Good day, welcome to the SmartCentres REIT Q1 2020 conference call. Today's conference is being recorded, at this time, I would like to turn the conference over to Mr. Peter Forde, President and CEO. Please go ahead, sir.
Thank you, and good evening. Welcome to the SmartCentres Q1 2020 conference call. Joining me on the call today are Mitch Goldhar, Executive Chairman, Peter Sweeney, Chief Financial Officer, and Rudy Gobin, EVP, Portfolio Management and Investments. The agenda for the call will begin with comments by Mitch and myself, followed by Peter Sweeney, who will talk about our results for the quarter and financial position, and then we will take your questions. Our comments will mostly refer to the first 13 pages and pages 22 and 23 of our supplemental information package and the outlook section of our MD&A, which are posted on our website. I refer you specifically to the cautionary language on pages two and three of the supplemental material, which also applies to comments any of the speakers make this evening.
Our first quarter financial results show a strong start to 2020 flowing from our stable portfolio of predominantly Walmart-anchored shopping centers. Peter Sweeney will comment further in a few minutes. The financial results for the balance of 2020 are being negatively impacted by the COVID-19 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. Our shopping center portfolio is 98% leased at March 31 and remains focused on essential services and value-oriented retail, not fashion, recreational, or entertainment retail. It is well-suited for these turbulent conditions. First, 60% is based on revenue of the REIT's tenant base is comprised of essential services which continue to operate throughout this crisis, supporting local communities with its everyday groceries, pharmaceuticals, banking, liquor, general merchandise, and other essentials.
This 60% is closer to 70% for the non-greater markets we have shopping centers in markets where our centers are often the essential service hub of the area. Of course, this essential service list grew again today with Premier Ford's most recent announcement in Ontario. The value-oriented focus of our tenants, including Walmart, which anchors 75% of our properties, representing over 25% of our rental income, is well-suited to serving its community during these poor economic conditions, which will no doubt continue beyond the resolution of the pandemic itself. 98% of our revenues from shopping centers are open format, i.e., not enclosed mall space. They're outdoor centers enabling customers to practice physical distancing while completing shopping for their everyday needs.
Of course, the strength of the covenant of our strong, stable tenant base, Walmart, Loblaw, Shoppers Drug Mart, Canadian Tire, Sobeys, Dollarama, Rexall, LCBO, Lowe's, Canadian Tire, Home Depot, the five major banks, and more. We recognize the importance of small, independent retailers to the Canadian economy.
Our rent relief focus to date has been on supporting these non-essential business small independent retailers, representing approximately 6% of our contracted rent and have offered rent deferrals to over 525 tenants. Recently, the federal and provincial governments have announced 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%. Details of the program have gradually been developed and announced, it is not yet clear as to which of our tenants will qualify and the mechanics of the relief.
With that, I'll turn it over to Mitch.
Thanks, Peter. While rent collection in the second quarter will continue to be somewhat challenging, we should start to see some change in trend. We expect to be able to find ways to accommodate tenants with a real need when appropriate and justified, assisting them with a way forward at the conclusion of the pandemic. Rent collected for April improved from the situation outlined in our April 21 press release.
There is a new term that seems to be used in describing rent collected in this environment, and I will take the opportunity to use it, that term being expected rent. Expected rent being the amount of contracted rent less the amount of rent deferred, offered, and accepted by tenants. Excluding the two outlet centers which were closed, we collected 72% of our expected rent in April or 69% of our contracted rent for the month.
We expect to be collecting much of the remaining unpaid amount over time. This
No, I think actually this slide is something I mentioned.
In the first part of April, we collected 68% of tenants' contracted rents, and by the end of the month, we were at 69%, excluding the outlet centers. In fact, we are still receiving rents related to April. We are experiencing the same level of collection in early May to date that we did for April and expect this to also grow throughout the month.
We expect the stronger national tenants will ultimately pay their April and May rents. If the government program is made available to the smaller independent retailers, we expect the combined overall receipts for this COVID-19-affected period to end up being in the 85% to 90% range. As we move through the second half of the year, we expect this to grow back somewhere between that range and our original 98%. I'll turn it back over to Peter.
Okay, thanks. Peter Sweeney will address our strong liquidity position, including cash operating line and undrawn construction financing. I wanted to reinforce the focus right now on operational and general and administrative expenditures. Because most of our properties have operating Walmarts and other essential tenants, a certain standard of scheduled repairs and maintenance must be provided. We are cutting back to a level commensurate with the reduction in non-essential tenant customer traffic. Optional upgrades and/or cosmetic expenditures that are not health and life safety related are being postponed. General and administrative expenses are being monitored and curtailed as appropriate, but without impacting our ability to satisfy demands of current conditions and carry through with our longer-term perspective initiatives, which we'll be talking more about. We are investigating participation in any government programs available to assist in maintaining our workforce.
One factor coming to play in this COVID-19 environment is our experience with Penguin Pick-Up. Five years ago, we partnered with Penguin Pick-Up, now a mature operating business that provides customers with more than just the curbside pickup that is happening every day now. It provides a one-stop pickup location for their online purchases from all sources, with a rapidly expanding network of over 100 locations across Canada. Two years ago, SmartCentres supported Walmart Canada's test and rollout of grocery pickup at our properties and introduced co-branded Walmart Canada Penguin Pick-Up locations to help expand their reach into areas of downtown Toronto where access to their grocery offering is limited.
With COVID-19 and the customer desire for safe, contactless shopping, our foresight and experience with the above-mentioned initiatives has proven to be extremely valuable, and we are using our five years of last-mile logistics learning to help more of our retailers establish a curbside pickup option as a natural evolution of Canadian shopping habits. With that, I will now turn it back again to Mitch.
Thanks. Now let's talk about our continuing transition to a more diversified REIT. We believe it is in the best interest of the REIT to continue to advance our major developments and our intensification program while monitoring our cash flows. A few general reminders about our development pipeline and capabilities. Most of the development initiatives we are planning are on land we already own. Unlocking value, supplemented by selected acquisitions with existing or new strategic partners.
We use our in-house development team to drive these initiatives, all contributing to enhanced yields and profits over the long term. Remember, this in-house development team developed over 85% of the retail area we own, plus many shopping centers owned by our peers were developed by SmartCentres. We know the markets. We have relationships with the municipalities. We understand every detail about each and every one of our properties.
It's this team of in-house planning experts, developers, engineers, government relations, leasing, environmental, geotech specialists, construction managers, and architects that makes us unique in our sector. This team is actively engaged from home, using our technology to connect seamlessly to our office and to the municipalities, which are also set up to operate remotely.
Most municipalities are accepting and processing applications electronically and communicating with us through video conferencing, which is very much appreciated by both sides. Applications are in and being worked on for undeveloped lands, as well as for any opportunities that may result from COVID-19. We have developed through turbulent times before, both as a private company and as a public REIT. For example, we developed through the early 1990s, SARS pandemic in the early 2000s, the financial crisis of 2008, and many less famous down periods.
The potential intensification and development program continues to grow as we further review our portfolio for opportunities. The number of potential projects and towers to commence construction within the next five years is currently estimated to be at 105. 34 of them are underway, comprising some 12.4 million square feet, that's our share of mixed-use space. A breakdown of these projects by asset type is provided in our MD&A.
We carefully select our development partners, looking for expertise in these asset classes and with a good cultural fit and complementary skills. I am pleased to report that all new relationships are going extremely well. Revera, SmartCentres, CentreCourt, Groupe Sélection Jadco, Penguin, and of course, our long-standing relationship with Walmart and Penguin and others. Communication with these partners remains excellent during these challenging times. We continue to move forward with our projects with all of them.
At the same time, we are now in a position to do all of these types of developments with our own in-house team. This additionally makes big partners. As a general reminder across our portfolio of properties, we see none of the additional land value associated with our as-of-right density or potential as-of-right density is reflected in our property IFRS values. Let's look, for example, at the first condominium projects at VMC, Vaughan Metropolitan Centre.
Transit City one, two, three, four, and five, all of which are under construction, sold out 2,767 units. We chose to partner up a number of years ago on each of those towers. We own a 25% interest. Many of our other projects we are developing and will describe below, we will be doing on our own. Imagine the numbers at 100% interest in the five towers at VMC.
VMC is forecast to generate in excess of CAD 360 million profit. In that regard, we still have the ability to build out many times that at VMC alone over the next five to 10 years. To date, we have recognized the increased land value only when we close the sale of an interest in the land with a JV partner. At which time we recognize the uplift in our retained portion, as well through an IFRS fair value adjustment. As a reminder, 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 value, and all internal fees and capitalization costs are included in the cost as well, which I understand is not the way others may be presenting these same yields.
Pages 22 and 23 of the supplementary information package provide yields and profit expectations from our active projects anticipated from COVID-19. For the most part, there is no significant change. You will notice that for now, we have removed a new outlet mall. Some specific project highlights.
Transit City condos at VMC were five towers, 2,767 units, 100% sold. Two of these towers, 1,741 units, have we have 20% deposits in place. Two of these towers, 1,026 units, we have 15% deposits in place. And in the case of the last two, 5% further deposit is due in the third quarter of 2020 coming up. Construction continues on all five towers. Closing in TC 1 and 2 are expected in the fourth quarter, maybe even some in the third quarter, on or ahead of budget. VMC purpose-built residential rentals, 451 units are under construction.
One tower, purpose-built residential rental, 171 units in Laval, Quebec. Construction complete and occupancy is commenced and almost 50% leased. Self-storage, 50% leased. One self-storage development in Leaside complete, waiting for occupancy permit. Three others are under construction, paused due to COVID government emergency orders. We expect that they will be permitted to restart very soon.
Five others are in process of obtaining municipal approvals. In the seniors housing space, first let me clarify with all the troubling COVID information that is in the news. Almost all of the sad news relates to long-term care facilities, a business we are not in. With our two partners, we are developing seniors apartments and seniors residence, six with Revera, two with Groupe Sélection. All of these are in municipal approvals stage. As I mentioned earlier, our internal development team has been very active during this time operating remotely. A few examples.
Development of up to 5.3 million sq ft of predominantly residential space in various forms at Highway 407 in Vaughan. We have a three-tower mixed-use phase application that we just put in during the last few weeks. That, of course, is just right across from the VMC. We expect support for that approval. Development up to 5 million sq ft of predominantly residential space in various forms over the long term in Pickering, Ontario, in one of our shopping centers. A two-tower mixed-use Phase I application was just submitted in the last few weeks. Development of up to 5.5 million sq ft of predominantly residential space in various forms at Oakville North in Oakville, our shopping center at Dundas and Trafalgar. Two-tower residential phase 1 underway.
Development of up to 3 million sq ft of predominantly residential space in various forms at Westside Mall in Toronto, on Lake Ontario. Mixed-use single tower planning underway. This is for all intents and purposes right in the city. Development of up to 1.7 million sq ft of residential space in various forms, including townhomes with Fieldgate, but seniors residence towers with Revera and condominiums and residential rental buildings at the Vaughan Northwest Shopping Center in Vaughan, Ontario, at Weston Road and Major Mac, just across the highway from the new hospital, Mackenzie Health Network Hospital.
Development up to 1.5 million sq ft of residential space in various forms in Pointe-Claire, Quebec, just west of Montreal, a suburb of Montreal immediately. Phase one and two purpose-built residential rental towers. Development of four high-rise purpose-built residential rental buildings comprising approximately 2,000 units with Greenwin in Barrie, Ontario, on the waterfront.
Development of high-rise purpose-built residential rental towers on Balmoral at Yonge and Davisville with Greenland. The development of up to 1,600 residential units in various forms in Mascouche, Quebec, just outside suburbs of Montreal, next to one of our shopping centers. Development of our first phase of a 32-unit rental building, which is part of a potential 10-phase master plan in Alliston, Ontario, on a shopping center site. This is just to name a few. As far as I'm concerned, our REIT's unit price has seemingly to date only been a function of our historic NOI, and no additional value has been reflected from the deeply embedded value that we are extracting through the development program. Now I will turn it over to .Peter Sweeney
Thanks very much, Mitch. Good evening, everyone. Our financial results for the first quarter of 2020 reflect the continued strength, stability, and security of our 34 million square foot predominantly Walmart-anchored shopping center portfolio. Because of the current environment, we will focus on those operating and financial metrics experienced during the first quarter that underline the stability and security in our portfolio. Accordingly, during the quarter, this portfolio generated the following strong results. Number one, cash flows provided by operating activities, which is a GAAP measure, increased by CAD 23 million or 41% to CAD 79 million from CAD 56 million in the comparable quarter. Number two, funds from operations or FFO, which is a measure of our income-generating capacity, increased by CAD 8 million or 8.7% to CAD 96 million from CAD 88 million in the comparable quarter.
On a per unit basis, FFO was CAD 0.56, which is CAD 0.04 or 7.7% higher than the comparable quarter last year. Number three, adjusted cash flow from operations or ACFO, which is an indicator of our cash-generating ability, increased by CAD 11 million or 13% to CAD 90 million from CAD 79 million in the comparable quarter last year.
Finally, number four, the surplus of ACFO over distributions, which is an empirical measure that identifies our ability to fund unit distributions from actual cash generated by the business, increased by CAD 7 million to CAD 10 million from CAD 3 million in the comparable quarter and reflects a payout ratio of 88.6%, which is a demonstrable improvement over the comparable quarter last year. These continued strong operating metrics are indicative of our portfolio's continued unique ability to demonstrate steady growth and strong cash flow generation.
We often speak about our portfolio stability, which is highlighted by our same property NOI growth level, which for the quarter was 0.3%. This is indicative of a high-quality portfolio with continued industry-leading occupancy levels, anchored by our core group of tenants led by Walmart. They've permitted us to generate stronger rent collections as Mr. Forde and Mr. Goldhar mentioned earlier in these uncertain times. These improved quarterly results can be attributed to the following primary factors. Number one, an incremental net operating income or NOI being generated from new tenants at both the KPMG and the PwC towers. Number two, continued increasing net operating income being generated from both the expanded Toronto Premium Outlets and the continuously improving premium outlets in Montreal. In addition to recent earn-outs and other developments.
Number three, lower interest costs associated with our portfolio of maturing mortgages and unsecured debt continue to provide unsecured fixed rate refinancing opportunities at lower rates than the outgoing maturing rates. Number four, additional percentage rent, parking revenue, and other miscellaneous revenue. Lastly, number five, lower general and administrative costs. Now let's focus on our balance sheet. As we know, these challenging times will test the balance sheets of most real estate companies. However, for many years now, we have encouraged the capital markets to focus on our commitment to the balance sheet. Our unyielding attention to both conservative capital management and liquidity, 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 assist us to manage through this current period of uncertainty. In this regard, we note the following highlights relative to the comparable quarter last year.
Number one, our unencumbered pool of assets of CAD 5.6 billion has increased by CAD 1.1 billion or 24%. Number two, our debt to aggregate assets ratio continues at a very conservative 43.3% level. Number three, our weighted average interest rate for all debt was 3.4% as compared to 3.7%. Even in this challenged period, we continue to be in a position to attract debt capital at historically low rates for longer terms. Number four, our interest coverage ratio improved further to 4.1 times from 3.8 times. Our adjusted debt to adjusted EBITDA multiple was 8.2 times. Both metrics reflecting the business's strong ability to fund its obligations in uncertain times. Lastly, number five.
As a result of this ongoing commitment to the balance sheet, in December 2019, we received an upgrade to our credit rating from DBRS to BBB (high).
Recall that when we embarked upon this strategic initiative over two years ago, approximately two-thirds of our debt was sourced from secured lenders, a metric that has now almost reversed, whereby 64% of the REIT's debt is now sourced in the unsecured market. From a liquidity perspective, as we look to the immediate future and plan through the current environment, in addition to the conservative debt metrics noted above, please also consider the following. Number one, we do not have any maturing debt in the second quarter of this year, and only CAD 70 million, that's CAD 70 million in mortgages maturing later in the year. As well as CAD 250 million in unsecured debentures that come due in December.
It's interesting to note that we continue to speak with market participants concerning appropriate repayment alternatives associated with these maturing amounts. Number two, with the support of our board, and as both a conservative and a strategic initiative, and to ensure that we have ample liquidity when and if needed during this period, we recently drew down on CAD 410 million from our operating line. In addition, we have a CAD 250 million undrawn accordion feature that is available to us. Number three, we continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place. In this regard, we have ample undrawn amounts available on our construction facility lines to ensure project completion of each of our various development projects.
Number four, we continue to receive reverse inquiries and other strong levels of support and interest from participants in the bond market, the overall cost of issuance have returned to those levels that were in place at the end of 2019.
In this regard, we continue to closely monitor the debt capital markets. Lastly, number five, the closings of the first two phases of the Transit City condos are expected to begin in Q3 of this year, and we expect our share of the net proceeds to exceed CAD 60 million. That's CAD 60 million, which will be used to further fortify our liquidity needs both in 2020 and in 2021. Finally, we'd like to take a moment to thank all of our friends in the capital, banking, and financial markets who continue to demonstrate your willingness to offer your assistance to us in these unprecedented times.
To our team of professionals who have worked so valiantly at SmartCentres for your tireless effort and sacrifice to get the job done in these most unusual of circumstances, we say thank you. Lastly, to those frontline workers who continue to sacrifice so much on our behalf, never before have so many owed so much to so few, we say thank you. With that, I will turn the call back to our operator, Angelo, who will coordinate us in addressing your various questions. Thank you.
Thank you, sir. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, we will pause for just a moment to allow everyone an opportunity to signal for questions. One moment, please. Your first question comes from the line of Michael Markidis of Desjardins. Please go ahead.
Thanks, everybody. Mitch, you gave some, I guess, interesting outlook in terms of how you expect rent collection to unfold in the second quarter and sort of the back half of this year. I'd start off by asking if you have any sense or timeline or forecast as to how your economic occupancy may trend at the same time.
Can you hear me?
Yep.
Sorry. Well, I'm not sure exactly what you mean, but do you mean where you think we're going to sort of level off by the end of the year in terms of occupancy?
Exactly. Yeah.
It's hard to say because, obviously everybody is looking at the rent collection number and percentage and so on. It's turning out to be a bit misleading because we're not collecting from tenants that are strong. I think we and pretty much everybody that's not collecting rent from strong tenants is expecting to collect. In fact, we're starting to see some of that happening. I was sort of talking more to that when I was talking about those numbers. Look, there are a handful of tenants that are not strong or not as strong, and their survival will kind of depend on exactly how long this goes and of course, if there's a program for them, and I guess ultimately how they do when things come back. Yeah, we've modeled every you can imagine. We've modeled every which way.
If nothing changes and there's no casualties, then we'll see ourselves back where we were. That's why I said between 85 and 90, that's our range for when things all get collected. If government programs, as stated, come through, and 98%, but we don't know what'll happen with the ones that are not in that calculation. If there are some bankruptcies along the way, that doesn't mean that we won't get any rent from them. Very often it does result in retail. It very often results in pruning of locations and reopening. Reopening can actually mean reopening with a new, improved concept and obviously a stronger company. It does result in some vacancies and lost revenue. It's not of the COVID wildest dreams kind of orders of magnitude.
It's kind of more normal course stuff that might get accelerated as a result of the COVID-19. That's kind of embedded in the range. Sorry for the long answer, but hopefully that helps.
Yeah, that is helpful. Thank you. Maybe just for Peter, I think you mentioned that you have construction financing in place for the stuff that's actually active under construction. Is that correct?
That's correct, Michael.
Okay. Just curious, are there any projects that we'll get planning to get underway throughout the rest of this year? If so, how is the market for development financing today? Is that still something that's available to you?
Well, it's a two-part question. Maybe Mitch and Peter can answer the first part as far as projects starting this year, and maybe I'll take the second part of the question as far as the market for project financing.
Just on the first part, we will proceed where every box is checked twice, including financing. I'm sure the lenders will also be wanting every box checked twice. We do anticipate that we will start some projects that are sound. If they're not, and we're not, well, if we're right, we won't start them. We're not starting a project's financing. We're not starting with a development just on a claim. I do foresee us starting some projects with all those boxes checked.
Michael, it's Peter. Just to follow along on Mitch's comment. We at least are fortunate to be in what I would describe as the enviable position where we have a number of lenders who we're working very closely with in establishing several new construction facilities. The simple answer from a market perspective is that construction financing for us is very much available. It's more than competitively priced. Notwithstanding that rates have gone up since this initiative took place six or seven weeks ago. We've seen the spreads on some of our facilities increase, and that's disappointing. However, on an overall basis, given that the bond rates and BA rates have declined, there are some savings in that regard. To maybe get back to your question, we certainly do see an ample supply of available credit for construction financing.
Okay. No new projects unless there's specific project-level financing, and that market is open and available. That's it for me. Thank you.
Once again, ladies and gentlemen, if you have a question, please press star one. We will now take our next question from Sam Damiani of TD Securities. Please go ahead.
Thank you. Good evening. I may have missed some of the trip protocol. I just read that you did draw on the CAD 410 million line of the cash in the bank at the end of March. What was the reason for doing that? Is there an immediate use of proceeds for most of that cash?
Sam, it's Peter. In simple terms, as I think I mentioned, we did it as sort of a strategic initiative to ensure that we had more than ample liquidity to be able to accommodate the needs of the business over the next six to eight months. As far as having a specific use for it currently, we do not have a particular specific use per se. Certainly, as we would expect, it would be used in part at least to accommodate the needs of the business as we go through the next several months.
Basically, the revenue shortfalls from tenants still kind of deferring their payments at the moment. That's sort of the main.
Yeah. Let's make sure, and I want to make sure everybody on the call understands that we don't anticipate or we're not forecasting the quantum of the rent deferrals from our tenants to even come remotely close to the amount that we've drawn on the line. As I mentioned, this initiative or reason to draw on the line was done strategically in an effort to take a very conservative approach to managing the business. The amounts that we foresee the business requiring, at least for now, and I think Mitch mentioned, we've gone through a plethora of various sensitivities on expectations in collections. Given those various sensitivities that have been prepared, it's unrealistic to think that we would ever need the full amount, at least for now, on what's been drawn.
Again, it's more of a defensive measure to ensure that there's more than ample liquidity available as we move forward.
Okay. Just on the rent collections, I certainly don't want to belabor the point, but I just want to be clear because the presentation of the information is a little bit different from some of the REITs. Did you collect the same amount of rent in April as you press released a couple of weeks ago, or was it up by a percent or 2%? Just trying to be clear.
April has gone up by a percent or 2%, to use your words.
Okay. just finally.
I do want to point out that it may go up some more, actually, April. We got a note today from a major defaulter who's strong that they're going to pay April's rent. We don't calculate until it happened. We do anticipate April's rent to still go up. We haven't factored in any of the deals that the government are offering to small business. Correct me if I'm wrong, Rudy, I think that represents about. Is it CAD 6 million? I can't remember how many leases a year. There's a lot of our small tenants. Doesn't make up a huge percentage of our business, but it's still a lot of money. If we were to apply for it, and all other everything else being equal, we would collect 75% of that, whereas right now we deferred them all.
Obviously, it was an unknown a month ago exactly how to treat that. In that number, that range that I gave you, we used it as 75% of the small tenants, just to reiterate that. We expect May to be the same, and I know everybody was wondering what was going to happen in May. May seems to sort of be trending. Everything seems to be almost identical to starting off to the beginning of May and similar to the beginning of April, and with one exception, and maybe we're seeing it might be two exceptions. I don't want to go into those level of detail right now, but we expect May to be sort of similar to April, the way April turned out, and maybe even a little better.
Okay. That's helpful. Just finally, what's your best visibility on the trend in occupancy for the second quarter at this stage?
The occupancy as defined as open or just in terms of actual legally have leasehold interest? I guess leasehold interest with 98%. Legally, technically, we have 98%, I guess, occupied. I don't think that's what you mean because we have a lot of defaulting tenants, which we have not terminated. We have set up such that we have the right to terminate. We are obviously monitoring and evaluating the pros and cons of that every day. 60% of our space right off the bat is open, because we're essential services as defined by most all the provinces. Yeah, I'm not sure if I answered your question.
No, that's helpful. I was thinking more on a committed basis. If you're 98% today and they're expected to be slippages just because of a lack of ability to get leasing transaction completed as efficiently as it was two months ago.
Yeah, you got to figure there's going to be slippage. We don't have anything specific that's imminent, sure, of course, now that I've said that tomorrow somebody will announce some slippage. You got to figure there's going to be some slippage, and there's probably going to be some slippage just anyway.
This might have induced some of it, we're not aware of anything that's about to happen. The ones that are the most fragile, we are going to try and help as much as possible. In terms of where we're going to end up, if we got to sort of just pick a number, we haven't picked a number. Whatever it is, it's very workable for us, both from the point of view of financially, and from the point of view of taking the opportunity. Because thankfully we are dealing with well-located real estate.
It's not like we're embedded in some deeply wasteland of industrial business park somewhere, and it's all fungible. This stuff is not fungible. Obviously we'll be trying to turn any setback into an advance, and it plays right into our development regimen. I guess I didn't mention the fact that these defaults do open up opportunities for us to accelerate certain things. I don't think people really in the public markets fully appreciate how much development or certainly land use amendments are worth. You don't see a lot of publicly traded pure development companies because they're making too much money to be public, to be honest with you, and most developers don't have an interest in that.
It is a very lucrative end of the business, and we will be using some of these, what you call slippage or any other situations to seize upon them if they in fact will play into or in the service of our more long-term vision of any site.
I will also point out in default, a lot of tenants will have given up rights even though they may end up paying. They may have given up rights that they had over the site from various points of view. That's not even to talk about municipalities' motivation to generate economic activity and their openness and willingness and whatnot, even sympathetic to what's happened with this period of time on retailers and retail owners, retail real estate owners in terms of land use amendments. It's not all what just meets the naked eye.
Yes, on the surface, there probably will be some slippage, but it's not going to rock our world. We'll deal with it.
Thank you very much.
We'll take our next question from Jenny Ma of BMO Capital Markets. Please go ahead.
Thanks. Good evening, everyone. This question is for Peter Sweeney. I'm trying to reconcile the cash drawdown. If you can speak a little bit more color sort of around the thinking, because I'm just wondering if this was done sort of in the depths of the market downturn, and you had made some comments about the unsecured market opening up at rates that were similar to what we saw at year-end. With that development, does it change your view on this? I recognize, we're talking five-year terms versus just a draw on the facility, but I guess does the improvement in the credit markets gives you more assurance that the credit will be there if you need it and not to actually hold on to all that cash?
It's a big question, Jenny, and I think the simple answer is, and I'm certainly not trying to be coy or cute, but the simple answer is, for us at least, it's too early to say. We did draw the funds on our line just before the end of the quarter when, as you say, we were sort of in the depths of uncertainty vis-a-vis the financial markets. Since then, at least in the bond market, there has been a continuous improvement and further clarity of that market opening up. As I mentioned, our 10-year rate today would actually be lower, a little lower than what we were able to secure money for back in December. Having said that, however, our board wanted us to be both conservative and strategic in how we ventured into this pandemic period.
In that regard, we established a group of different measurements and initiatives that we thought would be appropriate to roll out to ensure that coming through this, we were fortified in both financial and operational, from both an operational and financial perspective. The simple answer is we haven't thought yet about repaying this, notwithstanding the improvement in the markets. There's still perhaps a few chapters left in this COVID-19 pandemic that have not been written yet that none of us can predict. For anybody who's been through, as Mitch mentioned and Peter mentioned earlier, this company's been through lots of different challenging periods over the last almost 30 years. The one thing you know coming through these periods is that there will be things that will surprise you.
By taking this strategic move or initiative as we did, we're at least hoping that we can mitigate or diminish perhaps any potential surprises that we haven't factored into our planning.
Okay. That's a good answer. I'm just wondering, so I guess in that sense, would it be fair to expect that this cash will be outstanding for the balance of the year regardless of how the credit markets shape up then?
Yeah, I don't think we'd make such a strong statement. I think it would likely be an expectation that we'll monitor this almost on a weekly basis to see, and to be able to make that kind of prediction, at least at this point, I think is almost impossible. We'll see. Again, I'm not trying to be coy or avoid your question at all. I'm just saying for now, we're unsure. When you're unsure in situations like this, you do what you think is appropriate to safeguard the business, to safeguard the viability of the business, and to put yourself in a position, as I think we've done, to accommodate any of the unexpected or unknown needs that might come our way over the remaining months of the year. We'll see. That's really the simple answer.
Okay. Thank you. Wanted to ask about Reitmans. Have you heard anything from them directly about what their intentions may be, and whether or not maybe you have a view towards them looking at certain labels that they might reconfigure or rationalize or sort of any color you have on the Reitmans story?
Look, Reitmans has themselves indicated some vulnerability. Obviously, yeah, we all have to take that seriously. No, we have no additional information that would be able to determine what their, I guess, future is in the various banners. They've been forthright with us, we kind of have to wait and see, partly to see if they qualify for any of the governmental programs that have been proposed or being proposed, I mean, being discussed to be ultimately proposed or brought forward for large or non-essential retailers. Yeah, if any large retailer, large in terms of number of units like that doesn't make it, we will just have to deal with it. We've got a big exposure to Reitmans, we would be doing everything to help them that we think is reasonable.
We'll be certainly cheering them on to get it together in terms of coming out of this, hitting the ground running. If any exposure like that doesn't make it, as I said earlier, we will deal with it. We will start with the re-leasing and/or repositioning of that space. The ones that we see that fall into that category, we don't want it, we're not happy about it, but we'll deal with it. It's not going to clip us or anything, we'll lease it up or redevelop it in a reasonable period of time.
Can you comment on whether or not they paid rent in April or May?
Out of respect at the moment for the discussions that are going on with all our tenants, basically, we've chosen not to discuss specific tenants at this time. I think some people have, and so you probably know through other sources maybe about some of them, but no, we're choosing to just deal with that for now directly with our tenants.
Sure. That's fine. I guess maybe I'll ask about another example that is public in terms of the Gap not having paid rent in April and now saying that they're looking to open a number of stores by the end of May. I'm just wondering from a landlord's perspective, sort of what the mechanics of that are in terms of if they're not paying April rent and they decide to pay May, do you say to them, "You can't open the store until you're current on your rent," or do you leave that discussion for another time, just given the current circumstances? How do you reconcile that situation?
It's a good question because the answer is it depends, and I think every landlord would say the same thing. I think you would say the same thing if you were in our shoes or if you had a tenant in anything that you might. It just depends. Each one is unique. In fact, it's probably a good thing because it gives landlords an opportunity to discuss the lease in totality because they're in default. We need to come to terms, and landlords do have rights. At the same time, we're not in the business of creating vacancies. We're in the business of collecting rent. It's a balance between the benefits and costs of whatever they can, whatever they're prepared to do and whatever we're prepared to accept, keeping in mind where we're headed.
Most of our real estate we see as having higher and better uses, but we obviously would like to get there collecting as much rent along the way as current in its current form. We'll be weighing all those things. Each and every one depends on which center they're in, where they are in the center and what they're prepared to pay and what other terms in the lease. It's very interesting. Obviously, this is all of our first pandemic. We are working our way. We have had to do these things in the past, but not with so many tenants at once. We've all done it before. Yeah, it'll all become clearer, Jenny, in the next month or two.
Some of the stuff will start to happen and be crystallized. It's just in the middle of it right now, so we don't know.
Okay. That's fair. Then just my last question on in terms of rent deposits. I haven't had a chance to look through everything, so I'm not sure if you disclosed it. Just a general question on commercial rent deposits. How does it really work in terms of the amount you collect? Do you collect it from everybody? Is it sort of like a last month rent situation with residential tenants? Anything that you could help us with there? Can you provide any color on that?
Like internal growth. The stronger the tenant, the lower your internal growth is going to be, but you're going to collect more of your rent. The same thing is true with deposits. The stronger the tenant, the less deposits. I think we had about CAD 14 million in deposits, and they are actually related mostly to last month's security deposits.
The fewer smaller, independent retailers you have Well, let's put it this way. The more sort of independent retailers you have, that's where you take the bigger security deposits, the last month's rent. You might even get a letter of credit for a full year's rent if it's somebody you put up money for and they're not strong but you wanted to be able to bet on them. You might even have a full year's letter of credit for rent.
Those are generally related to the smaller, more independent. Generally speaking, I'm not going to ask Walmart for the last month's rent and/or Loblaw or those tenants. It's just not industry standard. Yeah, if they default, you get their deposits, but you don't. That's the last resort. Generally speaking, you want to work out deals with everybody. The beauty is that we are in the times business, we are in a very specific moment in time in tempo, we can work with time to help out most tenants and not necessarily have to end up taking their deposit and creating a vacancy. If we did, we have up to CAD 14 million of those.
Okay, great. Thank you, and I will turn it back.
We'll take our next question from Tal Woolley of National Bank Financial. Please go ahead.
National Bank Financial. Mr. Goldhar. If you look at your supplemental on page 16, you've got your sort of gross rent exposures by retail category. I'm just wondering where that sits now. Are you guys happy where that mix is right now? Just wondering how your thinking is changing going forward. Should we expect to see those exposures shift going forward?
That's a good question as well. We are happy with our mix. Look, we set out and continue to sort of own price. Just like Walmart owns price in retail, we sort of own value and price in retail centers. We have very low average rents. We're probably the lowest in terms of average rents in our industry. We probably have the lowest coverage on our properties, and we probably have the lowest amount of enclosed mall square footage. These are all part of a way of saying the same thing, and we like all of those things, and we don't really want to change it other than the fact that we are very development intensification-minded and have been for the last five years. Takes a long time to get those things airborne. Yes, it's a pendulum.
There's always going to be some weakness and latent weak links. Maybe there's some places where we have a huge center, and we ended up with categories that are not our bread and butter. We will be, generally speaking, shrinking the overall retail square footage in our portfolio continuously ad infinitum, have been. Obviously, we'll want to keep the strongest wherever possible. Generally speaking, we do like the value-oriented space. Of course, it includes banks, and it includes restaurants, and includes lots of things that are complementary to it. Our bread and butter is to cater to sort of all Canadians in terms of their budget and their income and their family structure. With few exceptions, I'd say we're happy and we don't see ourselves doing an about-face.
Not an about-face in that we want to shrink our retail in general, and we want to increase the other categories, the other sectors.
On the new retail side, like you said, you've got a good niche in sort of value retail. Given your long history in the market, in sort of periods like this where the market gets disrupted, do you have a sense of is trying to do new things for value retailers, is that easier, harder, the same, versus a market where things are really strong? Do you have any sort of history that you can draw on to go?
Yeah, I think that the trend is. It's funny. When things are hot and there's more money flowing, I hate to start by saying everybody shops at Walmart just like they shop, everybody shops at blah blah. There's no point in trying to define that demographic because the same person who shops at Holt Renfrew shops at Walmart. Yeah. Walmart in Canada is not the same as Walmart in certain other countries. Walmart in Canada is the general merchandiser, the discount general merchandiser, and the department store all in one, along with the grocery store. Walmart is used to operating and winning in markets that are fiercely competitive, much more so than Canada. That's not to say that in food we don't have some fantastic and successful competing retailers.
In general merchandise, there's nobody that touches them in consumables and so on. Still, on groceries, they're the largest grocer in the world. I think most people probably know that. In tough times, of course, people spend less, but more people go. The people who go there less frequently go there more frequently, and generally speaking, everybody, the average checkout is lower. What we found over the last 30 years is that when things are piping hot, the bread-and-butter customer spends more, and the wealthier end of the spectrum goes there less frequently, but still go. In tough times, the wealthier go more often, and the bulk of the market spend less on an average checkout. For Canada, the value orient is very well, I think, very well suited, very much aligned with Canadian reality.
That's sort of just one of those things that sort of ends up being six of one, half dozen of the other. That's what we have found over 30 years. When I first started out, I wondered that myself, by the way.
Peter, you made reference to CAD 60 million, I believe, in cash flow from condo gains this year. That is both the gains and the capital coming back to you, it's not just the gains?
No, Tal. What I did say was that we expect in 2020 and 2021, on a combined basis, that from TC 1, 2, and 3, we would receive approximately CAD 60 million of profit. That is in excess of our capital coming back, so to speak. That is allocated between 2020 and 2021, Tal. The expected net proceeds for 2020 at this point would approximate about CAD 36 million of the CAD 60 million, give or take. At least for now, that is where the expectations are.
Just lastly. Just a question around the accounting for as these relief programs come down. One of the difference between you guys doing your own deferral is that you're still going to be booking the revenue within FFO. If you participate in these programs like the haircut that you have to take on the rent, that will get reflected in FFO, correct?
That's a good question. The simple answer is for now, there are so many unanswered questions, Tal, associated with any of these programs, and it's too early to say. I think it's fair to say that we would expect to the extent that we participate in one of those programs, and we would have to absorb some of that there would be an expected impact to FFO. How it gets distributed over what timeframe remains to be seen, and we're trying to work out that detail, i.e., does it get reflected in the current year? Does it get reflected as a pickup over the remaining term of the lease? In some cases, I think as Mitch mentioned earlier, we have an opportunity now to extend some leases given the negotiations that are going on.
We may have an opportunity as well to perhaps take some of these potential discounts and apply them over what would otherwise be an extended or what should be viewed as an extended period. At least for now, that's the thinking. How it actually impacts the 2020 FFO or financial results for now is frankly unknown. As I said, there's still a number of other questions associated with these programs that us and every other major landlord in the country are trying to get certain details and a further understanding of. We'll be able, I think, to come back to you with a little more clarity at some point down the road, but for now it's still early days.
Okay, perfect. Thanks, gentlemen.
Okay.
We will take our final question from the line of Tanvir Ahmed of RBC Capital Markets. Please go ahead.
Thanks. Hi, everyone. Just in the past years when we've seen closures from apparel retailers and restaurants, can you just comment on the types of tenants that have helped backfill that space over the last few years? Whether that source of demand, can you see that source continuing going forward?
Yeah. I think it will be tougher this time if there's bankruptcy failures, large bankruptcies and failures. Within what I was referring to, the ones that are on the margins than it has been in the past. Interestingly enough, especially in Canada where we do have much fewer square feet per capita than in most other countries and certainly in the U.S., good retail locations have been resilient. The good retailers are always looking at new concepts or looking for additional space or expanding. I do, though, think just intuitively, my gut says it'll be a little bit slower. In the past, it's always been when somebody's busting, somebody's booming. TJX was booming when, I don't know, when certain other categories, or one of the main ones were not doing well.
A lot of it just continues to move while the square footage per capita continues to shrink in Canada because we're not the only ones shrinking retail, and nobody's building new retail for all intents and purposes. I do think it will take longer to lease it up, whatever vacancies come out of this particular event. Having said that, though, I just think that there will be this for several items where in a number of cases, the redevelopability of those spaces to alternate uses, I think, would be quicker in terms of getting approvals. Would be more lucrative ultimately than re-leasing them. There'll be the exceptions, and there'll be lots of spaces that'll sit around empty for prolonged period of time.
Ultimately, I think the benefits of all of this, the opportunities develop if you can do it and you have good locations will outweigh the cost. I do think there will be some vacancies that'll come up that may release up at the end of this year.
Got it. Just one last one. I realize, obviously, it's early days, but as we work through this pandemic, have you seen any new sources of demand for space in your centers?
We've seen retailers calling up about their renewals and renewing or commencing renewing negotiations for renewals.
Everybody needs to factor in both sides of the equation. It's not a one-way thing. For example, with deferrals and other negotiations, it could result in renewals. Not just the renewals I was just referring to, but renewals that aren't even due, that aren't even up. I'm sure you would do the same, that if a tenant needed some accommodation in a handful of locations that you have, you would say, "Okay, that's fine, but you have three years left on your lease. It's about time to renew, but we'd like you to exercise your first five-year renewal." We have seen that, in the medium term, will result in less turnover and longer average lease terms. Some tenants who have their renewal up now are.
In terms of calling up and saying, "Your vacancy over there in wherever, we'd be interested in talking about that." Not a lot of that going on. As you can imagine, everybody's just, certainly the last month, everybody's just hunkering down in a way for the worst potential scenario. The ones that we were already negotiating, the ones that were going on, nobody's really wanted to walk away from those. Those negotiations have just sort of been put on pause and everybody's keeping everybody warm. It's hard to say. It's certainly more or less what you'd expect. Now that things are a little bit more clear, I'm not saying they're good, but they're a little more clear, people are starting to talk about the things that we were talking about before all this happened.
I don't know, Rudy, if you want to add anything to that?
No, Mitch, I'd say a lot of what was happening, it's exactly what you just described. A lot of what was happening before the Christmas and into the early part of the new year was already happening with some of the retailers who didn't want certain locations, were already talking to us about not wanting locations and certain locations they were in. We were already talking to the likes of service and food and medical and ethnic grocers and Farm Boy and dollar stores. We were already in the midst of all of those discussions in the first sort of two to three months of this year. TJX expansions into the combos, the Winners HomeSense and health foods.
All of those conversations have just been paused and nobody has come back to us and said, "We don't want to do those." We still have all of those alive. Everything's just right now paused.
Yeah, they haven't said they don't want them, that's for sure. That's pretty interesting. I don't want to make this all seem like all the other thing is roses. Obviously, it's not. There are some examples. We were about to start construction on something where the tenant is like, just hooking us to start construction of their new unit in a particular market. A solid tenant, a solid company. In Aurora, I don't think it's a weak site, but just however indicative it may be. A Farm Boy with a TJX and some other retail is all set and ready to go. They all call up about when are we getting our unit. Now we paused it because we wanted, like anybody else, we wanted to see what we're dealing with. We're talking about short timeframes.
Real estate operates on geological timeframes. A month to us is like an hour in real life. It's nothing to pause for a month. No, they want it, and we're the ones who are saying, "Let's just hold tight." For what that's worth. I mean, it's not a great amount of data points there, but there's lots more to it than you might think.
Thanks very much.
There are no further questions at this time. I would now like to hand it back over to Mr. Forde for any additional or closing remarks.
I appreciate that. Again, I want to thank you all for taking the time to participate in our first quarter call. Just say, please stay safe. Good night.
This concludes today's call. We thank you for your participation. You may now disconnect your lines, and have a wonderful day, everyone.