Hey, 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 Suess, Senior Vice President and General Counsel. You may begin.
Thank you, and good morning, everyone. I am Jennifer Suess, Senior Vice President, General Counsel, and Corporate Secretary for RioCan. Before we begin, I would like to draw your attention to the presentation materials that we will refer to in today's call, which were posted together with the MD&A and financials on riocan.com earlier this morning. Before turning the call over to Jonathan, I am required to read the following cautionary statement. In talking about our financial and operating performance, and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts.
These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results 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 prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows, and 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 applied 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 31st, 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 phenomenal senior leadership team, my colleagues Qi Tang, Andrew Duncan, John Ballantyne, 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 a team that leads the 570 members of the broader RioCan group. This bold, adaptable, and entrepreneurial team is RioCan's greatest asset. They've made it significantly less daunting to navigate this very tricky environment. I'm grateful for their support and constantly impressed by their innovation, drive, and unwavering commitment to our business. As I focus now on the first quarter in the business environment, I also want to share my confidence in RioCan's long-term value creation strategy.
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 this crisis. 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. I'm going to focus on our Q1 operating results.
Despite forced closures during a significant portion of the first quarter, RioCan collected a total of just under 94%, 93.9% of our rent for the first three months of the year. For April, we were at 93.6% of gross rent. Rent collection will continue to improve as tenants receive funds from CERS and CEWS, which have been extended now till September 25th, 2021. Rent collection has taken center stage in our results for the past four quarters. You know what? 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 1.1 million square feet of leases and renewals in the first quarter.
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 sq ft. The average rent per sq ft was CAD 23.19. I'm reciting these statistics because this is well above our portfolio average of CAD 19.87 a sq ft, and quarter-over-quarter demonstrates a 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% 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, forward-thinking companies are seizing on the opportunity to lease well-located space such as RioCan has to offer. While the narrative around office leasing has been somewhat bearish over the past year, RioCan has managed to backfill 2 units at Yonge Sheppard Centre this quarter alone, totaling 22,000 square feet. Our leasing spread on the 657,000 square feet of renewals completed in the first quarter 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 cost, was CAD 0.36 in the quarter. Given the ongoing pandemic and subsequent lockdown, this result, well, it met our expectations.
It was impacted by one-time G&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 CAD 6.4 million provision that we had to take for bad debts in the first quarter. 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 -4.6%, largely due, again, to the pandemic-related provision. It's important to note the impact on same property NOI is a direct result of the immediate effect of COVID-19. 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 norm. 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 closures, 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 impacts 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 first 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-19 start to dissipate. I'd like to briefly highlight our very active capital recycling initiatives. Seizing on a sizable disconnect between public and private market valuations, we're raising capital efficiently by selling assets. Between closed firm and conditional deals so far in 2021, we've netted proceeds of over CAD 543 million at an average cap rate of 5.15%. The assets range from conventional retail to mixed use to non-income producing land. 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 rent in the first quarter, 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 two projects in Toronto so far with our partners at Allied REIT and Metropia. We also have more than 1,200 existing residential rental units across four 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. 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 going forward. In addition to the completed project I just referenced, we have more than 1,450 residential rental units currently under construction between six projects, and we estimate we'll have an additional 1,014 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 three condo projects comprising nearly 1,250 units currently under construction. The proceeds from these condo sales provide an alternative 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 almost 83% of our nearly 42 million sq ft development pipeline. During the quarter, RioCan's development team completed 30,000 sq ft of development, primarily related to the first phase of the retail component of Windfields 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 Windfields Farm mixed-use development that RioCan is developing with our partner, Tribute Communities.
The development includes 392 units of townhomes in three phases. The first phase is complete. The second phase is under construction and 100% pre-sold. Construction on the first of the three condo towers is also well underway. Its 500 units are 100% pre-sold as well. The success of retail leasing and residential sales at Windfields Farm site, with profit margins of up to 23%, well, it simply illustrates RioCan's ability to generate net asset value growth in all circumstances. Moving to downtown Toronto, construction of the 36-story office tower at The Well remains on track for initial tenant possession this year. Approximately 85% of its 1.2 million sq ft has been pre-leased to strong covenanted tenants, including Shopify. Approximately one-third of the 340,000 square feet of retail space has been leased to forward-thinking tenants that really do reflect the vibrancy of the King West neighborhood.
I'm highlighting the progress of Windfields Farm 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 2021 is estimated to be in the range of CAD 500 million. 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. As we complete developments, we break ground on new ones, achieve zoning on others, and initiate the zoning approval process on still more. Our pipeline translates into lucrative opportunities, a proven and virtuous cycle that will continue to be demonstrated through 2021 and long into the future. We'll use our vast pipeline of air rights and we'll seek out partners to enhance value, reduce our overall development exposure, and equally important, to get paid for our deep and experienced development and residential platforms through equitable fee structures. 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 in ESG.
We're recognized as one of Canada's greenest employers in 2021, direct acknowledgment that we're leading the nation in creating a culture of environmental awareness. We recently published our first green bond report, confirming the full allocation of the net proceeds of CAD 348 million from our inaugural green bond issuance. We also announced an exciting new partnership with Context and collaboration with the City of Toronto and TCHC to develop a mixed-use master planned community at Queen and Coxwell in Toronto. The project will provide vital retail amenities and add much needed housing for all income levels. In addition, it will contribute to Toronto's community economic development initiatives, including a CAD 100,000 scholarship fund for affordable rent tenants, a CAD 250,000 economic and social development fund, and a minimum of CAD 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 first quarter financial performance in more detail. Qi, over to you.
Thank you, Jonathan, good morning, everyone. Thank you all for joining us. When COVID-19 was declared a global pandemic more than a year ago, few of us anticipate that it would carry into 2021. While the end is in sight with the rollout of the vaccine, the pandemic continued to impose challenges to the retail sector with a number of lockdowns throughout the first quarter of 2021. As Jonathan highlighted, despite this operating environment, RioCan delivered strong Q1 operating results, including leasing, rent collection, and development progress, et cetera. Let us take a closer look at the drivers of our FFO per unit for the quarter. Q1 2021 FFO per unit was CAD 0.36, excluding the CAD 7 million debenture prepayment cost. This was CAD 0.03 lower than the CAD 0.39 for Q4 2020.
This quarter-over-quarter change was largely driven by a one-time CAD 5.8 million general administrative expenses, which were mostly related to the accelerated expensing of certain unit-based compensation and represented approximately CAD 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 surface value of our portfolio through capital recycling, one of the most efficient and effective sources of capital for RioCan to fund value creation initiatives such as development. As Jonathan touched on earlier, year to date, we have in aggregate CAD 543 million of closed or firm and conditional deals. This includes CAD 421 million of income-producing properties at a weighted average capitalization rate of 5.15%, based on in-place NOI, and about CAD 122 million of development properties with no in-place NOI.
These deals demonstrate the quality of RioCan'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 RioCan's income while addressing the growing demand for housing as Canada's population grows, particularly when the government resumes its immigration plans. The Canadian government is targeting to welcome more than 1.2 million immigrants over the next three years. This will further drive demand for real estate 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 on consolidated balance sheet as a percentage of total consolidated gross book value of assets at or under 10%. Despite the 15% limit permitted under our credit facility agreement. As of the quarter end, this metric was 10.7%. Our development program consists of both residential rental and residential inventory projects. The latter 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 pre-sale include UC Uptowns and UC Tower at our Windfields Farm development, 11 YV in Yorkville, and QA Condos at Queen and Coxwell, all in the Greater Toronto Area.
These projects are estimated to provide CAD 133 million to CAD 148 million in inventory gains over the next four to five years, with more projects under development. The first three projects are effectively 100% pre-sold and are under construction, while the new QA Condos project is already 89% pre-sold. Let me turn your attention to our balance sheet metrics. RioCan continues to maintain ample liquidity. As of the quarter end, our liquidity stood at CAD 1.3 billion in the form of cash and cash equivalent and undrawn committed revolving lines of credit and other credit facilities. Subsequent to the quarter, the Trust extended the maturity of its revolving unsecured operating facility by two more years to the end of May 2026, with all the terms unchanged. Our mortgage maturities for 2021 total CAD 380 million. By now, only about CAD 102 million 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 asset pool of CAD 8.7 billion on a proportionally shared basis, which generates close to 60% of our annualized NOI and provided 2.2x coverage for our unsecured debt as of the quarter end. 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 months rolling nature, with Q1 results reflecting four quarters impacted by the pandemic versus only three quarters that were impacted by the pandemic in the year-end metric. Debt to total assets was 45.3%.
While we expect these two debt metrics to increase marginally in the near term, RioCan maintains its long-term goal of keeping leverage and debt to adjusted EBITDA within the target ranges of lower than 42% and eight times respectively. RioCan's successful capital recycling program and ongoing improvements in operations will serve to reduce these metrics over the medium term. Over the long term, RioCan targets to shift its unsecured versus secured debt composition to 70/30 on a proportionally shared basis. This transition will take time and will be balanced with credit rating implication, cost of debt ladder, and liquidity needs. As of the quarter end, this ratio was 56 versus 44. RioCan is committed to a disciplined approach to maintaining its balance sheet and capital structure in order to maintain strong liquidity and financial flexibility. This has served RioCan well over its 27 years of history.
It will continue to position RioCan well to navigate through the ongoing pandemic and provide it 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 a personal 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 five years. This includes 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 Sonshine. 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 RioCan in great hands under Jonathan's leadership. I wish Jonathan and the entire RioCan team all the best in the years to come. With that, I'd like to turn the call over to Jonathan for his closing remarks.
Thanks, Qi. Thank you for your significant contributions over the last five years. Personally, 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. 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 successor by the third quarter of 2021. I'm pleased to announce that Franca Smith, current Vice President, Finance, RioCan, will serve as Interim CFO effective May 12th. Franca's 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 in her ability to lead our exceptionally strong finance team and to support RioCan's value creation initiative. 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 challenging time. 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 compelling growth strategy are in the hands of a responsible, innovative, and entrepreneurial team like RioCan, they will thrive. It's a privilege to lead this incredible team and to have this well-positioned portfolio to create value for you, our unitholders. Thank you.
Now, we're happy to respond to any of your questions. Dawn, over to you to open it up for questions.
Thank you, ladies and gentlemen. If you have a question at this time, please press star key on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from the line of Mark Rothschild with Canaccord.
Thanks. Good morning, everyone.
Good morning, Mark.
It appears that in the first quarter and heading into the second quarter, asset sales are accelerating, some of it's the development assets. Can you just give a little more color on what you're selling? More significantly, does this give any evidence of pricing for stabilized assets that you could talk to the values?
Sure. We're selling actually a wide range of assets. 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. 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 has seen a bit of a slowdown just because people weren't certain about what the lending environment was.
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, be they institutional or even high-net-worth individuals who really like the prospects of retail assets. We're seeing a number of different types of buyers on a number of different types of assets. 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?
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 of trades, and I think people were scrambling to figure out exactly what the appropriate benchmark is for valuing retail assets. What we're tending to see, quite honestly, is a reversion back to values that were pre-pandemic. I'm not talking about enclosed malls. Those are a bit tougher to value at this point. Certainly for open-air centers and for land and mixed-use properties, we're seeing reversions back to pre-pandemic. 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 have some development potential.
Okay, great. Thanks. Maybe just one more.
Sure.
In regards to G&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?
Qi, I can hand that over to you.
Sure. Mark, concerning bad debt Q2, realistically, we will still have some. We are hoping to be lower, depending on the closures. You saw the great rent collection results, which are fairly indicated. G&A, as we mentioned, this quarter in Q1, we do have that CAD 5.8 million special one-time, which are certainly not expected to repeat next quarter or in the future quarters.
Yeah. It's hard to tell right now exactly what kind of provision we would need to take. I've got to think that, particularly looking ahead at what we hope to be a reopening fairly soon, that the bad debt provision will continue to dissipate over the course of the year, as Qi says.
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, Qi.
She's still here for this call.
Yeah.
We already miss 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 four, 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 six months ago? Do you have a sense of that?
Sure. I think some of these are very well-positioned assets that the very low cap rates are driven by their unique attributes. One of the assets, again, is at Yonge and Eglinton. It's part multi-res. That was obviously a very low cap rate. 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 that these open-air centers are exceptionally resilient. 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, they've done very well in what is arguably the worst landscape that we've seen in many decades. 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 overlooked, and I think now there's a recognition that it's a very good place to place money. We are seeing a flow back into the sector, which is great for us. The list of assets that we're selling does not even come close to reflecting the demand that we're getting just on inbounds from people wanting to buy assets from us. There's only so much we're willing to sell.
I think there has been a fair bit of attention turned back to retail, and I think that augurs well for us and our peers who own these very well-positioned properties.
I think that makes total sense. 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 are right, or are you comfortable with the disposition program as it sits?
The good news about RioCan is we've got options. If we wanted to recycle capital in a 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 on our distribution reduction from last year. We're reducing our development spend a little bit next year. Our operations, again, our team is doing such a great job of both reducing expenses across our sites, but also Jeff and his team have done a remarkable job enhancing rents across our sites. 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.
If there's an accretive way to use that money, then yeah, 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. If the opportunity arises, we will certainly look to sell those assets and ultimately have a better portfolio for it. 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.
As we've stated clearly before, it's our intention 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. We feel very good about the values out there, and we think that they are generally understated or underappreciated by the capital markets.
Great. That's my two. I will hand it back for some of the others. Thanks again.
Thanks, Dean.
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 best in your next step.
Thanks.
Just wanted to start off on, I guess, your outlook for the remainder of the year in terms of same property NOI. I believe you mentioned that same property NOI would be positive, which I think no one would be surprised at. If you exclude bad debt expense, what would be your view on same property NOI growth for perhaps the second quarter?
We're not really giving guidance on SPNOI for the second quarter at this point, Sam. What I can say is that our outlook is favorable. Remembering too that we're lapping Q2 2020, which was honestly not our finest moment, given it was the outset of the pandemic. I can tell you that I'll generally say it should be definitely a favorable conclusion of the year for us from the standpoint of many metrics, including SPNOI. We're not really giving guidance at this point as to exactly where it should trend. We do believe, we were confident, Sam, that it will trend in the right direction and continue to trend in the right direction.
Okay. No, that's helpful. 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%, and that's on the full CAD 543 million of activity year to date?
No.
Including land.
No, that's not including land. It's actually, if you include land, it's much lower than that.
Okay.
That's only for the income-producing component, Sam. Again, we did much better because a lot of the land that we sold has no income, as you can imagine. The combined cap rate would be somewhere Andrew, I'm not sure if we have it, but somewhere lower in the fours. Around four.
Low fours.
Yeah.
That makes sense.
Four, yeah.
That makes sense.
Yeah.
Are all these values in line with your IFRS? Was the IFRS mark in the quarter due to some pricing that's been firmed up on some of these deals?
A little bit, yeah. Sometimes we have been pleasantly surprised by certain transactions where they are in fact better than our IFRS cap rates. Generally speaking, they're in line.
Okay. Last question from me is just on the goal of setting your debt structure at 70/30 unsecured/secured. What is the reason for that and the timeline that you expect to achieve that?
Sure. I'll start with the timeline. As you can imagine, Sam, will take quite some time. It's probably a couple of years before we can come close to that objective. The reason for it is we just think it's prudent capital management in this environment. It gives us a lot more flexibility, and I think it also helps with our debt metrics and our debt ratings at the end of the day. We intend to very much favor CMHC financing on our mixed-use properties. We will continue to focus on getting our secured financing bucket filled by those types of transactions. Of course, we own some properties with partners where we'll let them govern our secured financing strategy there.
Otherwise, where we can, we're going to focus more on the unsecured market for a little while.
Thank you. I'll circle back.
All right. Thanks, Sam.
Okay. Thank you.
Your next question comes from the line of Tal Woolley with National Bank Financial.
Hey, Tal.
Hey, how's it going?
Fantastic. How are you?
I'm doing okay.
Good.
Wanted to talk a little about the Well, if we could. The remaining resi towers that you guys don't own, when will all of those finish?
Andrew, I'll hand it over to Andrew Duncan, Tal, who can give you some more color on that.
Hi, Tal. Thanks for the question. I guess I'll answer your question in two phases. We anticipate closing all the remaining air rights on those transactions this year. We've closed three of them already. There's another three air rights deals to close. In terms of occupancy, all those buildings from a condo perspective and a rental perspective are occupying in the later half of 2022 out to the beginning of 2024. You can imagine they're all different heights and they're all kind of occupying in different phases.
Okay. 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 leasing the retail portion? Do you expect that we should expect to see that the other commercial parts kind of grow as those buildings are finished? Do you think that actually, you know what, people will start taking occupancy very quickly there?
It's a finely tuned process where we are focusing on ensuring that there's as little disruption as possible. 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, Jonathan. 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 we're probably in the neighborhood of about 40% leased on the retail leasing side of things. With negotiations we have going on now, that's going to substantially grow through the second part of this year. There is a bit of a slowdown, there's no question, because some of the Americans that we were talking to really need to lay eyes on the actual development and get feet on the ground. We feel that we've got a good chance of that happening in the third and fourth quarter 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.
We're actively negotiating deals conditional on them coming up and actually seeing what we're producing. From what we have in the hopper now, I'm pretty confident that as we kind of break out of 2021 and into 2022, we will have a substantial amount of the retail done by the middle of next year. 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 really strong interest. That's where we're really going to start to generate the higher revenue from the smaller retail units that we have. We're pretty confident that we're heading in the right direction.
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. The only thing that will be remaining at the time there's an opening of the retail at the end of 2022, is the odd hoist that will be on the outside of buildings but will really be out of the way of the retail. We feel very confident that when we set our sights on opening dates that we promise to retail tenants, they will have very little obstruction in their way to operate their businesses accordingly. We've staged it such that those things won't arise.
Okay. I guess my next question is just, it's sort of the same question for the occupancy. You guys have noted that you're even 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?
Yeah, it's a better question for Michael Emory and the team at Allied. They have been extremely active, even in the face of a bit of a challenging office environment. They're still doing deals. They, in fact, just 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 would say around 97% or 98%.
Okay. Just lastly, on the retail side, collection rates across the industry, or at least the publicly-traded guys, have sort of been in this sort of low, mid 90% range. Can you hazard a guess about when you expect those to start to improve?
Yeah. I really think that the linchpin to all of this will be the reopening. We've done a lot of research on what's happening in the U.S., which is a good, I think, a pretty good litmus test right now. 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, returned to normal. Rent collection numbers have improved significantly, and I think we'll follow that trend. It really does depend on the vaccination rollout. My sense is that by the summer, and then certainly by the early fall, you're going to see consumer activity return to a very active pace. In fact, higher than pre-pandemic phases, which will put our tenants in good stead.
What's nice is, 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 CERS program to the end of September. By the conclusion of that program, I believe that we will be in a stage where rent collections will be far more normalized. Will we be at our historic norms of 99.5% rent collection each month? Probably not by then, but we're confident that 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 on the line of Pammi Bir with RBC Capital Markets.
Hey, Pam.
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. Based on maybe what's in the pipeline and hopefully a full reopening later this year, can you maybe just talk about your occupancy outlook? Secondly, I am just curious how perhaps leasing costs and the retail net effect of rents have been trending relative to pre-COVID.
Yeah, I'm going to hand that over to John Ballantyne, our Head of Asset Management, just to give you some more color on that.
Yeah, I think, Pammi Bir, based on the activity we're seeing now, and the pipeline that Jeff Ross's got going, 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 to 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. I think, the essential-based tenants are the ones we're really doing business with right now, and we're going to continue to do 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.
I think you also asked about the net effect of rents and how much capital we're putting in. 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. I don't know what your thoughts are.
Yeah. Just a very little bit, what we're really doing is we're doubling down on our qualifying the tenants that we're putting most additional capital out to. We're more stringent than ever before on understanding where this TI is going. We're not seeing a massive jump in it. There is some structure around some free rent and perhaps doing it that way. The other thing we're really ensuring is that the tenants, wherever possible, are putting their own capital in as well. They're representing they've got skin in the game. The answer is, yeah, it may be going up a little bit, but not a lot.
Just 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 one increase, maybe giving a little bit of, 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?
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, they've responded quite well on not only getting five-year bumps but actually annual bumps. Even though it's been a tricky environment, they've come through quite well. 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 sustainable. Jeff and team have done a good job of working those in. 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.
Wherever the opportunity arises, again, we like to hold our net rents in year one, but in some cases, we'll give a little bit on the first 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. 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 then into 2022. Is there some maybe color you can provide on that specific project?
I'm not sure, Qi, if we've disclosed exactly what the flow of funds is from The Well, but I think it sort of logically follows the tenancy possession. 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. Of course, the residential, we now own 50% of the largest residential building there that has around 600 units. That is going to be income producing probably at the beginning of 2023. 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 one, 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?
I'm not giving guidance, Pammi Bir, at this point. Again, I can give you the overarching statement that we're very confident that FFO will continue to improve, particularly as a result of this pandemic dissipating. 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 FFO. 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 Bir, but we're confident in the ability to constantly grow it.
Great. Thanks very much. I will turn it back.
Thanks, Pammi.
Your next question comes from the line of Jenny Ma with BMO Capital Markets.
Hi, Jenny.
Hi, good morning, congrats to you, Jonathan, and also to Qi for the next step in your career.
Thank you.
With respect to the G&A, I 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&A as far as you know right now?
Confirmed.
Okay, great. Is Q4 sort of a good run rate to look to in terms of a normalized quarter on G&A? I'm recognizing 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, because of COVID, we actually lowered the bonus accrual, for example, through the entire organization. This year, even though it's still under pandemic, we certainly think COVID is better. Of course, the budget already reflects to quite an extent the pandemic effect. It's not fully. It's best we probably use Q1 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&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 know to date as far as what you've sold and contracted, or is this sort of a bigger target for the full year? How should we think about dispositions for the second half of 2021?
What we've disclosed is what we currently have in the hopper. There are 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. 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've 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. It's fair to say that it's front-end weighted then on dispositions.
Yep.
Like somehow. Okay, great. 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's 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. Right now we are focused on making our balance sheet as strong as possible. 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. We'll fund that. Looking at everything and balancing it all out, the NCIB is still at this, we think, very undervalued stock price, a very creative and very prudent thing to do. 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. It is a possibility.
Okay, great. With respect to the rent collection, pretty strong number considering a fifth of your tenants are closed right now. Do you have a sense of how many of your tenants are eligible for CERS? What's kind of closing that gap between your closed tenants and their ability to pay rent?
I'll also remind you it's pretty good in the sense that the 80% that are open, a lot of them are open with restrictions too, and severe limitations on what they can sell. Again, in the face of this environment, we're pretty pleased with it. I'm going to turn it over to Oliver Harrison just to address the question on rent collection and who makes up the CERS categories.
Yeah. Well, primarily the CERS program is targeted towards our independent tenant base. I would say just based on anecdotal conversations with tenants and then the resulting rent collection statistics for those category of tenants, a broad base of that group is utilizing the program. The program is actually, I would say, efficiently flowing through to them and then to us. 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 seeing rent collections coming in from these tenants let's say in April that relate to Q4 2020. The program is working for them, but we do not have any specific statistics.
It's not something that you're formally tracking or have agreements with tenants in place in terms of getting that CERS money flow through to rent payment. Is that fair to say?
Well, we have agreements. They're leases.
Yeah, exactly.
We fully anticipate getting not only the CERS payments, but 100% of their rents. We are keeping close tabs on all those tenants that we know to be CERS eligible, and we've got an ambassador program that allows them to get our assistance to help them with the somewhat confusing process. We just don't have, I think, specific statistics at our disposal right now. We definitely know which tenants are eligible for CERS and which ones are eligible for other government assistance programs. 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.
Yeah. We also know that their legal requirement is to provide the landlord with the money that they are collecting through the CERS program.
Otherwise, the CRA will come after them. No one wants that.
That's right. Then finally, on construction costs, we're seeing inflation across the board and sort of a lack of availability of suppliers and trades. 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?
Yeah. 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 doing to our outlook on future projects.
Jenny, thanks for your question. I think I'll answer it in a couple of ways. One, we're in a fortunate position right now in our development pipeline where the majority of our projects are 100% tendered and contracted. We're seeing it in the market, and we're 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. 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.
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 serve as development prospects that are income producing. 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. If we sense that the market for rental is just not where it needs to be and 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. 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.
We always track these things, 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 Veritas.
Hi, Howard.
Hi there. I just wanted to turn back to renewals, and talk about the retention rate. I see in the comment in the MD&A, you pointed out that the lower retention rate was really due to one tenant that had a lot of space, but they were paying lower than market rate. Is that fair to say that they were one of those potentially vulnerable tenants, like maybe a department store?
No, actually, it was a very strong tenant. Did we disclose who it is?
We didn't say which one.
It's a very well-covenanted tenant that just again, they had saturated the market and felt that it was a store that wasn't logical for them. It was actually an old Zellers lease that it was bought by another party. They opened then the store wasn't viable for them. The good news there, Howard, is that we've already managed to backfill the majority of that space at higher rents. While it did impact our retention numbers for this year, it will actually contribute to our growth going forward. I think it's wise to look at our normal course retention, which is closer to the 85% range rather than this, which we feel is anomalous. Ultimately, net-net, this is a win story for us. 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.
Right. That makes sense. You should get that lift 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 tenancy?
I'm going to turn that over to John Ballantyne.
Yeah. I think that's a pretty good classification. We always have typical turnover at RioCan, 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. Yeah, we did lose some vulnerable tenants on the way through, but we also are clearing some space to put in some tenants that would be more beneficial for those centers over the long term.
Okay. No, yeah, that's helpful. Do you see, I guess, part of those vulnerable tenants, they should benefit hopefully as we reopen. Can we expect maybe a higher retention rate from those class of tenants going forward? Or is that what you're seeing already now?
The broadness of that category suggests that we're going to see different stories on so many different levels. 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 though 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. It's hard to give you a consistent answer in that regard. 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, but that's by design. That's by choice from RioCan.
We're making a market effort to get our exposure on apparel tenants down to sort of somewhere around 5% or lower. Unless they can meet the terms that we really want on renewals, we're just telling them that they can seek other premises. 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?
On fixed renewals, they're contractual, so they're already baked into a lease, and we know about them well in advance and budget for them. Obviously when they're not fixed, it's a negotiation. We've been very fortunate in being able to achieve rents and spreads that are higher than our existing 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.
Oh, okay. Right. I see. The fixed renewals, it's an actual number that's already in the lease. It's not based on some, I don't know, CPI or some other benchmark.
Well, there are some renewal clauses in leases that will say it's going to be X plus CPI. The consistency throughout all fixed renewals is there's a number that is set. You're right, the only variable could be, in some cases, CPI, but that's very limited. Usually it's just a set number that has been pre-negotiated.
Okay. No, that makes sense. I just want to turn to disposition. It is pretty good cap rates overall. I guess there was one property, I think it was a partial disposition that was in the teens for the cap rate, but I guess that is one of those properties you talked about earlier, Jonathan, that was maybe dragging down same property growth and you were looking to dispose of.
Yeah, I think that's accurate. I'm not sure specifically which property you're referring to, but there are, like I said before, Howard, there are qualitative aspects. Sorry?
Tanger.
Tanger, that's right. We have made some decisions on assets where we're selling them at higher cap rates. 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. In those cases, we elect to sell them as we did at the RioCan Tanger site in Quebec. It's not the greatest cap rate, but from a qualitative perspective, it'll help us going forward.
Right. For those secondary assets you still have in the pipeline, maybe those that have cap rates in that range, do you find that lately you've had to market them heavily or are you getting approached actually by, I don't know, private buyers or other people looking for maybe higher cap rates?
That's a great question. The interesting thing was that once we reached 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. 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 if they are. It is actually more of a passive approach we've taken on some of those assets.
That's very interesting. Just the last one for me, maybe on debt to EBITDA. I guess more on disposition. Out of the CAD 540 million you've disposed, can you just talk about roughly how much you expect to see going down to paying down debt and maybe how much for developments?
I think most of those are actually targeted to pay down the debt. Depends on in the end how much we closing. Yeah. That's the primary priority.
Yeah. The majority, 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. No, that makes a lot of sense. Thanks for taking my questions and congrats again, Jonathan and Qi Tang.
Thanks so much, Howard. Always a pleasure.
Thank you.
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, Dawn, and thank you everyone who is still on the line. I also have to remind everyone that our AGM is set for May 26th 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 a live setting. Hopefully it'll be just as impactful. Thank you everyone for tuning in, and thank you for your ongoing support. We look forward to speaking to you again in May and then again in the second quarter.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.