capital structure in order History, it will continue to position RioCan well to navigate through the ongoing pandemic and provided the ability to invest in accretive initiatives to create value for the long term.
Finally, before I turn the call over to Jonathan for a final wrap up, I would like to conclude with note of appreciation and gratitude. As you know, this is my last quarter conference call at RioCan. It's been an absolute pleasure working with and knowing many of you over the last 5 years. This My entire team, all of my RioCan colleagues, the RioCan Board of Trustees, our unitholders, the research analysts who cover us and the investment communities that follow us. I would like to say a special thanks To our Founder, CEO and Industry Icon, Mr.
Ed Sunshine. It's been an immense privilege to have worked alongside him over these years. As he takes on his new role as RioCan's Board Chairman, he has left
With that, I'd like to turn the call over to Jonathan for his closing remarks. Well, thanks, Chi, and thank you for your significant contributions the last 5 years, firstly, I want to thank you and express my appreciation for all that you've done for RioCan, which has been so significant. On behalf of the entire organization and our Board of Trustees, I wish you the very best in your next step. And thanks also For ensuring a seamless transition as we complete the search for a permanent CFO. We are progressing well in our search and we anticipate announcing a permanent I'm pleased to announce that Franca Smith, current Vice President, Finance of RioCan will serve as Interim CFO Effective May 12, Franc has been with RioCan since 2017 and brings over 25 years of finance and accounting expertise.
She's a respected leader with exceptional knowledge of the trust and our industry. Franca has a proven track record and we have total confidence and her ability to lead our exceptionally strong finance team and to support RioCan's value creation initiative. And now to wrap this up before we turn the call over to you for questions, I want to emphasize how proud I am of how we've navigated This past year has highlighted the strength of our foundation, our resiliency and our incredible talent. Now as an eternal optimist, I look ahead, confident that consumer trends are going to continue to shift favorably when well located inherently value rich assets and a And now, we're happy to respond to any of your questions. So Dawn, over to you to open it up for questions.
Your first question comes from the line of Mark Rothschild with Canaccord.
Thanks and good morning everyone.
Good morning,
Mark. It appears that in the Q1 and heading into the Q2, asset sales are accelerating, Some of it is development assets. Can you just give a little more color on what you're selling? And more significantly, does this give any evidence of pricing for stabilized
So we're selling actually a wide range of assets. I mean there are some that are development lands, there are some that are income producing retail assets, there are some As we announced earlier, like ePlace and eCentral that are mixed use, it really ranges. And some of them are in primary markets, Some are similar to the ones we sold a couple of years ago in secondary markets. And I think what we're seeing is a reflection of the value of retail assets and mixed use assets, but primarily retail assets, which I think For the last year, I've seen a bit of a slowdown just because people weren't certain about what the lending environment was. And I think people were trying to figure out where retail fit into the overall landscape.
But I think it now serves as a very interesting value proposition for a lot of investors, be they syndicators, be they small pension funds, or even high net worth individuals who really like the prospects of retail assets. So we're seeing A number of different types of buyers on a number of different types of assets. So given the number of transactions we have in the hopper, It's very hard, Mark, to pinpoint one specific type of asset or archetype of asset that could answer your question. It's really wide ranging.
Is there any way to draw any conclusions on any change in values coming out of this as compared to perhaps a year ago or a year and a half ago?
Well, I think there was a lot of uncertainty around where values were over the last year during the pandemic because there certainly weren't a lot And I think people were scrambling to figure out exactly what the appropriate benchmark is for valuing retail assets. And what we're Tending to see quite honestly is a reversion back to values that were pre pandemic. And that I mean I'm not talking about enclosed All those are a bit tougher to value at this point, but certainly for Open Air Centers and for land and mixed use properties, we're seeing, reversions back to And in some cases, I'll be honest, we've been quite pleasantly surprised that values are in excess of where they were for certain well positioned assets that Okay,
great. Thanks. Maybe just one more. In regards to G and A or Some bad debt provisions. Are there any more one time costs or COVID related costs we should expect in Q2 or that you know of this year?
Ki, I can hand that over to you.
Sure. Mark, concerning bad debt Q2, Realistically, we will still have some. We're hoping to be lower depending on the closures, but you saw the greater rent G and A, as we mentioned, we this quarter in Q1, we do have that 5,800,000 Special one time, which I'm certainly not expected to compete next quarter or in the future quarters.
Yes. But we've definitely I mean, it's hard to tell right now Exactly what kind of provision we would need to take, but I've got to think that particularly looking ahead, it's what we hope to be a reopening fairly soon that the That debt provision will continue to dissipate over the course of the year, as she said.
Great. Thanks so much.
No problem, Mark. Have a good day.
Your next question comes from the line of Dean Wilkinson with CIBC.
Hey, Dean.
Hey, I guess, Hello, Jonathan. Goodbye, Chi.
Still here for this call. Yes. We
already missed you. I actually did have very similar questions to Mark's. I'll call that great minds think alike. When you look at those dispositions And what you've completed so far at the low 4, I mean that's 125 basis points inside your IFRS cap rate, Some 200 basis points inside of where the market is kind of pricing the units. How much of that do you think was location specific And how much of that is perhaps the market is overestimating what Cap rates on these kinds of transactions ought to be and where would that have looked like maybe 6 months ago?
Do you have a sense to that?
Sure. I mean, I think some of these are very well positioned assets that the very low cap rates are driven by their Unique attributes. 1 of the assets again is at Yonge and Eglinton. I mean it's part of multi res. So that was obviously a very low cap Right.
But the other stuff that we're selling, again, I think it is really a reflection of the view on retail, Which is a lot better than perhaps the public markets are demonstrating their view on the values of these assets. I think if anything, the last 14 months have demonstrated These Open Air Centers are exceptionally resilient. I mean our rent collection, if you look at it just in our Open Air Centers, we're looking at our strong and stable tenants, which Makes up a large part of our portfolio. They're doing very well and they've done very well in the last in what is arguably the worst Landscape that we've seen in many decades. And I think when you take that and you compare it to the values of competing asset classes Like multi res or industrial, retail tends to be like it is overlooked and I think it's now there's a recognition that it's a very good place So we are seeing a flow back into the sector, which is great for us.
And I mean the list of assets that we're selling does not even come I think there has been a fair bit of attention turned back to retail. And I think that augers well for us and our peers who own these very well positioned properties.
I think that makes total sense. And I'm assuming a lot of that is there's been an abundance of private equity raised And bidding on 2 cap residential doesn't make sense for them. Would that suggest that perhaps you could Turn into a bit more of a capital recycler if those prices were right? Or are you comfortable with the disposition program as it sits?
Well, the good news about RioCan is we've got options. If we wanted to recycle capital in more aggressive fashion, We certainly could, but it really depends on what we can use that capital for. We're in a good position where we have more retained earnings based distribution reduction from last year. We're reducing our development spend a little bit next year. And our operations, again, our team is doing such a job of both reducing expenses across our sites, but also Jeff and his team have done a remarkable job enhancing rest across our sites.
So we might not be in a position where we need to raise tremendous amounts of capital going forward. It all depends on what we can use it for. And if there's An accretive way to use that money, then yes, we can turn on the spigot at any time in a market like this and recycle more assets. From a qualitative perspective though, I will add, Dean, and I think it's important to note that we will continue to prune our portfolio and make it better by subtraction. We still have some assets that from a same property NOI perspective drag us down a little bit.
And if the opportunity arises, we will certainly look to Sell those assets and ultimately have a better portfolio for it. And then from the development side, we've got a lot of very Strong assets that serve as very good retail assets, but also have a tremendous amount of upside from a development perspective. And as we've stated clearly before, it's our To bring in capital partners on those types of assets fairly early on to both validate the value of the air rights, But also to mitigate our risk in the development and to get some fees from that investor to Ultimately help give value to our platform. So there's definitely I mean, we feel very good about the values out there and we think that Generally understated or underappreciated by the capital markets.
Great. That's my 2. I will hand it back for some of the others.
Your next question comes from the line of Sam Damiani with TD Securities.
Hey, Sam. Hey, Jonathan. Congrats on your new call as CEO and Chief. We've already spoken, but again, wish you all the Just wanted to start off on, and I guess your outlook for the remainder of the year in terms Same property NOI. I believe you mentioned that same property NOI was positive, which I think no one would be surprised.
But if you exclude bad debt expense, what would be your view on seeing property NOI growth for perhaps the 2nd quarter?
We're not really giving guidance on the SPNOI for the Q2 at this point, Sam. I mean, what I can say is that our outlook is favorable. I mean, remember that were lapping Q2 2020, which was not our finest moment, given it was The outset of the pandemic. So I can tell you that I'll generally say it should be definitely a favorable of the year for us from many from the standpoint of many metrics, including SPNOI, but we're not really giving guidance at this point as to exactly Where it should trend, but we do believe we were confident, Sam, that it will trend in the right direction and continue to trend in the right direction.
Okay. That's helpful. And then on the disposition program, which it's great to see it ramping up and renewed interest in retail properties. I just want to clarify the comment that I think you made on your opening remarks that the average cap rate was 5.15 percent And that's on the full $543,000,000 of activity year to date including land?
No. That's not including land. It's actually if you include land, it's much lower than that. That's only for the income producing components, Sam. So again, we did much better A lot of the land that we sold has no income, as you can imagine.
So the combined cap rate would be somewhere Andrew, I'm not sure if we have it, but somewhere lower 4s. They ran 4s. 4s. Yes. That makes sense.
4, yes.
That makes sense. Yes. And are all these values in line with your IFRS? Was there was the IFRS mark in the quarter due to some pricing that's been firmed up on some of these deals?
A little bit, yes. But sometimes we have been pleasantly surprised by certain transactions where they are in fact better than our IFRS cap rates, but generally
Okay. Last question for me is just on the goal of setting your Debt structure at seventythirty unsecured, secured. What is the reason for that and the timeline that you expect to achieve that?
Sure. I'll start with the timeline. I mean, as you can imagine, Sam, will take quite some time. It's not one of those things you could turn on or off immediately. So it's probably a couple of years before we can become close to that objective.
I think it also helps with our debt metrics and our debt ratings at the end of the day. We will still we intend to very much Those types of transactions. And of course, we own a lot of some properties with partners where we'll let them govern our secured financing strategy there. But otherwise, where we can, we're going to focus more on the unsecured market for a little while.
Thank you. I'll turn it back.
All right. Thanks, Sam.
Okay. Thank you.
Your next question comes from the line of Tal Woolley with National Bank Finance.
Hey, Tal.
Hey, how's it going?
Fantastic. How are you?
I'm doing okay.
Good. I want
to talk about the well, if we could. The remaining resi towers that you guys don't own, like when will all
of those finish? So Andrew, I'll hand it over to Andrew Duncan, who can give you some more color on that.
Hi, Tal. Thanks for the question. I guess I'll answer your question in 2 phases. We anticipate closing all the remaining air rights on those transactions this year. We closed 3 of them are ready.
There's another 3 air rights deals to close. And then in terms of occupancy, all those buildings from a condo perspective and a rental perspective are occupying the latter half of 'twenty two out to the beginning of 'twenty four, because you can imagine they're all different heights and
they're all kind of occupying in different phases.
Okay.
And I guess what I'm wondering is if you're still going to be very much under construction for the next several years there or the next few years there. How should we think about how that will impact like leasing the retail portion? Like do you expect that We should expect to see that the other commercial parts kind of grow as those buildings are finished? Or Do you think that actually you know what people start taking occupancy very quickly?
It's a finely tuned process where we are I'm going to hand it over to Jeff Ross just to talk about some of the discussions he's had with the retail tenants and why We've mitigated any real material concerns about the phasing. Jeff?
Thanks very much, So we've been very quietly, but actively working on the well for a number of years as everybody knows. What they probably haven't seen is that Probably in the neighborhood of about 40% leased on the retail leasing side of things. And with negotiations we have going on now, That's going to substantially grow through the 2nd part of this year. There is a bit of a slowdown, there's no question, because some of the Americans that we were Happening in 3rd Q4 of this year as the U. S.
Starts to loosen up a little bit as soon as the border becomes a little bit more porous, they will get up here. But we're actively negotiating deals conditional on them coming up and actually seeing what we're producing. But from what we have in the hopper now, I'm pretty confident that as we kind of break out of 2021 and into 'twenty two, we will have a substantial amount of the retail done by the middle of Next year and as Jonathan said, it is a finely tuned dance that we're doing because as we get closer to this thing turning over, we're getting a really strong Interest and that's where we're really going to start to generate the higher revenue from the smaller retail units that we have. So we're pretty confident that we're heading in the right direction.
And I think just to conclude that, the completion of the buildings, again Andrew and the development team have done a very good job of ensuring that we've put in process ways to internalize all of the construction of the remaining residential building. So the only thing We'll be remaining at the time there's an opening of the retail sort of at the end of 2022 is the odd hoist that will be on the outside of buildings But we'll really be out of the way of the retail. So we feel very confident that when we set our sights on opening dates that we They will have very little obstruction in their way to operate their businesses accordingly. And We staged it such that those things won't arrive. Okay.
And then I guess my next question is just it's sort
of the same question for the occupancy. You guys have Noted that you've been 85% pre leased on the office side. What's your stabilized occupancy for that building and how quickly Are you thinking you might get there?
Yes, it's a better question for Michael Emery and the team at Allied, but we're confident with I mean they have been extremely active even in the face of a bit of a challenging office environment. They're still doing deals. In fact, I did one last month, which was again a strong deal. In terms of putting a specific timeline on it, I would say that by the time we open or the project opens in the latter stages of 2022, we fully anticipate Being stabilized, what does stabilized mean there? I mean, I would say around 97% or 98%.
Okay. And then just lastly on the retail side, collection rates have sort of been
across the
industry or at least the At least the publicly traded guys have sort of been in the sort of low mid 90% range. Can you hazard a guess about when you Expect those to start to improve?
Yes. I really think that the linchpin to all of this will be the reopening. And we've done a lot of research on what's happening in the U. S, which is a good I mean, I think a pretty good litmus test right now. And what we're hearing from our landlord peers as well as retailers down there is that things have by and large particularly in those areas that have been open for a little while Return to normal rent collection numbers have improved significantly and I think we'll follow that trend, but it really does depend on the vaccination My sense is that by the summer, and then certainly by the early fall, you're going to see consumer We returned to a very active pace, in fact, higher than pre pandemic phases, which will put our tenants in good stead.
And what's nice is I mean, it depends on if you're a taxpayer, but what's nice is that the government is bridging the gap for a lot of our tenants that are forced to close by the extension of the We will be in a stage where rent collections will be far more normalized. We'll be at our historic norms of 99.5% rent collection each month, Probably not by then, but we're confident that by as we roll into 2022, we'll start getting back to those heightened numbers again. Okay, that's great. Very helpful. Thank you.
No problem. Have a great day.
The next question comes from the line of Pammi Bier with RBC Capital Markets.
Hi, thanks.
Good morning. Nice to see the activity pick up in terms of Leasing, particularly on the spreads or specifically the new leasing spreads. But based on maybe what's in the And hopefully a full reopening later this year. Can you maybe just talk about your occupancy outlook? And then secondly, I am just curious how Perhaps leasing costs and the retail net effect of rents have been trending relative to pre COVID.
Yes. I'm going to hand that over to John Ballantyne, our Head of Management, just to give you some more color on that. Yes.
I think, Palmi, based on the activity we're seeing now and the pipeline that Jeff's got We do expect our occupancy to get up to our more historical norms by, I would say, mid next year. What I would say though is We do have a bit more inventory right now at lease, and we're not just trying to fill it up with any tenants. We're obviously trying to do so with tenants that have been Resilient throughout the pandemic. And I think the essential based tenants are the ones we're really doing business with right and we're going to continue to do so. So again, we will take our time a little bit more.
We're putting more money into our Shopping centers to ensure that not only are we filling space, but we're filling it properly.
And I think you also asked about the net effect of Brent and how much capital we're And Jeff, I don't know if there's a trend to have to heighten our TIs at this point. I think on trend, we're probably a little bit higher than normal, but I Yes,
just a very little bit. But what we're really doing is we're doubling down on our qualifying the tenants that we're putting those additional capital out to. So we're more stringent than ever before on understanding where this TI is going, but we're not seeing a massive jump in it. There is some structure around some Re rent and perhaps doing it that way. But the other thing we're really ensuring is that the tenants wherever possible are putting their own capital in as well.
So They've got skin in the game. So the answer is yes, maybe going up a little bit, but not a lot.
And just on the like on the renewals, have you been or even I guess on some of the new leasing, have you been maybe as far as the year 1 increase, Maybe giving you a little bit of a obviously a lesser or a bit of a break on the relative to market, let's say, But then maybe trying to incorporate whether it's annual or more periodic escalations in the terminal lease?
Yes, it's It's been a theme that we've been focused on even before the pandemic, but certainly now, we put a lot of pressure on our leasing department and they've responded quite well On not only getting 5 year bumps, but actually annual bumps. And even though it's been a tricky environment, they've come through quite well. So we're all about growth for the future. We are really trying to embed that in our philosophies when we do any sort of activity, but most importantly, leasing to ensure that that growth is consistent And so Jeff and his team have done a good job of working those in. Now of course, you can't do that in every lease and certainly some of our renewals are fixed.
So there's only so much flexibility you have. But wherever the opportunity arises, we will if again, we like to hold our net rents in year 1. But in some cases, we'll give a little bit on the 1st year if we can get sustained growth going forward.
Got it. Maybe just switching gears to the well and the office, I guess, completion later This year, just maybe if you could just clarify how the cash NOI impact will flow, I guess on the initial phase of the completion later this year and into 2022, is there some maybe color you can provide on that specific project?
I'm not sure, Chief, we've disclosed exactly what the flow of funds is from the well, but I think It's really again, it sort of logically follows the tenancy possession. So I mean, I think the office will start kicking Off some fairly sizable NOI by the end of this year and then the retailers will follow by the end of 2022. And then of course the residential we own our yes, we now own 50% of the Our residential building there that has around 600 units, that is going to be income producing probably at the beginning of 2023. So I can't give you specifics, Pammi, but those are generally the touch points that you would follow in order to determine What kind of NOI activity will happen from that site?
Got it. Maybe just one last And maybe, Jonathan, going back to your comments around FFO growth picking up, I guess, over the next few quarters, Any comments as to how you think the full year FFO may shape up?
Not giving guidance, Tommy, at this Point again, we're very I can give you the overarching statement that we're very confident that FFO will continue to improve, particularly as result of this pandemic dissipating and we do feel very confident that that is something that will help us Dramatically, we've also got developments that will be completed as the year goes on that will also add to our So again, there will be growth, but in terms of giving you guidance on what that ultimate number will be, we're not offering that at this point, Pammi, but we're confident
Your next question comes from the line of Jenny Ma with BMO Capital Markets.
Hi, Jenny.
Hi, good morning. And congrats to you, Jonathan, and also Thank you. Just with respect to the G and A, wanted to confirm that any costs related to The changes at the C suite were incurred in Q1 2021. So Q2 should be a cleaner quarter for G and A as far as you know right now?
Confirmed.
Okay, great. And is Q4 sort of a good run rate to look to in terms of a normalized quarter on G and A? I recognize that
it's been a little bit bumpy when
you look past over the last few quarters.
Jenny, if I may answer that. Q4, You still have to add back some of the nuance. That means because last year, as you know, because of COVID, we actually lowered the bonus accrue, For example, throughout the entire organization. So this year, even though it's still under pandemic, we certainly think COVID is better. And of course, the budget already reflect to quite an extent the pandemic effect.
So it's not fully so it's best way to probably use Q1 One, where we just report it and remove the one time as we talked about as a runway.
Okay, great. That's helpful. Going back to the dispositions, in the MD and A, you talk about an enhanced disposition target. I didn't see a specific number, but I'm wondering if that commentary reflects what we have What we know to date as far as what you've sold and contracted? Or is there sort of a bigger target for the full year?
Like how should we think about Dispositions for the Second Half of twenty twenty one.
So what we've disclosed is what we currently have in the hopper. There Other transactions that are being contemplated, but of course, it's an unpredictable market. You never know what will close and what will go firm. But I will tell you that there will be growth in that number, assuming all works out and the current deals do close, then there will be growth above what we Disclosed. Will it be material growth?
I wouldn't say so, but there will be some other activity in the latter part of this year.
Okay. So it's fair to say that it's front end weighted then on
dispositions? Yes.
Like, okay, great. And Jonathan, you talked about places to reinvest that capital and possibly taking advantage of strong pricing in the market. I'm just wondering, notwithstanding that the stock is up 25% year to date, is there a contemplation that unit buybacks make sense From a capital allocation perspective?
It's one of our options for sure, Jenny. I mean right now we are focused on making our balance sheet strong as And so our initial focus is going to be to pay down the debt a little bit and we obviously have a development pipeline that adds huge amounts of value Going forward, so we'll fund that. But looking at everything and balancing it all out, the NCIB is still At this, we think very undervalued stock price, a very accretive and very prudent thing to do. But again, we're going to wait and see how the other metrics fall out after we get The proceeds from these sales and then we'll make that determination, but it is a possibility.
Okay, great. With respect to the rent collection, pretty strong number considering a 5th of your tenants are closed right now. Do you have a sense of how many of your tenants are eligible for SIRS? What's kind of closing that gap between your close tenants and their ability to pay rent.
Yes. And I'll also remind you, it's pretty good in the sense that the 80 We're pretty pleased with it. But I'm going to turn it over to Oliver Harrison just to address the question on rent collection Who makes up the SIRS category?
Yes. Well, primarily the SIRS program is targeted towards marketing And the tenant base, and I would say just based on anecdotal conversations with tenants and then the resulting rent collection And the program is actually, I would say, efficiently flowing through to them and then to us. It is the one thing I'd say makes it a bit challenging is the fact that it is sort of done in arrears. So there has been a bit of a lag effect. We're We're seeing rent collections coming in from these tenants, let's say, in April that relate to Q4 2020.
But the program is working for them, but we do not have any specific statistics.
So it's not something that you're formally tracking or have agreements with tenants in place in terms of getting that SIRS money flow through to rent payment. Is that fair to say?
Well, we have agreements with leases. And so we fully anticipate getting not only the service payments, but 100% of their rents. And we are keeping close tabs on all those tenants that we know to be SIRS eligible and we've got an ambassador program that allows them Get our assistance to help them with the somewhat confusing process. But we just don't have I think specific At our disposal right now, but there is we definitely know which tenants are eligible for SIRS and which ones are eligible for other government But it thankfully is a fairly broad umbrella of tenants, not just the independents. There's also smaller franchisee tenants that benefit from it as well.
Yes. We also know that their legal requirement is to provide the landlord with the money that they are collecting through the service program.
Otherwise, the CRA will come after them.
That's right. And then finally, On construction costs, we were seeing inflation across the board and sort of a lack of availability of suppliers and trade. Are you starting to see that in the development projects and are you rethinking your development yields or sort of how you underwrite developments going forward.
Yes. I'm going to turn that over to Andrew on the specifics around elevated construction costs and then I can certainly hit on the what's it J.
Rice:] Jenny, thanks for your question. I think I'll answer it in a couple of ways. One, we're in a fortunate business right now in our development pipeline where the majority of our projects are 100 percent tenured and contracted. So we're seeing it in the market and seeing it through suppliers in those projects, but not per se through the buy. We've got some projects we're looking at kicking off sometime in 2022, And we're actively pricing those projects right now and trying to appropriately mitigate the risk by adding contingency on the escalation side, but We're not specifically exposed at this moment.
Are we seeing it generally in the market? Yes. There's a lot of construction starts. There's a lot of material increases, But we're adequately pricing those risks into our estimates at the time.
And as for the second part of the question, Jenny, what I'll say is that RioCan is uniquely positioned. We've got a lot of assets that service development prospects that are income producing. And so we can make the decision or render the conclusion Basically right up until the day we start demolition as to whether or not it's viable. So if we sense that the market for rental is just not where it needs To the end, costs have elevated to a point where it's just not a viable project. We can pull the plug on it and still have a very Valuable and very active income producing retail asset.
Now that's for the most part. We do have some greenfield properties, but The typical RioCan development site is one that is quite productive as is. So we always track these And Andrew and his team do a really good job of keeping their finger on the pulse of it. And that gives us the ability to make split second decisions on Whether or not to start or not on some of these projects.
Okay, great. That's all for me. Thank you very much.
Great. Have a good day, Jenny.
Your next question comes from the line of Howard Leung with Vereitos.
Hi, Howard.
Hi, there. I just wanted to turn back to renewals and talk The retention rate, I see in the comment in the MD and A, you pointed out that lower retention rate was really due to one tenant That had a lot of space, but had a it was they were paying lower than market rates. Is that fair to say that they were one of those Vulnerable tenants like maybe a department store?
No, actually it was a very strong tenant. Did we disclose who it is? We didn't see which one. But it's a very well covenanted Tenants that just again, they had saturated the market and felt that it was a store that wasn't logical for them. But and it was actually an old Zeller's lease that turned into a it was bought by another party.
They opened and then they just the But the good news there Howard is that we've already managed to backfill the majority of that space at higher rents. So while it did impact our Tension numbers for this year, it will actually contribute to our growth going forward. And so I think it's wise to look at our normal course retention, Which is close to the 85% range rather than this, which we feel is anomalous. But ultimately, net net, this is a win story for We're going to do far better with that space. Like I said, in the hands of someone like RioCan, we can do more with space than perhaps others.
Great, great. That makes sense. You should get that With the new tenant, I guess when you think about the tenants that aren't renewing, kind of that 15% I guess normalized 15% -ish, Are they more so, especially in the past few quarters, have they been really in the potential vulnerable bucket for the most part or Are they kind of a mix of all kinds of tenants?
I'm going to turn that over to John Ballantyne.
Yes. I think that's a pretty good classification. We always have And sometimes it's wanted and sometimes it's unwanted. To the extent we can still refine our tenant mix, We will negotiate some tenants out. So yes, we did lose some vulnerable tenants on the way through, but we also are Clearing some space to put in tenants that would be more beneficial for those centers over the long term.
Okay. No, yes, That's helpful. And do you see, I guess, part of those vulnerable tenants, they should benefit as hopefully as we reopen. So So can we expect maybe a higher retention rates from those class of tenants going forward? Or is that what you're seeing already now?
I mean the broadness of that category suggests that We're going to see different stories on so many different levels. I mean, some of those potentially vulnerable tenants are actually very viable tenants that we want To maintain in our portfolio, a lot of them are restaurants that make up a key part of a downtown mixed use development. And even They're suffering now. We want them to renew. We want them to be there.
Some of them are movie theaters and gyms that might not have the ability to renew. So it's hard to give you a consistent Answer in that regard. We will there are certain categories that make up part of that Potentially vulnerable like let's say fashion where we do believe that the renewals there will start to get lower and lower and lower, That's by design. That's by choice from RioCan. We do we have a we're making a market effort to get our exposure on apparel tenants Down to sort of somewhere around 5% or lower, 5% or lower.
So unless they can meet the terms that we really want on renewals, we're just telling them that they can Seek other premises. So it's hard to give you a consistent answer across that entire category, Howard.
No, I get that, That's still pretty good color. Just one more on renewals from me. I guess, can you remind us again of how those Fixed renewals for the renewal leasing spreads, how they're priced out or how they're determined?
Sorry, on fixed renewals, they're contractual. So they're already baked into a lease and we know about them all in advance and budget for them. And obviously, when they're not fixed, it's a negotiation. And It really we've been very fortunate in being able to achieve rents and spreads that are higher than our existing Market rents sorry, embedded rents. We think that that mark to market not only on our renewals, But on any vacant space is a significant upside provider for RioCan and we're proving that out quarter over quarter now with some healthy leasing spreads.
Okay, right. I see. So the fixed renewals is like it's an actual number. It's a that's already in the lease. It's not based on some, I don't know, CPI or
Well, there are some renewal clauses in leases that will say it's going to be X plus CPI, but The consistency throughout all fixed renewals is there is a number that is set. You're right, the only variable could be in Okay. So CPI, but that's very limited. Usually, it's just a set number that has been pre negotiated.
Okay. Okay. No, that makes sense. I just want to turn to disposition. It's pretty good cap rates overall.
I guess there was one property, I think it was a partial disposition that was And the team for the cap rate, but that's I guess that's one of those properties you talked about earlier, Jonathan, that was maybe dragging down same property growth And you're looking to dispose it?
Yes, I think that's accurate. I'm not sure Which property you're referring to, but there are like I said before, Howard, there are qualitative aspects. Yes, yes. That's right. So we have made some decisions on assets where we're selling them at higher cap rates.
It's not it might not be specifically in line with our IFRS values, but on balance, it's the right thing to do for the future of the organization because we See a future that has some troubling elements to it and it will impact same property NOI Going forward and take up a significant amount of capital in certain cases and human capital as well. So in those cases, we elect to sell them as we did The RioCan'tango site in Quebec, it's not the greatest cap rate, but from a qualitative perspective, It'll help us going forward.
Right, great. And for those secondary assets you're still you still have in the pipeline, maybe those that have CapEx in that range, Are those do you have to do you find that lately you've had to market them heavily? Or are they are you getting approached actually by, I don't know, private buyers for other people looking for maybe higher cap rates?
That's a great question. The interesting thing was that once we Our target of 90% major market focus, we sort of turned the tap off a little bit on our aggressive disposition program in secondary markets. So what you're seeing in our list of dispositions that do constitute secondary market sales, a lot of those have been off market approaches. We have not been actively marketing a lot of these assets. There is the rare exception, but for the most part, these are just approaches from local individuals, private Individuals and they're very enticing and we'll follow through on the deal that they are.
So it is actually more of a passive approach we've taken on some of those assets.
That's very interesting. And just the last one for me, maybe on debt to EBITDA. Can you just I guess more on dispositions. Out of the $540,000,000 you've disposed, can you just talk about roughly how much you expect Going down to paying down debt and maybe how much per development?
I think most of those actually target to pay down the debt Depends on in the end how much we're closing. Yes, but that's the primary priority.
Yes. So the majority, I'm not We can't give you a specific number, but again our focus right now is making sure our balance sheet is improved to the point that when we can turn to Sort of more of an offensive posture, our balance sheet is in great shape to make that turn.
Right, right. No, that makes a lot of sense. Thanks for taking my questions and congrats again Jonathan and Kishi.
Thanks so much Howard. Always a pleasure.
Thank you.
And there are no further questions at this time. I will now turn the call back to Mr. Gitlin for closing remarks.
All right. Well, thank you, Don, and thank you everyone who is still on the line. I also have to remind everyone that our AGM is set for May 26, and we're very much looking forward to it even though It will yet again be virtual. Unfortunately, I will not have my opportunity to shine in the in a live setting, But hopefully, it will be just as impactful. Anyway, thank you everyone for tuning in and thank you for your ongoing support.
And we look forward to
Ladies and gentlemen, thank you for participating in today's conference.