Good day, and welcome to the SmartCenters REIT Q1 2020 Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Peter Ford, President and CEO. Please go ahead, sir.
Thank you, and good evening. Welcome to the SmartCenters 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 2223 of our supplemental information package and the outlook section of our MD and A, which are posted on our website.
I refer you specifically to the cautionary language on Pages 23 of the supplemental material, which also applies to comments any of the speakers make this evening. Our Q1 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-nineteen 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, the 60%
is based on revenue of the REITs 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 Vectum markets we have shopping centers in markets where our centers are often the essential service hub of the area. And 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 moto 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. And 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 5 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 Canadian the Canada Emergency Commercial Rent Assistance or SECRA 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, but it is not yet clear as to which of our tenants will qualify and the mechanics of the relief. So 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 trends. We expect to be able to find ways to accommodate tenants with the real need when appropriate and justified, assisting them with the 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 collective in this environment, and I will take the opportunities to use it, the term being expected rent. Expected rent being the amount of contracted rent less the amount of deferred offered and accepted by tenants. Excluding the 2 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. So in the 1st 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. And in fact, we are still receiving rents related to April. We are experiencing the same level of collection in early May to date and 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 May rents. And if the government program is made available to the smaller independent retailers, we expect the combined overall receipts will end up with this COVID-nineteen effective period to end up being in the 85% to 90% range.
And as we move through the second half of the year, we expect this to grow back somewhere between that range and our original 98%. Now 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. But 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. However, optional upgrades and or cosmetic expenditures that are not health and life safety related are being postponed. And 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 environment is our experience with Penguin Pickup.
5 years ago, we partnered with Penguin Pickup, 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. 2 years ago, SmartCentre supported Walmart Canada's test and rollout of grocery pickup at our properties and introduced co branded Walmart Canada penguin pickup locations to help expand their reach into areas of downtown Toronto where access to their grocery offering is limited. With COVID-nineteen and the customer desire for safe, contactless shopping, our foresight and experience with the above mentioned initiatives has proven to be a valuable an extremely valuable and we are using our 5 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. And with that, I'll now turn it back again to Mitch.
So 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 smart centers. We know the markets. We have relationships with the municipalities. We understand every detail about each and every one of our properties. In this team of in house planning experts, developers, engineers, government relations, leasing, environmental and 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-nineteen. We have developed 3 turbulent tons before, both as a private company and as a public group. For example, we developed through the early 90s, SARS pandemic in the early 2000s, the financial crisis of 2,008, and many less famous down periods.
The potential intensification and development program continues to grow as we further review our portfolio of opportunities. The number of potential projects and towers to commence construction within the next 5 years is currently estimated to be at 105, 34 of them are underway, comprising some 12,400,000 square feet that's our share of mixed use space. A breakdown of these projects by asset type is provided in our MD and A. We carefully select our development partners looking for expertise in these asset classes and with a good cultural fit and complementary skills. I'm pleased to report that all new relationships are growing extremely well.
Rivera, Smart Stock, Centricor, Selection Group, Jadcorp, 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 all 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 makes additional mix with 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, the 1st condominium projects at CMC, Vonage, Bald and Care. So Transit City 1, 2, C, 4 and 5 are which are under construction sold out 2,767 units. We chose to partner up a number of years ago on these towers. So we own a 25 percent interest.
But many of our other projects here are developing and will describe growth, we will be doing RO. So imagine the numbers at 100 percent interest in the 5 towers at VMC. VMC is forecast to generate in excess of $360,000,000 profit. In that regard, we still have the ability to build out many times that at VMC alone over the next 5 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 and our retained portion as well through an IFRS curve of a fair value adjustment.
And 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 packet provide yields and profit expectations from our active projects anticipated from COVID. For the most part, there was no significant change. You will notice that for now we have removed a new outlet mall. Some specific project highlights.
Transit City Connors at VMC were 5 towers, 2,767 units, 100% sold. 2 of these towers, 17 47 units, as we have 20% deposits in place. 2 of these flowers are 10 26 units, we have 50% deposits in place. And in the case of the last 2, 5% of further deposit is due in the Q3 of 2020 coming up. Construction continues on all five towers.
Closing in TC1 and 2 are expected in the Q4, maybe even some in the Q3 on or ahead of budget. CNC purpose built residential rentals, 4 51 units are under construction. 1 Tower purpose built residential rental, 171 units in the back of that construction complete and occupancy has commenced and almost 50% leased. Self storage, 50% leased. 1 self storage development in Leaside complete, waiting for occupancy permit.
3 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 tools. In the senior housing space, first let me clarify with all the troubling COVID information that is in the news, almost all of the chat news relates to long term care facilities, a business we are not in. With our 2 partners, we are developing seniors apartments and seniors residents, 6 with Rivera, 2 with Group Selectional.
All of these are in the municipal approval 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 5,300,000 square feet of predominantly residential space in various forms at Highway 407 in Malin And we have a 3 tower mixed use phase application that we just put in during the last weeks and that of course is just right across from the VMC and we expect support for that approval. Development up to 5,000,000 square feet of predominantly residential space in various forms over the long term in Pickering, Ontario in one of our shopping centers. A 2 tiered 2 tower mixed use Phase 1 application was just submitted in the last few weeks.
The enrollment of up to 5,500,000 square feet of predominantly residential space in various forms at Oakville North in Oakville, our shopping center at Dundas and Trafalgar to power residential Phase 1 under Ray. The development of up to 3,000,000 square feet of predominantly residential space in various farms at Westside Mall in Toronto, on Lakeland Avenue, mixed use single tower planning underway. And this is for all Pittsburgh, Australia and the city. Development went up to 1,700,000 square feet of residential space in various homes including townhomes with Field Cape, the seniors residence towers with Rivera and condominiums and residential rental buildings at the far northwest shopping center in Nona, Ontario at Western Road at Nature Back just across the highway from the new hospital Mackenzie Hospital. The development of up to 1,500,000 square feet of residential space in various forms in Pointe Claire, Quebec, just west of Montreal, suburb of Montreal immediately Phase 1 and 2 purpose built residential rental towers.
The development of 4 high rise purpose built residential rental buildings comprising approximately 2,000 units with premium in Barrie, Ontario on the waterfront. Development of high rise campus built residential rental towers on Beloit at Yonge in Davisville with Raymond. The development of up to 1600 residential units and various farms in Les Couche, Quebec, outside suburb of Montreal on next to one of our shopping centers. But that would have phase a first phase of a 32 unit rental building, which is part of a potential Penn Phase master plan in Allison, Ontario on a shopping center site. This is just a little bit of a view.
And as far as I'm concerned, our REITs unit price has truly to date only been a function of our historic NOI. And I know additional value has been affected from the data value that we are extracting through the development program. And now I will turn it over to Peter Sweeney.
Thanks very much, Mitch, and good evening, everyone. Our financial results for the Q1 of 2020 reflect the continued strength, stability and security of our 34,000,000 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 Q1 that underline this stability and security in our portfolio. Accordingly, during the quarter, this portfolio generated the following strong results. Number 1,
cash
flows provided by operating activities, which is a GAAP measure, increased by $23,000,000 or 41 percent to $79,000,000 from $56,000,000 in the comparable quarter. Number 2, funds from operations or FFO, which is a measure of our income generating capacity, increased by $8,000,000 or 8.7 percent to $96,000,000 from $88,000,000 in the comp of the quarter. On a per unit basis, FFO was $0.56 which is $0.04 or 7.7 percent higher than the comparable quarter last year. Number 3, adjusted cash flow from operations or ACFO, which is an indicator of our cash generating ability, increased by $11,000,000 or 13% to $90,000,000 from $79,000,000 in the comparable quarter last year. And then finally, number 4, 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 $7,000,000 to $10,000,000 from $3,000,000 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. And they've permitted us to generate stronger rent collections, as Mr. Ford and Mr.
Goldhar mentioned earlier, in these uncertain times. These improved quarterly results can be attributed to the following primary factors. Number 1, the incremental net operating income or NOI being generated from new tenants at both the KPMG and the PWC towers. Number 2, 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 earnouts and other developments. Number 3, lower interest costs associated with our portfolio of maturing mortgages and unsecured debt continue to provide unsecured fixed rate refinancing opportunity at lower rates than the outgoing maturing rates.
Number 4, additional percentage rent, parking revenue and other miscellaneous revenue. And lastly, number 5, lower general and administrative costs. And now let's focus on our balance sheet. As we know, these challenging times will test the balance sheet 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. The 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 1, our unencumbered pool of assets of $5,600,000,000 has increased by $1,100,000,000 or 24%. Number 2, our debt to aggregate assets ratio continues at a very conservative 43.3% level.
Number 3, our weighted average interest rate for all debt was 3.4% as compared to 3.7%. And even in this challenged period, we continue to be in a position to attract debt capital at historically low rates for longer terms. Number 4, our interest coverage ratio improved further to 4.1 times from 3.8 times and our adjusted debt to adjusted EBITDA multiple was 8.2 times, both metrics reflecting the business' strong ability to fund its obligations in uncertain times. And then lastly, number 5. As a result of this ongoing commitment to the balance sheet, in December of 2019, we received an upgrade to our credit rating from DBRS to BBB high.
Recall that when we embarked upon the strategic initiative over 2 years ago, approximately 2 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 1, we do not have any maturing debt in the Q2 of this year and only $70,000,000 that's $7,000,000 in mortgages maturing later in the year as well as $250,000,000 in unsecured debentures that come due in December. And it's interesting to note that we continue to speak with market participants concerning appropriate repayment alternatives associated with these maturing amounts. Number 2, 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 $410,000,000 in our operating line. And in addition, we have a $250,000,000 undrawn accordion feature that is available to us.
Number 3, we continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place. And 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 4, we continue to receive reverse inquiries and other strong levels of support and interest from participants in the bond market and the overall cost of issuance have returned to those levels that were in place at the end of 2019. And in this regard, we continue to closely monitor these debt capital markets. And then lastly, number 5, 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 $60,000,000 that's $60,000,000 which will be used to further fortify our liquidity needs both in 2020 and 2021.
And 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. And to our team of professionals who have worked so valiantly at SmartCenters for your tireless efforts and sacrifice to get the job done in these most unusual circumstances, we say thank you. And then 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. And with that, I will turn the call back to our operator, Angel, who will coordinate us in addressing your various questions. Thank
you. Thank you, And your first question comes from the line of Mike Markidis of Desjardins. Please go ahead.
Thanks everybody. Mitch, you gave some interesting 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 more time line or forecast as to how your economic occupancy may trend at the same time?
Can you hear me? Yes. Sorry. Well, not sure exactly what you mean, but would you mean where you think we're going to sort of level off by the end of the year in terms of occupancy?
Exactly.
I mean, it's hard to say because obviously everybody is looking at the rent collection number and percentages and so on. But it's not
it's a
bit it's turning out to be a bit misleading because we're not collecting from tenants that are strong. So and I think we and our 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. So 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.
So yes, we've modeled it every you can imagine, we've modeled it every which way. So if nothing changes and nobody there's no casualties, then we'll see ourselves back where we were. And that's why I said between $85,000,000 $90,000,000 that's our range for when things all get collected. And if government programs, as stated, come through. But and 98.
But we don't know what will happen with the ones that are not in that calculation. Now if there are some bankruptcies along the way, that doesn't mean that we won't get any rent from them. I mean, very often, it does result in retail, it very often results in pruning of locations and reopening. And reopening can actually mean reopening with a new improved concept and obviously a stronger company, but it does result in some vacancies and lost revenue. But 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, but that's kind of embedded in the range. So sorry for my answer, but hopefully that helps.
Yes, that is helpful. And maybe just for Peter. I think you mentioned that you have construction financing in place for the stuff that's actually actively under construction. Is that correct? That's correct, Michael.
Okay. And just curious, are there any projects that we'll get planning to get underway throughout the rest of this year? And if so, how is the market for developing financing today? Is that still something that's available to you? Well, it's a 2 part question.
So 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. Yes.
Just on the first part, I mean, we will proceed where every box is checked twice, including financing. And I'm sure the lenders will also be wanting every box checked twice. We do anticipate that we will start some projects. There are not if they're not and without But I do foresee that we I do foresee our projects and projects with all those
Michael, it's Peter. Just follow on 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 are we're working very closely with in establishing several new construction facilities. And so the simple answer from a market perspective is that construction financing for us is very much available, and it's more than competitively priced, notwithstanding that rates have gone up since this initiative took place 6 or 7 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 VA rates have declined, there are some savings in that regard. But to maybe get back to your question, we certainly do see an ample supply of available credit for construction financing. Okay. So no new projects unless there's specific project well financing and that market is open and available. That's it for me.
Thank you.
And we will now take our
Tripura call, but I just heard that you did draw on the $40,000,000 line of cash in the bank at the end of March. What is the reason for doing that? And is there an immediate use of proceeds for most of that cash? Sam, it's Peter. So 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 6 to 8 months.
So as far as having a specific use for it currently, we don't have a particular or specific use per se. But certainly, as we would expect, it will be used in part at least to accommodate the needs of the business as we go through the next several months. So basically, the revenue shortfalls from tenants to tenants deploying rent payments at the moment, what's that sort of a main? Yes. But don't I mean, let's make sure and I want to make sure everybody on the call understand 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 even to draw on the line was done strategically in an effort to be 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. And 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. So again, it's more of a defensive measure to ensure that there's more than ample liquidity required sorry, available as we move forward. Okay.
And just on the rent collections, a little, certainly, they want to deliver the point, but I just want to be clear because the presentation of the information is a little bit different from some of the REIT. So did you collect the same amount of rent in April as you press release a couple of weeks ago? Or was it up by 1% or 2? Just trying to be
clear? April has gone up by 1% or 2%, P is your words. Okay.
And just finally, I mean, so
I do want to point out that it may go up some more actually April. I mean, we got a note today from a major defaulter who's strong that they're going to pay April's rent. I mean, we don't calculate until it happened. But so we do anticipate April's rent to still go up. And we haven't factored in any of the deals that the government are offering to small business.
I mean, correct me if I'm wrong, Rudy, I think that represents about is it $6,000,000 I can't remember how many chisels a year. But 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. But if we were to apply for it and it was all in all other equal everything else being equal, we would collect 75% of that, whereas right now we deferred them all. And 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.
So and we expect May to be the same and I know we all everybody was wondering what was going to happen in May, but May seems to be trending. Everything seems to be almost identical to starting off to the beginning of May, similar to the beginning of April, with one exception and maybe we're seeing might be 2 exceptions. But 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. And just finally, do you have any what's your best visibility on the trend in occupancy for the second quarter at this stage?
The occupancy as defined as open or I mean just in terms of like actual legally have leasehold interest. I mean, I guess, leasehold interest with 98% going. Legally, technically, we legally, technically have 98%, I guess, occupied, but I don't think that's what you mean because we have a lot of defaulting tenants, which we have not terminated, but we have set up such that we have the right to terminate. And we are obviously monitoring and evaluating the pros and cons of that every day. But I mean 60% of our space right off the bat is open because they're essential services as defined by most all the provinces.
And so yes, I mean, I'm not sure if I answered your question, but
Yes, that's helpful. I was thinking more on a committed basis if you're 98% today. Is there expected to be slippage just because of the lack of ability to get leasing transaction completed as efficiently as it was 2 months ago?
Yes. You got to figure this going to be slip, which I mean, we don't have specific we don't have anything specific as imminent. But sure, of course, now that I've said that, tomorrow somebody will announce some slippage. But you got to figure there's going to be some sewage. And there's probably going to be some SIBG just anyway.
This might have induced some of it, but we don't have any. We're not aware of anything that's about to happen. And the ones that are the most fragile, we are going to try and help as much as possible. But in terms of where we're going to end up, I mean, if we got to sort of just pick a number, we haven't picked a number. But 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, I think, wasteland of industrial business parks somewhere and it's all fungible. This stuff is not fungible. So obviously, we'll be trying to turn any setback into an advance and it plays right into our development. 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.
But you don't see a lot of public traded peer development companies because there's a lot they're making too much money to be public, to be honest with you, and most developers don't have an interest in that. But he's a very lucrative end of the business, and we will be using some of these, which slippage or any other situations to seize upon them if they in fact will play into or in the service of of our more long term vision of any site. And 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. And 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 amendment. So it's not all what just meets the naked eye.
So yes, on the surface, there probably will be some slippage, but it's going to it's not going to lock our world. We'll deal with it.
Thank you very much.
And 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, but I'm trying to reconcile the cash drawdown. If you could just give a little bit more color sort of around the thinking because I'm just wondering if this is 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.
So with that development, does change your view on this? And I recognize we're talking 5 year terms versus just a draw on the facility. But I guess with the improvement in the credit markets gives you more assurance that your 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 it's 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 visavis financial markets. And since then, at least in the bond market, there has been a continuous improvement and further clarity of that market opening up. And 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. And in that regard, 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. And so the simple answer is we haven't thought yet about repaying this and notwithstanding the improvement in the markets. And there's still perhaps a few chapters left in this COVID-nineteen pandemic that has not been written yet that none of us can predict. And so for anybody who's been through, as Mitch mentioned and Peter mentioned earlier, this company has been through lots of different challenging periods over the last almost 30 years.
And the one thing you know coming through these periods is that there will be things that will surprise you. And 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 in into our plan.
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?
Yes. 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. So we'll see. And again, I'm not trying to be coy or avoid your question at all.
I'm just saying for now, we're unsure. And 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. So we'll see. That's really the simple answer.
Okay. And then wanted to ask about Reitman. 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 Readiness story?
The Readiness themselves indicated some vulnerability. So obviously, yes, we all have to take that seriously. But no, they have not we have no additional information that would be able to determine what their, I guess, future is in the various matters. But maybe they're being forthright with us. And so we kind of have to wait and see partly to see if they qualify for any of the government programs that are being proposed or being proposed, I mean, being discussed to be ultimately proposed or brought forward for large and large central retailers.
Yes, I mean, look at if any large retailer, large in terms of double of units like that, doesn't make it. We will just have to deal with it. We got a big exposure to lead as we would be doing everything to help them that we think is reasonable. And we'll be certainly cheering you on to get it together in terms of coming out of this with the ground running. But if anyone's any explosion like that doesn't make it, as I said earlier, we will just we will deal with it.
We will start with the releasing and or repositioning of that space. And 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 cut loss or anything and we'll release it up or redevelop it in a reasonable period of time.
Can you comment on whether or not they paid rent and they're going in?
We are 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 we're choosing to just deal with that for now directly with our tenants.
Sure. That's fine. Well, 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 the landlord's perspective, sort of what the mechanics of that are in terms of if they're not paying April rent, you would like 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?
Like how do you reconcile that situation?
It's a good question because so 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. And so 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.
So we need to come to terms and landlords do have rights. Same time, we're not in the business of creating vacancies. We're in the business of collecting rents. So it's a balance between the benefits and costs whatever they can whatever we'll prepare to do and whatever we'll prepare to do except keeping in mind where we're headed. I mean, 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 it's currently in its own form.
So we'd be weighing all those things. So each and every one depends on what center they're in, where they are in the center and what they're prepared to pay and what other terms of the lease. So it's very interesting. It's sad to see this is all of our first pandemic. So we are working away we have had to do these things in the past, but not with so many tenants at once.
That we've all got it hoped for. So yes, it will all come it will all become clearer, Jenny, in the next month or 2. Some of the stuff will start to happen and be crystallized and
it's just in the middle of it right now, so we don't know.
Okay. That's fair. And 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. But just a general question on commercial rent deposits.
Like how does it really work in terms of the amount you collect? Do you collect it from everybody? And is it sort of like a last month rent situation with residential tenants? Anything that you could help us with this? Can you provide any color on that?
Yes. Like internal growth, like internal growth, the stronger the current the lower your internal growth is going to be, but you're going to collect more of your rent. And the same thing is true with deposits. We started to kind of the less deposits. I think we have about $14,000,000 in deposits and they are actually related mostly to last month's or security deposits.
And so the fewer smaller independent retailers you have, the more sort of independent retailers you have, what's the bigger security retailers, the last month's rent, you might even get a letter of credit for a 4 year's rent if it's somebody you put money for and they're not strong, but you wanted to bet on them. And I mean, and you might even have a full year's run of credit for rent. But those are generally related to the smaller mortgage category. Generally speaking, I'm not going to ask Walmart for the last announcement and
or Loblaws or those things,
they just don't they don't it's just not industry standard. So yes, 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. And the beauty is that we are in the time business and we we are in a very specific moment in time, it is temporal. And so we can work the time to help out most tenants and not necessarily have to end up taking a deposit and creating a vacancy.
But if we did, we have up to $14,000,000
Okay, great. Thank you. And I'll turn it back.
And we'll take our next question from Tal Woolley of National Bank of Nova Scotia. Please go ahead.
National Bank of Nova Scotia.
If you look at your supplemental on Page 16, you've got your sort of growth, rent exposures by retail category. I'm just wondering like where that sits now? Like, are you guys happy where that mix is right now? Or just wondering how you're thinking is changing going forward? Should we expect to see those exposure shift?
I mean, we are happy with our mix. I mean, look, we are about 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. And we probably have the lowest coverage on our properties, and we've got it as the lowest amount of enclosed malls per footage.
It's all part of 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 5 years. It takes a lot of time to get those things airborne. So yes, there's always going to be it's Darwin. There's always going to be some weakness and lean things. Maybe there's some places where we have a huge center and we ended up with categories that are not our bread and butter.
So we will be generally speaking, thinking the overall retail considers our portfolio continuously adding some item have happened. And obviously, we'll want to keep the strongest wherever possible. But generally speaking, we do like the value oriented space. And of course, it includes banks and it includes restaurants and includes such things that are complementary to it. But our bread and butter is to cater to all Canadians in terms of their budget and their income and their family structure.
And the few exceptions, I'd say, is not too happy and and we want to increase the other categories, the other sectors.
On the new leasing side, you guys, like you said, got a good niche in sort of value retail.
Do you have any
like given your long history in the market, like in sort of period that that's where the market gets disrupted, do you have a sense of like is trying to be uniquely seeing pro value in retailers, is that easier, harder, like the same like versus a market where things are really strong? Like, do you have any sort of history that you can draw on to that?
I think that the trend is so it's funny, when things are hot and there's more money flowing, we see everybody shops at Walmart just like they saw, everybody shops at blah, blah. There's no point in trying to define that demographic because same person who shops at quarter entry shops at Walmart. And so yes, I mean 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. The Walmart is used to operating and winning in markets that are closely competitive much more so than Canada.
But scroll on groceries, they're the largest grocery in the world. I think most of the companies know that. But then in tough times, of course, people spend less, not more people, the people who go there less frequently go there more frequently and generally sitting there with the average checkout is lower. So this is what we've found over the last 30 years is that when things are piping hot, the bread and butter customers sense more and the wealthier end of the spectrum goes there less frequently, but still go. And in tough times, the wealthier go more often and the bulk of the market spend less than an average shaker.
So it's one of the value oriented very well, I think, fitted well, very well suited, very much aligned with the Canadian reality. And that's sort of just one of those things that explains it sort of ends up being 6.1.5 as a Willow. That's what we have found over 30 years. And when I started out, I wondered that much better, by the way.
And then Peter, you made reference to $15,000,000 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. What I did say was that we expect in 2020 2021 on a combined basis from TCI, TCI, TCI, we would receive approximately $60,000,000 of profits.
That's in excess of our capital coming back, so to speak. That is allocated between 202021, Tennell. The expected net proceeds for 2020 at this point would approximate about $36,000,000 of the $60,000,000 give or take. So that at least for now, that's where the expectations are. Just lastly, so we've had is this a question about the accounting for as these relief programs come down, one of the difference between you guys doing your own deferral is that you still book you're sort of be booking the revenue within FFO.
But if you participate in these programs like the haircut that you have to take on the web, that will get reflected in FFO, correct? Yes, it'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. But 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, that there would be an expected impact to FFO. How it gets distributed over what time frame remains to be seen.
And we're trying to work out that the LIE does it get reflected in the current year? Does it get reflected as a pickup over the remaining term of the lease? And 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. But 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 should be viewed as an extended period. So a week from now, those are the that's the thinking, How it actually impacts the 2020 FFO or financial results for now is frankly unknown.
And 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. So 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.
And we will take our final question from the line of Pammi Bir of RBC Capital Markets. Please go ahead.
Hey Tim. Hi everyone. Just in the past years, when we've seen closures from apparel retailers and restaurants, can you comment on the type of tenants that have helped backfill that space over the last few years? And whether that source of demand, can you see that source continuing going forward?
Yes. I mean, I think it will be tougher in this time if there's bankruptcy failures, large bankruptcies and failures and within what I was referring to, the ones that are on the margins than it has been in the past. So interestingly enough, I mean, 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. Good retailers are always looking at new concepts or looking for additional space or expanding.
I do though think just intuitively, I guess it's a little bit slower in the past. It's always been when somebody is busting, somebody is booming. And TGX was booming when, I don't know when certain other categories or what I mean means were not doing well. And so a lot of it just continues to move while the store for Easter capital continues to shrink in Canada because we're not the only ones shrinking retail and nobody is building new retail for all intents and purposes. So but 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 is for several items. In a number of cases, the lease up ability of those spaces to alternative uses, I think, would be quicker in terms of giving approvals and will be more lucrative ultimately than reusing them. But there will be exceptions. There will be lots of space in the middle for MMT for prolonged period of time. But ultimately, I think the benefits of all of this like that, the opportunities develop, if you can do it and you have good locations, we'll outweigh the cost.
But I do think there will be some
Got it. Just one last one. I realize, obviously, it's early days, but we've kind of worked through this pandemic. Have you seen any new sources of demand for space in your centers?
We've seen retailers calling it about the renewals and renewing or negotiating, commencing the negotiations of renewals. It's yes, I mean, anybody needs to factor both sides of the equation. It's not a look at one way thing because, for example, I mean, with referrals and other negotiations, it could result in renewals, not just renewals I was referring to, but renewals that aren't even due, that aren't even up. I mean, I'm sure you would do the same that if a tenant needed some accommodations in a handful of locations that you have, you would say, okay, that's fine. But you have 3 years left on your lease, it's not time to renew.
We'd like to exercise your 1st 5 year renewal. And so we have seen that in the medium term will result in fairly less turnover and longer average used terms. And some tell us who have their renewal Opinel are, but in terms of calling up and saying, you know, you vacancy over there and wherever, we'd be interested in talking about that. Not a lot of that going on. I can imagine everybody's just certainly the last month, I think it was just hunting down in a way for the worst potential scenario.
And but the ones that we were already negotiating, ones that were going on, nobody's really wanted to walk away from those. Those negotiations just sort of been put on pause and everybody's keeping everybody warm. So it's hard to say, it's probably more or less what you'd expect. And now that things are a little bit more clear, 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.
So I don't know, Rudi, if you want to add anything to that.
No, Mitch, I'd say a lot of what was happening is 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 in certain locations they were in. And we were already talking to the likes of service and food and medical and ethnic grocers and Farm Boy's and Dollar Stores. Like we were already in the midst of all of those discussions in the first sort of 2 to 3 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. So we're still we still have all of those alive.
Everything is just right now paused. Yes.
I mean, I don't feel good on them, that's for sure. And that's pretty interesting. But I don't want to play in such a way. I don't want to mix itself in my color. The other thing is, there are some examples.
I mean, we were about to start construction on something or the tenant inside just hucking us to start construction of their new unit in a particular market. It's a solid tenant, a solid company. A farm boy with a TJX and some other retail is all set and ready to go. And they all call out about really getting our unit. We paused it because we wanted, like everybody else, wanted to see what we're dealing with.
But we're talking about short time frame, so we'll update some geological time frame. So a month to us is like an hour in real life. So I mean, it's nothing to pause for a month. But what they wanted and we're the ones who are saying it was just a whole pipe. So, I don't know if that's for a thing.
There's not a great
Thanks very much.
And there are no further questions at this time. I would now like to hand it back over to Mr. Ford for any additional or closing remarks.
No, I appreciate that. Again, I want to thank you all for taking the time to participate in our Q1 call
and to say, please stay safe. Good night.