Good day, ladies and gentlemen. Welcome to the SmartCentres REIT Q3 2020 conference call. I would like to introduce Peter Forde. Please go ahead.
Thank you. Good afternoon. I am Peter Forde, President and CEO, and joining me on the call today are Mitch Goldhar, our Executive Chairman, Peter Sweeney, Chief Financial Officer, and Rudy Gobin, EVP, Portfolio Management and Investments. The call will begin with comments by Mitch and myself, followed by Peter Sweeney, who will talk about our results for the quarter end, including IFRS valuations, liquidity, and accounting provisions for bad debts. We will take your questions. Our comments will mostly refer to the outlook and mixed-use development initiative sections of our MD&A, which are posted on our website. I refer you specifically to the cautionary language on pages three and four of the MD&A material, which also applies to comments any of the speakers make this afternoon. Some of what you hear today, you may have heard before.
Our focus is on operating our existing shopping centers and on creating value through real estate development. This process and the value it creates is not conducive to a quarterly reporting cycle, and while we have a significant amount of development projects underway, each has its own timeline. We are staying on course and on strategy. Within the context of real estate development, this strategy is moving us forward nicely with the reward starting this past quarter with the SmartVMC condo closings. The last six months were unusual for all of us. The spread of the pandemic and the accompanying shutdown impacted every one of us personally and from a business perspective to varying degrees. Our REIT was no different. The pandemic added some challenges in the short term, but our focus remained on our long-term strategy.
We were intensely fixated on our initiatives to grow the business through mixed-use development. Short-term challenges required our attention in assisting our tenants and keeping our shopping centers operating effectively to take care of the more than 60% of our tenants, which are considered essential services that remained open even at the peak of the shutdowns. These tenants were a priority for us as they were meeting food and other essential needs of communities. Our attention was on assisting our retailers in getting back to opening their stores once the lockdowns were lifted, such that almost 100% of our tenants were open and operating at the end of the quarter. This percentage was down slightly in October as a result of select new shutdowns. All the way through the pandemic, we remained very focused on our longer-term strategy of development.
Mitch's vision 30 years ago to build retail centers with Walmart as an anchor involved many detailed steps, just as does today's mixed-use plans, as well as building an operating company around it. The culture of our company is unique in that we are land development people operating shopping centers. We are and always have been comfortable with land, its possibilities, and its path to profit. This is our core competency. It is right now and in the foreseeable future that our core competency will differentiate us as we work on the new path, intensifying and repositioning many of our strategically located properties. Another way of saying this, we are a real estate development company that owns many great shopping centers with substantial and reliable recurring income, most of which we developed.
These great shopping centers with their outstanding access on or near highways, transit, visibility, and most importantly, in the midst of growing populations, are just a starting point to the development of higher and better uses, and in most cases, residential. Many investors and some analysts are not yet acknowledging or giving us the proper credit for this development that is now delivering value and it's here to stay. With that, I'll pass it over to Mitch.
Thanks, Peter. This year, we went on the offensive. Accelerating, not decelerating the processes of obtaining zonings and site plan approvals because it is those approvals, approved land use changes from which value and opportunity is created. This is strategic, utilizing our lasting relationships we have forged over the last 30+ years with many of the Canadian municipalities, as well as government's general receptiveness to moving intensification forward. Now this has started to pay off. On page 19 and 20 of our MD&A, there's a list of examples of the very active residential and other development applications that were submitted by our in-house development teams during the COVID shutdown, or have been advanced by our team of professionals such that the applications will be submitted in the next one or two months. Look at the list of these pages carefully.
Look at the list on these pages carefully. These are new initiatives, many very exciting projects, mostly residential. Significant value creation, not recognized in our IFRS balance sheet values, will result from these. The list on these two pages encompasses in excess of 30 million sq ft of additional density. Some built on undeveloped lands, some on top of existing retail, a limited number replacing existing weaker retail, making for a more dynamic, vibrant, and welcoming mixed-use center. Of course, that is not all. For example, many of the future phases of VMC at our lands in Laval Centre in Quebec are not included in that number, the several seniors residence we are working on with our partner, Revera.
As a very recent example, we were issued a Minister's Zoning Order, an MZO, for our 72 acre Cambridge retail property, which is on the 401, which will allow for various forms of residential and commercial uses as we redevelop the center over the next 20 years. However, the value from this additional 12 million sq ft of density on that site and its rights are created on day one. As with many of these redevelopments, the MZO will allow for a growing mix of people living and working with the existing shopping center, creating synergies for tenants and residents. Now let's talk about the new development initiatives already under construction. Over the last several years, we have pointed out to the investment community and others that it is part of our culture to deliver on what we say we will deliver.
This is true for the first two office towers at SmartVMC here in Vaughan, where we delivered exactly what we said. 100% occupied now with strong tenants in a downtown Toronto quality tower and under budget. We have just delivered and opened the 177 unit residential rental tower in Laval, Quebec, and the first of our 10 SmartStop Self Storage developments in Leaside in Toronto. Now our third quarter results include the closings of the first 766 units in the SmartVMC Transit City 1 and 2, 55-story towers. Our share of the profit contributing CAD 30 million to FFO for the quarter. By December 31st, we expect to close the remaining 344 units in these two towers, generating an additional CAD 20 million in profit, totaling approximately CAD 0.28 on FFO for the Trust's 25% interest in the project for the year.
This will be followed in the spring and summer of next year with the closing of 631 units in Transit City 3, generating a further CAD 20 million in profit. For the three towers combined, we're not only meeting but exceeding our original planned profit by more than CAD 35 million. Other specific project highlights. Two additional towers, Transit City 4 and 5, 1,026 units sold out, are under construction. 20% deposits now in place from the purchasers. We are nicely set up for a recurring flow of condominium cash flows and projects. Two, SmartVMC. Purpose-built residential rental, 451 unit building is under construction. SmartVMC, the new 140,000-sq ft Walmart store opened on October 22nd, a couple of weeks ago, allowing for the closing of the existing store on the strategically located old Walmart store on the SmartVMC site and freeing up this very valuable land for residential density. Self-storage.
In addition to the two open and operating properties, there are four others under construction. Vaughan, Brampton, Oshawa, and Scarborough, and six others in the process of obtaining municipal approvals, which are generally not controversial. Five, seniors residence. First, let me clarify. With all the troubling pandemic information there is in the news related to seniors, almost all the tragic news relates to government-funded long-term care facilities, a business we are not in. Instead, with our two partners, we are developing seniors apartments with extra amenities and limited levels of resident care, all tailored to seniors in new buildings. Six with Revera, two with Groupe Sélection. All of these projects are in the municipal approvals stage. A few general reminders about our development pipeline and capabilities.
Most of the development initiatives we are planning are on lands we already own, unlocking value, supplemented by select acquisitions with existing or new strategic partners. We use our in-house development team to drive these initiatives. We know the markets, the municipalities, and every detail of the properties. This team was actively engaged in using our technologies to connect seamlessly to the municipalities, which are also set up to operate remotely. This was a natural for us. We have developed through turbulent times before, both as a private company and as a public REIT. As a general reminder across our portfolio properties, none of the additional land value associated with our as-of-right residential density or our proposed density is reflected in our property IFRS values.
When we present development project yields or profits from condo projects, land is included in the cost side of the equation at an estimated market price, and all internal fees and capitalized costs are included in costs, which is a more conservative way to present these development yields. After hearing all of this and reading the development initiatives section of our MD&A, you can see that the pandemic did not slow us down. To the contrary, we accelerated our transition to a more diversified REIT by moving municipal approvals forward, which as stated earlier, is where much of the value is created. We believe our current unit price is not reflecting the value of any of this development potential. It is very important to note that we will only move forward with the most capital-intensive construction portions of these initiatives as market conditions warrant.
Sufficient pre-sales occur in the case of condos and more than adequate financing is available, and when adequate financing is available. The last development-related comment relates to the disconnect between our unit price and the under-construction and planned mixed-use value creation underway, not to mention the strength of our retail portfolio. It is something we have highlighted before but worth repeating. If our unit price is down, say, 25% from its pre-COVID levels, that would be akin to the markets believing that one quarter of our entire retail portfolio is going to permanently generate no rent or value of any kind whatsoever for now ad infinitum. The absurdity of this goes even further in that valuations ignore the intensification opportunities already underway on our undeveloped lands and the opportunity to create value in place of any such vacancies by replacing the vacant retail with our mixed-use initiatives.
Now, I will turn it back to Peter.
The financial results for the second and third quarters, and to a lesser extent for the balance of 2020, are being impacted by the pandemic. Our priority during this period of uncertainty is to protect our employees, the communities we serve, our tenants, and our business while doing everything possible to mitigate the financial implications, ensure liquidity, and continue to strengthen our balance sheet. Our operating shopping center portfolio is 97.4% leased at September 30th and remains focused on essential services and value-oriented retail, not fashion, recreational, or entertainment retail. It is well suited for these turbulent conditions, as evidenced by the following. 60%, based on revenue of the REIT's tenant base, is comprised of essential services, which continue to operate throughout the crisis, supporting local communities, meeting the everyday needs of residents for groceries, pharmaceuticals, banking, household maintenance, general merchandise, and other essentials.
This 60% of our tenant base being essential services increases to 70% for the markets outside of the Greater Toronto Area. In these smaller markets, our shopping centers are often the essential service hub of the area and are, in all cases, anchored by a Walmart store. With the pandemic and the lockdowns, early indicators are that the demand for housing and therefore shopping in these less urban markets is increasing as people consider leaving the urban areas for the suburbs. Good for our shopping centers and the opportunities to intensify on our existing lands in those markets. Walmart, which anchors 75% of our properties and represents over 25% of our rental income, along with our family of value-oriented focused tenants, are well suited to serving its community during this period of pandemic-induced weaker economic conditions.
Walmart Canada plans to spend CAD 3.5 billion over the next five years to make the online and in-store shopping experience simpler, faster, and more convenient. This continued commitment to its retail operations in Canada speaks to the ongoing strength of Walmart and its growing ability to drive traffic to our centers. Much of this capital expenditure by Walmart will be in our centers, given that we own approximately 30% of the Walmart stores in Canada. In addition, we are fortunate to have opened three weeks ago in Vaughan, as part of the SmartVMC store relocation, a new Walmart prototype store, first of its kind in Canada, which includes a 10,000 square foot e-commerce omni-channel fulfillment center and a drive-through pickup facility. It will fulfill as many as eight times the online orders of an average Walmart store.
I encourage all of you to get up here to see our VMC project, including this new Walmart store. Virtually all of our revenues from shopping centers are open format outdoor centers, enabling customers to practice physical distancing while completing shopping for their everyday needs. Shoppers are much more comfortable and feeling safer in this unenclosed format. We recognize the importance of small, independent retailers to the Canadian economy. Our rent release focus to date has been on supporting these non-essential, small independent retailers, representing approximately 6% of our contracted rent. The federal and provincial governments put in place the Canada Emergency Commercial Rent Assistance, or CECRA program, designed to assist certain tenants such that effectively the tenant bears 25% of the cost, the landlord 25%, and the government 50%. The program originally applied to April, May, and June.
After communicating with all of our smaller tenants, we applied for relief for all tenants that qualified. Approximately 700 for those three months. Once the government extended the program for an additional three months, we were pleased and proud to say that we offered the program to 100% of the same tenants. To us, this was an important step in the continuity of business for many of these smaller retailers. We applied and received government funding for all tenants that qualified for the full six months. Now the province of Quebec has just announced the details of its plan to top up the federal program for Quebec-based tenants. That is expected to yield a further CAD 450,000 of recovery for us. The federal program through the landlords ended in September and has been replaced by the Canada Emergency Rent Subsidy program, which will assist the qualifying tenants directly.
In the meantime, some of our non-essential medium and larger tenants have also asked for some rent relief or have just not met their rent obligations. While protecting our legal rights as a landlord, we had discussions with these tenants about rent deferrals or in a few limited cases, rent abatement. We have found ways to accommodate tenants with a real need when appropriate and justified, but also factoring in the reality of our own situation and our unitholders. There have been announcements of several tenant restructurings during the COVID-19 period, either through CCAA or bankruptcy filings. Major names such as Moores, Comark, Sail, Reitmans, and Aldo. Collectively, all such tenants have indicated the intention to close 64 units in our shopping centers, approximately 410,000 sq ft, which is less than 1/3 of the total units we have with these same tenants and represents 1.65% of gross revenues.
It is expected that the remaining 2/3 of the units with these same retailers will continue to operate once their relevant restructuring process is complete. Generally speaking, these tenants have expressed a strong interest in remaining in our Walmart anchor centers. 145,000 sq ft of the 410,000 sq ft previously mentioned are two Sail units. Etobicoke, just near Sherway Gardens, and Vaughan, our 407 redevelopment site on the west side of Highway 400. Discussions with several other retailers for Etobicoke are underway. Property tours have been completed with two significant retailers, and the Vaughan location departure will serve only to alter the sequencing of the residential redevelopment plans already underway for this project.
If you back those out, we are left with 265,000 sq ft of vacancy from all these COVID-related bankruptcies, a fairly routine amount for our leasing team, who has commenced discussion with many potential tenants encompassing a wide variety of uses. As shown on page two of our MD&A, cash recoveries from our tenants continues to improve. In our April update press release, we indicated cash recoveries for the month of April of 67%. As of now, we have collected 82% of gross billings for that month of April, including CECRA recoveries, an improvement of 15%. Gross billings collected improved from that 82% for April to almost 96% for the month of September. To avoid any confusion, gross billings used in these calculations are based on rent rolls, excluding the tenants that closed through CCAA or bankruptcy process. Now I'll turn it over to Peter Sweeney.
Thank you, Peter. Good afternoon, everyone. As we know, these challenging times will test the balance sheets of many real estate companies. For many years now, we have encouraged the capital markets and other stakeholders to focus on our commitment to the balance sheet. Our unyielding focus on conservative capital management. Our discipline in the deployment of capital on acquisitions and developments, and our continued desire to match gearing and similar debt levels to the long-term nature of our assets. This strategic focus on long-term viability and growth will continue to allow us to manage through this period of uncertainty. In this regard, we note the following highlights relative to the third quarter. Number one, our unencumbered pool of assets continues to grow and increased by CAD 200 million- CAD 5.8 billion. Number two, our conservative debt and aggregate assets ratio reduced further to 44.3%.
Number three, our weighted average interest rate for all debt continues to decrease and was 3.37% as compared to 3.46% last quarter, which when coupled with our BBB (high) credit rating, permits us to continue to attract debt capital at historically low interest rates for longer terms. Number four, our interest coverage ratio was maintained at 3.8 x, our adjusted debt to Adjusted EBITDA multiple improved further to 8.5 x. Both of these metrics reflecting the business's strong and stable ability to fund its obligations even during these uncertain times. Lastly, number five, our unsecured to secured debt ratio further improved to 67%- 33%. It is interesting to note that just one year ago, this ratio stood at 55%- 45%.
As we have continued to focus on further increasing the proportion of unsecured debt on our balance sheet, and given the continued availability of long-term, low-interest rate unsecured debt, we intend to continue our strategy of repaying maturing secured debt and replacing these amounts with longer-term unsecured debt, which should result in this ratio continuing to improve for the foreseeable future. From a liquidity perspective, as we look to the immediate future and plan to manage through the current environment, in addition to the conservative debt metrics noted above, please also consider the following. A, at the end of the quarter, our liquidity position exceeded CAD 1.15 billion, which is represented by over CAD 400 million of cash on hand of our undrawn CAD 500 million operating line of credit and our CAD 250 million available accordion feature. We have ample liquidity when and if needed during this period.
B, we have approximately CAD 70 million in mortgages maturing over the next six months, and CAD 250 million in unsecured debt that comes due in December. We intend to use our existing cash to repay both of these maturing amounts. C, we continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place to ensure project completion of our various projects, and we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments that are expected to begin later this year, including two retirement home projects, two high-rise rental building projects, and one townhome project. Then lastly, D, we are so proud to confirm that during the third quarter, we experienced the beginnings of the closings of the first two phases of Transit City condos.
During the quarter, we recognized approximately CAD 30 million of FFO from these closings, and we expect to recognize an additional almost CAD 20 million in FFO in the final quarter of 2020. Similarly, next year, we expect to recognize approximately CAD 20 million in FFO from the closings of the third building in Transit City, and we expect this recurrence of FFO from closings of condominium townhome developments to continue for many years to come. The FFO generated from these closings further fortifies our liquidity position and supports our distribution strategy. As Peter has mentioned, we continue to experience substantive improvements in our collection levels in the third quarter, and our provisions for bad debts was significantly reduced from our experience in the second quarter.
In this regard, in addition to CAD 15.5 million in provisions taken in the second quarter, we provided for an additional CAD 9.7 million in COVID-19 related provisions in the third quarter. These amounts can be viewed in the following distinct categories. Number one, for those CECRA-eligible tenants, we provided CAD 2.1 million, representing amounts that we, as the landlord, are compelled to provide as part of the federal program, that Peter referenced to CECRA that ended in September. Number two, for those tenants that were not CECRA eligible, we provided CAD 0.6 million. Number three, for those tenants that have filed under CCAA or similar bankruptcy restructurings, we provided CAD 4.1 million. Lastly, Number four, we recorded additional conservative provisions aggregating CAD 2.9 million for other expected credit losses emanating from the current COVID-19 related business environment.
These third quarter provisions represent approximately 65% of those taken in the second quarter. We expect that any provisions required for the fourth quarter will be substantively reduced further. From a valuation perspective, property values stabilized during the third quarter. We did not experience any reductions in value in our income-producing or development property portfolios during the quarter with cap rates, discount rates, and other modeling variables remaining status quo. After two quarters of valuation erosion, primarily reflective of additional vacant space and the additional time now expected to backfill such space in the portfolio, much of which is the result of the COVID-19 experience. Our third quarter experience is directionally important because it suggests that the market has now begun to stabilize.
Based on the discussions that we have had with the appraisal community, we are not expecting any substantive further decline in property values over the balance of the year. It is also important to remember that we have not factored into our IFRS values any values that accrues from the future development of mixed-use space, and these future value increments, as Mitch has noted, that are derived from our proposed mixed-use initiatives, are substantial. Finally, a comment on distributions. Our current annual distribution level is CAD 1.85 per unit, and based on our current trading price, this distribution level represents an approximate 7.5% yield on our units, which is approximately 6.75% above the current 10-year government of Canada risk-free rate of return. This spread is extraordinarily higher than we have experienced, or frankly would expect. Decisions on distributions are always made by our board.
Given the liquidity, the strength of our balance sheet, and near-term prospects for cash flow generation from condominium and town home closings, management continues to recommend the current distribution levels. With that, I'll now turn it back over to Peter Forde.
Okay, thanks, Peter. To sum it up, a very interesting quarter. CAD 30 million of profits in the quarter from condo closings at Transit City 1 and 2 in Vaughan, and expected to generate CAD 50 million of profit in total for this year for our REIT's interest in the project. A rapidly improving rent collection picture and an accelerated mixed use intensification and development program. With that, we'll turn it back to the operator to coordinate us in addressing your questions.
Okay, sure. Just to remind everyone, to ask a question, please press zero one to queue up. The first question we have in the queue comes from Brendon Abrams from Canaccord Genuity. Please go ahead.
Hey, good afternoon. Just wondering if you can give some color on the leasing environment right now. When you do have a vacancy or a location goes dark, who are the tenants looking to add space or move into these locations? Would they be from adjacent shopping centers? What type of tenants are looking to expand? Maybe just some color on the leasing environment.
Rudy, you want to?
Sure. Well, like we have in the past, Brendon, the portfolio tenancies we have now are continuing, and the ones that were open and were carrying on business, continue to expand. Our stable of portfolio tenants that we have are asking for expansion space in our other Walmart anchored sites and in our other sites. We have a lot of active tenants that would be the typical dollar stores, food stores, liquor stores, pet stores. Even QSRs are calling us up because they don't have a lot of sit-down space, but a lot of takeout. A lot of deals and talking and touring of properties with these tenants. In addition to that, we are also marketing and talking to tenants nearby in, of course, the enclosed mall space who have called us up and are asking about what can we do in terms of fitting them in.
That is a segment of the market where previously, as you know, we would have fashion tenants who may have said, "We would like to leave the outdoor space and go into an enclosed mall." That has stopped. That activity has stopped. In addition to that, we're looking at all of the, I'm going to call it service-type uses that serve each of these communities. That would include industrial uses. That would include labs, medical, even some of the tutorial services have been calling us up again.
Very, very quiet in Q2. It started picking back up during Q3. Now for this quarter, going into the fourth quarter, there's a lot of discussions about what space is available and how people can utilize it best in the portfolio. A lot of activity. It will take a little bit longer to backfill these spaces. We're making sure we get the right fit, the right mix, and for each of these communities as we go. Some of the spaces we will have to, of course, carve it up into smaller spaces if it's smaller users, to make it work. The economics of the deals always seem to make sense because, again, they want to be near and in a Walmart-generating traffic center. It's turned very positive in this last quarter, and it was improving during third quarter.
Okay. Yeah, that's good color. Maybe just sticking on the leasing, perhaps a bit more medium term. Taking a look at the lease maturities in Walmart in particular, it looks like about 8 million sq ft or a little bit more than half of Walmart square footage expires between now and 2025. Just wondering if you could remind us how much in advance you discuss with Walmart in terms of re-leasing space and what your expectations are for maybe the next few years with them.
Well, go with that?
Just in terms of upcoming Walmart lease maturities, maybe you could just remind us, historically or in the past, how far in advance you would get notice that they are renewing or not renewing. I guess what your expectations would be over the next several years, where there are significant maturities there.
I'll start off and just say that, the relationship has got many layers to it, and one of the layers is, it's not like we wait like till for their renewal notice. We're generally part of their strategic planning in terms of the country. We know together, we work together to be way ahead of those things. It's not like we're like a random situation. We're waiting to find out if tenant expires year, sending in a renewal notice. Given the huge investment that they are committed to in this country, it's probably appreciate that's intended to, among many other things, improve the offering of their stores. I guess, then at some point, technically, there is a renewal. How does that go? I don't know, Peter, do you want to maybe illuminate a little bit on how that actually plays out literally?
Yep. They're under their lease. I think it varies. 6- 12 months notice, depends on which lease that they would officially have to give us. As Mitch said, it's more a case of the relationship than if that was to ever happen, that we'd be having much more of a heads-up than that, I suspect. I can tell you that we're not aware of any, in that relationship, any discussions that would suggest there's any space coming up for refill that they're not going to. Remember what I said earlier about how much money they're spending on their portfolio, and I would say that the rents that they pay us are because of many of them came out of the joint venture between Mitch's company and Walmart, that the rents are quite cheap, and it's pretty unlikely that they would ever leave.
They're very reasonable and cheap rents that they're paying in many of those locations. Again, just to say, we're not aware of any issues in terms of renewals.
Okay. That's very helpful. I'll turn it over. Thanks.
All right. Next question comes from Tal Woolley. Sorry, Tal Woolley from National Bank Financial. Please go ahead.
Hi, good afternoon.
Good afternoon, Tal.
Just to follow up quickly on the Walmart leases. Are these expiries, do they come with, are they effectively sort of like renewal options for Walmart, or will you actually have a chance to sort of renegotiate up the rents on those renewals?
No, they are renewal options.
Okay. We got it.
Yeah.
Just on the Cambridge site, that site, the 12 million sq ft of density, that's currently 100% owned by the REIT?
Yes, it is.
Okay. Do you have intention to bring in partners now, later? How are you thinking about that process?
We don't know yet. We've been approached by a few capable partners. We'll see. There's enough to go around. There'll probably be.
It probably will make sense to have some partners in parts of it. Obviously, we want to do what's best for the REIT first and foremost. Obviously considering everything else that's going on, we'll be able to use Cambridge, among other things, to balance out everything overall, policy-wise. Yeah, it's a huge project, so probably imagine there will be a few parts and phases of that one with partnerships.
Okay. Do you have any sense of what density it's trading at on a per available square foot basis in that market?
We do, we're not there yet in terms of being able to pinpoint what this is all exactly worth. There's no question there's a move, there's already growth and momentum in and of itself in the Tri-Cities area there, but this obviously is very strategically located and that's why it was re-zoned. By the way, it is zoned. It's not to be zoned. It is official. It is the actual law of the property now. Anyway, designated. That is law. Yeah, timing-wise, it is a great property for what's going on just in and around the greater Golden Horseshoe. Putting a number on it, you could just take the density and put on any range of value, and you won't get a pretty big range, but you'll see order of magnitude. We haven't put one on yet there.
It's a good market, so we're not out in northern Manitoba or something. It's super GTA and good timing.
Okay. Apart from the fact that it's strategically located on the highways, is there any intention to have further transit built in and around there? That was obviously a big part of the story with VMC too.
Well, as you know, transit GO expansions across the Golden Horseshoe is a priority of the province and the various regions. We do anticipate this will probably partly, potentially precipitate some potential mass transit initiatives to this specific site. In the meantime, it is literally on the highway. You drive by the site, and you're looking at it for numerous seconds. It's very easy to get to GO Transit in the various 905 districts at the moment. We do have the off-ramp, not just on the highway, but the off-ramp coming off the 401 flows, glides right into the middle of this property. By the way, it's a good shopping center in the meantime. It's just huge. Over time, it's ideal to phase this mixture in. A few extra features.
No, I don't know of a specific mass transit imminently being built to be built right to our doorstep. These things are changing right now rapidly in the GTA.
Okay. Peter, you had mentioned subsequent condo closings, we'll have Transit City 3 closing in 2021. What would be the next of the condo or for sale projects expected to close after that?
Likely the Vaughan Northwest town home project will have closings in 2022. Those townhouses are expected to be a sales program start this upcoming February, and construction starts shortly thereafter. Closings in 2022, and then Transit City 4 and 5 a year after that.
Okay. That's perfect. Thanks very much, gentlemen. Appreciate it.
All right. We don't have any other questions in the queue at this point, but just to remind everyone, if you want to ask a question, please press zero one. All right, we have a few people queuing up. Next question comes from Jenny Ma from BMO Capital Markets. Please go ahead. Your phone may be on mute, Jenny.
Thanks for that. Good afternoon, everyone. This question is probably for Peter Sweeney, but wanted to ask, what is the line item that is the sales tax related to CECRA? It looks like it was about CAD 1.5 million every quarter for the past couple of quarters.
All that is, Jenny, is it is the HST that would have been in the top line, would have been included in the top line there as a receivable balance and an amount that was charged pursuant to the rent roll, that would be coming back, given the existence of both CECRA and the REIT's 25% share that the REIT had to, in this case, forgive. That is all that is.
Okay. It looks like there was some previously capitalized G&A taken in this quarter that was coming from Transit City 1 and 2. Just wondering if that was all charged in Q3 related to these projects because of their closing starting or if they're going to be prorated into Q4 as well.
Well, Jenny, I'm going to maybe make a comment on what I would call sort of odd accounting. That G&A was actually capitalized. That relates to periods prior to now. It's cost that really I think of as project costs, but I guess under accounting rules, show it that way. There will be some more in the fourth quarter related to the units that are closing in the fourth quarter of the same nature.
Okay. Understood.
It's actually G&A from a prior quarter that was for a prior year, actually, that would've been capitalized.
Yeah. No, I got that part. I was just wondering if it's being recognized sort of all at once, sort of as an event in Q3 because of closing commencement, or if it gets spread out proportionally.
Well, there'll be an equivalent amount in the fourth quarter as well.
Okay.
That's sort of factored into when we talk about we're going to have CAD 20 million worth of profit in the fourth quarter. That would be netted off with in arriving at that number.
Right. That would be something that basically accompanies any future condo closings as well, just as an accounting item, I guess.
Yeah.
Okay, great. Okay. That is all for me. Thank you.
All right. Next we have a question from Sam Damiani from TD Securities. Please go ahead.
Thanks very much, good afternoon, everyone. First off, just wanted to touch on occupancy. Rudy, it was very encouraging to hear your commentary. I think in the last quarterly call, we were given guidance for between 100- 150 basis points of occupancy decline in the latter half of the year. I guess in Q3, there was 80 basis points, including transfers of vacant properties into development. Would you say that, for Q4, you'll probably be toward the better end of that range as opposed to another sort of 70 basis points of decline in Q4?
Yeah. Better meaning lower.
Lower vacancy.
Vacancy. Yeah. The activity we've seen at the end of the quarter, like in the month of September and certainly in October, this quarter now we're already into halfway through. It would lead us to believe exactly that, Sam, that there's a lot of tenants wanting the space. It may be that we would end up executing the deals. They may not be in place for Christmas shopping, obviously, because there's a lot of fit out and work to do to get tenants operational. In terms of commitments, I would say so, yes. That with committed deals that we should be on the lower end of that range.
Okay. That's all for thank you. Percentage rent from the outlets, that's been the headwind for the last couple of quarters. Is there an anticipation of that substantially rebounding in the short term?
Well, I guess I'll comment that we're not sure. I guess our traffic is certainly picking up every month at the outlet centers, both Montreal and here. We would expect in the fourth quarter that percentage rent would pick up, but we don't know. Things are crowded. Sales have picked up for sure in the third quarter. I don't have any read on that yet for the fourth quarter. Over to you, Rudy.
No. They report, Sam, that is, because they manage the properties. They report sort of a month later. As you know, a large part of the shopping is in the last two to three months of the year for the Christmas holidays. Traffic is significantly up. For the people that are going there, they're saying that there is a lot of traffic in the centers, but we don't have a handle on sales yet. When they reopened after the April, May, June, there was a lot of activity in the centers, people were saying that their sales were almost back to pre-pandemic, that might have been just a rush out to do a lot of shopping before people thought kids were going to go back to school and so on.
Now with all the schooling being split a little bit home and at school, it's leveled off. Now with the Christmas season, the Thanksgiving shopping was really good. We won't have a good handle on that until December for the month of November. Traffic is high and it'll only be limited by what the government mandates in terms of social distancing.
Okay. Thank you. My last question is on Cambridge. That was a significant achievement received there with the MZO. How soon would the first phase of that be under construction? Secondly, when we think of Cambridge, I don't think apart from maybe one or two buildings, too much existing stock is above the five-story level. What gives you the visibility for the demand for that kind of living in that location? I guess, are there other similar zonings coming or already in place for competing properties nearby?
First of all, we could have had this conversation two years ago about Vaughan. About the height, by the way, it's not just around the subway. You can go to Rutherford and obviously you can go to all kinds of parts of Vaughan, even the center, Bathurst. Yeah, this is the way things go, change. There's great opportunities in these type of markets. You'll see us taking the initiative in markets like Cambridge. How high will we go? We'll sort of figure it out. It'll be higher than what you were referring to. These kind of changes do beget other changes. I'm not sure if there's anyone next. I know next door, they've converted land. They've rezoned land from non-res to res, they're doing townhouses. Our first phase, hopefully will start sometime in the next year there.
Plus or minus, the margin of error of getting started is pretty high in development, just because there's all these servicing and things related to that, but plus or minus. That's very near-term. We'll probably start with some lower stuff initially. Maybe even some townhouses, actually. We'll always sprinkle these types of developments with different forms. You see us, I know we've talked about Alliston. We've done things in Alliston, in London, and markets that are a little bit had been overlooked, but there's demand, there's reasons why there's things going on there. Cambridge has got more adrenaline than those two, but for all kinds of reasons. Even some of those markets have a lot of potential. What we're doing in Barrie as well. Yeah, there's going to be a lot of change, but somebody's got to initiate the change.
In some of these cases, it will be us. The way it goes, the market's not there, we're not going to do it. In the meantime, we've got a sustainable rent-collecting shopping center in the meantime.
That's great. Congratulations again on it. I'll turn it back.
All right. We don't seem to have any other questions. Well, yes, we do, actually. We have Dean Wilkinson from CIBC World Markets, who just queued up. Go ahead.
Thanks. Just on the rather large amount of money that Walmart is expanding across their store network. One, are they doing that work independent of you, and have they asked for any capital contributions towards any of that would sort of come back in form of rent or anything like that?
They're doing it independent of us. We're obviously involved. We know about it, being the owner of the shopping center and the store. They are doing their own work inside their store. We do end up doing some things outside in terms of we just coordinate other work we might be doing in the shopping center in any event, like parking lot and re-striping and paving if necessary. The answer is no, they have not asked us to contribute at all to what they're doing.
Okay, great. Just turning onto the balance sheet, still carrying that elevated level of cash. Is it as simple as we're post-pandemic, someone's come up with a magic cure, be it Pfizer, whoever, that you start looking at utilizing that sort of CAD 425 million? Do you want to keep that on there in your market for development capital?
It's a good question, Dean. I think I mentioned we've got some debentures maturing in December that will require CAD 250 million of that CAD 400 million+ that's on the balance sheet. That will put a large dent into that cash balance. In addition, over the next six months, I think we've got, I mentioned CAD 70 or so million of mortgages that are maturing that we would intend to repay in full. Again, we would intend to use that cash for those purposes. I think the other question that you might ask is how do we see the future? The reality is we don't. It's almost impossible to predict with any level of precision or extreme visibility.
Similar to what we did back in early June, where we were uncertain as to what the future might hold given the pandemic and everything associated with it, and certainly given how the first three or so months of the pandemic period had gone. Our board strongly encouraged us to play it safe and go into the market to raise capital in advance of those liquidity requirements coming down the pipe. We've got sufficient as we know, sufficient liquidity currently, but we do have a large series of debentures maturing in June of next year for CAD 350 million. You mentioned capital for development. We are trying to ensure that before we commence any development initiative of at least of consequence, that we do have a specific project financing facility in place to accommodate the needs of those respective projects.
They will be funded by traditional project financing. Again, we're still continuing to play it safe, and yet it is perhaps somewhat diluted, at least temporarily to unit holders. Again, it ensures that we're not exposed in the event that the markets were to close, as frankly they did in the early part of this pandemic period. That I think would be our preferred strategy, at least in the more immediate future.
Yeah, no, it makes sense. I mean, belt and suspenders is probably still the order of the day. I suppose to the extent that it's going to be cash out, debt off, mathematically your leverage looks the same, but your coverage ratios should improve by significantly.
Yep.
Okay. That's it. I'm probably the last question, so thanks, guys.
Thanks, Dean.
All right. Yes, Dean was correct. He was the last question in the queue at this time.
Okay. In that case, we'll just say thank you all for taking the time to participate in our third quarter 2020 call. Please stay safe, everyone. Afternoon.
Ladies and gentlemen, this concludes the SmartCentres REIT Q3 2020 conference call. Thank you for your participation, and have a nice day.