First Capital Real Estate Investment Trust

TSX:FCR.UN

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the First Capital REIT Q2 2020 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Alison. Please proceed with your presentation.

[Alison Harnick, Senior VP, General Counsel & Corporate Secretary]

Thank you, and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements.A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our Q2 MD&A, our MD&A for the year ended December 31, 2019, and our current AIF, which are available on SEDAR and on our website.These forward-looking statements are made as of today's date, and except as required by securities law, we undertake no obligation to publicly update or revise any such statements.During today's call, we will also be referencing certain financial measures that are non-IFRS measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call.I'll now turn the call over to Adam.

[Adam E. Paul, President, CEO & Trustee]

Okay. Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our Q2 conference call. In unusual and volatile times, there seems to be a hyper focus on short-term metrics. So let's get these out of the way upfront. Our Q2 rent collection number, both before and after adjusting for agreed upon deferrals and abatements is 75% and 93%, respectively. We saw an improvement in July, where these numbers currently stand at 79% and 97%, respectively. And based on what we're seeing thus far, we believe that this will further improve in August.We view these results as decent and improving under the current circumstances. However, they are not indicative of the quality of our real estate and little, if anything, can be taken from these numbers to assess the value of First Capital.Real estate quality is the most paramount element of how our business was built. The driving force behind our real estate decisions is and always will be long-term value creation. At FCR, we have always believed that over time, good things happen when you own great real estate. The capital markets short-term focus will ultimately revert back to real estate fundamentals, and that should serve FCR increasingly well.Leasing is a critical part of real estate fundamentals. Given the environment brought upon by the pandemic and government-imposed lockdowns of much of the economy, it seems that many expect next-to-no leasing has taken place in retail during the quarter, not so for First Capital.During the COVID quarter or Q2, when the government lockdowns were most prevalent, we renewed 438,000 square feet of tenant space, a number which stands well against pre-COVID leasing stats. Not only did we renew a meaningful amount of space, but we achieved a double-digit increase in the renewal rental rates. But how did we do this in the middle of the pandemic? Simply put, a talented team and great real estate.In spite of the pandemic and the temporary and permanent changes that will come as a result, retailers in our portfolio appreciate the long-term value of high-quality locations to their business and how difficult these locations can be to secure.In short, existing retailers are reluctant to give these locations up and new tenants are keen to secure them when they become available. In the second quarter, we also had 131,000 square feet of new tenant openings in a time of restricted opening across many of our markets. A much larger amount of space is currently under active negotiation.Combining great real estate with necessity-based tenancies has allowed us to maintain occupancy and avoid more vacancy on a relative basis to the general retail industry. A review of the many tenant bankruptcies and closures that have occurred, even pre-COVID, but also during COVID, tells the story.As of today, throughout the nearly 5-month COVID period, we have had a total of 142,000 square feet of space come back to us, most of which was offset by new tenant openings. But that doesn't tell you a whole lot beyond, it's a pretty small number in the context of our 23 million square foot portfolio. Allow me to drill a touch deeper.First off, the average net rental rate on this space was only $14 a square foot, well below our average in-place rent of $21.70 and well below market rates for this space. Of the 142,000 square feet that has come back, 63,000 square feet or nearly 45% of it is 1 tenant, Army and Navy, who occupied space in our Langley property, a space that FCR had previously tried to buy back control from this tenant.By the end of June, just a few weeks after we learned of this tenant failure, a new tenant was secured and in occupancy for the entire space. Now this new tenant is more temporary in nature, but it ensured immediate occupancy at a similar rent Army and Navy was paying. We're now in negotiations with several permanent and complementary tenants for the space, including full-size grocery, fitness and others who are prepared to pay market rent, which is significantly higher than in place. This will work out quite well for FCR.Of the remaining 79,000 square feet of space that unexpectedly has come back, the average size is 1,600 square feet and the average net rent $22 a square foot, well below market rates for this type of space. This is a great average size as there is deepest demand for small space. This is a trend that started well before COVID. These small spaces also require less leasing capital, which should help reduce concerns about excessive lease-up capital requirements for COVID-generated vacancies. So not only is the cumulative amount of space very low thus far, it is also very manageable in terms of size, replacement rent and anticipated leasing costs. We have no concern about our ability to re-lease this type of space to great tenants at acceptable financial returns. Carm's team has already re-leased some of it.No question, it is and will continue to be more busy than normal on the leasing side, and we will undoubtedly have more space that comes back to us. However, not all space is created equal. And given the quality of our portfolio, we're very comfortable that we will deal with any such space in a reasonable time frame and in a manner that is both economically viable and creates value for the long term.Notably, we're in a very good position from an occupancy perspective, which currently stands at 96.3%. Our portfolio is generally leased to tenants with viable and profitable businesses. Our grocery stores, pharmacies and numerous other tenants deemed essential through this pandemic have seen an increase in sales. However, some of our tenants who are deemed nonessential were negatively impacted by government-imposed lockdowns and restrictions. Many of these tenants need a bridge over the lockdown time frame. This mix of tenants includes both large and small tenants.So first, I'd like to start with the smaller tenant group. In March, right at the onset of government-imposed closures, we launched our small business support program to provide immediate relief to our small business tenants. Subsequently, the government launched CECRA, which has largely replaced this program. CECRA targets small and medium-sized businesses most impacted by the pandemic. Some view CECRA participation as an indication of an unhealthy tenant base. We view this very differently. As the vast majority of our impacted tenants have profitable businesses that were turned upside down over the last few months, strictly because of the imposed lockdowns, which have now largely been lifted. Furthermore, most of our tenants who qualify for CECRA represent important additions to our tenant mix, especially over the long term. These tenants simply need a bridge to make it through to the other side.Despite the administrative burdens of the CECRA program and the bad debt accounting treatment, we view our participation in CECRA as a wise investment, which should stabilize our long-term value.In the absence of CECRA, our Q2 numbers would look significantly better, but consider the health and viability of our CECRA qualifying tenants. Absent this program, these tenants owed 100% of their rent for the last 5 months. With it, they owe 25%, which puts them in a much better position to adapt, to invest in their stores as we come out of this, and it has also strengthened relationships with FCR.Largely owing to our participation in the program, we made the largest investment ever in our tenant base to help them through this highly unusual period. Besides the fact it's the right thing to do socially, it is indicative of our long-term view on real estate. But this pandemic has not only impacted small- and medium-sized retailers, others, including some very large ones, were also negatively impacted. It's been a lot of work, and we have made progress. Of our 40 largest tenants, all but one have now paid full rent or now have a deal in place with the final one under active discussions.Our approach, however, was slightly different with our large tenants. In many cases, we deferred a portion of rent, and in rare cases, provided some abatement. However, these concessions, especially where an abatement was provided, generally came with lease amendments in FCR's favor. These include the extension of term with meaningful rental rate increases, in some cases. And in others, we secured valuable redevelopment rates at a number of prime super urban properties as well as the relaxation of other restrictions such as no-build areas or use exclusions.In summary, for concessions provided to non-CECRA qualifying tenants, FCR has generally received a meaningful benefit in exchange for rent deferrals and, in some cases, abatement, once again, demonstrating our commitment to long-term value creation. We continue to make progress on our entitlement submissions, most notably in Q2, we submitted our rezoning application for our Christie Cookie property and held a virtual town hall to present this to the community. We are once again pleased to see the continued high levels of engagement from the community. This future development has long been deemed a high priority for the city of Toronto, as it will represent community building, and we continue to make good progress with both the city and metro links. We look forward to continue to providing updates as we achieve future milestones.On our last conference call, we noted that the transaction market had largely been on hold. Since then, we have seen an improvement. Accordingly, we are currently in discussions with several parties on potential dispositions, including on a portion of our density pipeline. While still preliminary, these will be beneficial to our deleveraging objective, which we continue to prioritize.In terms of IFRS values, we continue to use a property-by-property, tenant by tenant approach, which resulted in our IFRS NAV of $22.40 per unit at quarter end. As you know, Q1 included a much larger write-down than Q2. Our auditors, again, noted to our Audit committee, the very high standard FCR has set in terms of the rigor and process around IFRS valuations.Stepping back, the main question regarding the shape of our business is not tied to short-term rent collection numbers, and it's not about how large our bad debt provision will ultimately be from COVID. Barring something drastic and unexpected, Q2 will be the largest charge we take, it's $16.8 million or less than $0.08 per unit. This investment in our tenants is immaterial from a current valuation perspective but perhaps important to long-term value creation. So the main question is, where will vacancy/NOI bottom? And when will we return to pre-COVID levels? That's the real question in our view. Clearly, there is a large disconnect between market expectations and reality thus far.While we likely won't have a definitive answer for a few months, we are increasingly encouraged by what we are seeing in the business. Our investments in CECRA and concessions we have offered to some of our larger tenants will serve to strengthen their respective businesses, and this derisks our future beyond COVID.In summary, things look and feel better than they did 3 months ago at our Q1 call. Nearly all of our retail tenants are now open and doing increasingly higher sales volumes. Our development properties have also resumed with no material impact. Our density pipeline continues to be advanced through the entitlement process. We are in discussions with prospective buyers, and our leasing team has been quite active. It's been a busy period for our team supporting our tenants initially through FCR's small business program and then mainly CECRA. This has and continues to take a huge employee effort so a very big thank you to the many FCR team members who have gone above and beyond, not only with CECRA but everything that has come about during this pandemic. I am more proud of you than ever.Before I finish my prepared remarks, I wanted to touch on ESG, starting with sustainability, which has become increasingly more important to our stakeholders. We are committed to upholding our position as an industry leader in sustainability. Last month, we published our 11th annual CRS report or corporate responsibility and sustainability. Some of the highlights included a 10% reduction in absolute greenhouse gas emissions over the last 5 years; 175 BOMA BEST certifications, representing 76% of our portfolio; and 4 new construction projects achieving lead certification. In December, we were named one of Greater Toronto's top 100 employers by The Globe and Mail for the first time. And in June, we were named one of Canada's top small and medium employers. Our strength in ESG was recognized through numerous ratings, including our AAA rating, the highest possible from MSCI for the past 3 years. We were also an Honoree in the Globe and Mail's inaugural 2020 Women Lead Here List, with 63% of our 8 executive roles occupied by strong women. Beyond gender, FCR has taken meaningful steps regarding equity, diversity and inclusion. While we have a lot more planned in this regard, some of the things we have done so far is establish an equity diversity and inclusion council to evolve FCR's strategy in this area. As well, together with over 200 leading Canadian companies, FCR has signed the CEO pledge for the Black North Initiative to end systemic racism in Canada.In 2020, we will sharpen our focus on ESG further as we work across the company to establish a new 5-year ESG road map.So with that, I will now pass things over to Kay, who will speak about the quarter in more detail. Kay?

[Kay Brekken, Executive VP & CFO]

Thank you, Adam. Good afternoon, everyone, and thank you for joining us today. As we discussed in our prior conference call, tenants representing approximately 50% of our gross monthly rent were deemed essential services during the height of the pandemic, and remained open throughout the quarter. The remaining tenants were closed or operating at reduced capacity early in the second quarter under various provincial directives. Starting in mid-May, governments began to allow phased reopenings of nonessential tenants with the western provinces, where we have 34% of our assets reopening first.Ontario and Québec, where we have 66% of our assets began reopening in mid-June. I am happy to report that as of yesterday, approximately 96% of our tenants are now open for business. Early in the second quarter, we were busy processing numerous rent deferral agreements to support our small tenants, but quickly pivoted to implement the Canada Emergency Commercial Rental Assistance program. Under the program, the property owner abates 75% of the qualifying tenant's gross rent. The government extends a forgivable loan to the property owner equal to 50% of the total gross rent, and the remaining 25% of gross rent is paid by the tenant. This results in a net abatement of 25% of the gross rent by the property owner.In Q2, we recorded $7.9 million of bad debt expense related to this progress. We also recorded an additional $8.9 million of bad debt expense for other potential uncollectible Q2 receivables as a result of COVID-19. The total bad debt expense in the quarter was $16.8 million, which represents approximately 10% of our revenues or $0.075 of FFO per unit for the quarter.The CECRA program was originally applicable for the months of April through June, but has since been extended to include the months of July and August. Tenants who qualified for June, automatically qualify for July and August. As Adam mentioned, we view this program as an investment in our small- and medium-sized tenants, which will assist them through the closure and reopening phase with the goal of getting them back to where they were pre-COVID. As such, we are fully committed to supporting our qualifying tenants and will be submitting applications on their behalf for the full 5-month period from April through August.Given this program extends for only 2 months into our third quarter, we expect to record lower bad debt expense in Q3. The CECRA program largely replaced our small business support program, as all but 100 of the 689 tenants previously approved for this program have opted for CECRA instead. To date, we have approximately 1,600 tenants who applied for the CECRA program, covering roughly 90% or 135 of our properties.Subsequent to quarter end, the Québec's government also confirmed additional details on its contribution to the CECRA program. The Québec's government intends to extend a further 12.5% forgivable loan to the property owner for Québec-based tenants thus reducing the net impact to the property owner from 25% of gross rent to 12.5% of gross rent for these tenants.First Capital did not reflect this additional 12.5% benefit in its second quarter results, as details surrounding Québec's participation were not available at the time our results were finalized. Now turning to our second quarter results. On Page 7 of our conference call slides, FFO per diluted unit decreased $0.095 over the prior year period. $0.075 of this decline was due to the increased bad debt expense, as I previously discussed. $0.02 of this decline was expected and is due to the impact of our disposition program on NOI and on interest expense as a portion of the disposition proceeds were used to reduce outstanding debt.Moving to Slide 8. Same-property NOI increased 1.3% over the prior year when excluding the increased bad debt expense and lower lease termination fees. The growth was primarily due to rent escalations and lifts on renewals.On Slide 9, we highlight our lease renewal activity, which totals 438,000 square feet of renewals in the quarter at an average increase of 10.2%, which is above our 10-year average increase. This was our sixth consecutive quarter of double-digit lease renewal rate increases when comparing the rental rate in the last year of the expiring term versus the first year of the renewal term. We don't typically highlight externally our retention rate on renewals as we view a certain amount of tenant turnover as a positive thing as it allows us to bring new concepts and offerings to our centers. However, I do think it's interesting to note that in this quarter, which we expect to be the most impacted by COVID-19, we achieved an 80% retention rate on expiring leases. This is the highest quarterly retention rate we've seen since Q3 of 2017.On Slide 10, our average net rental rate grew a very strong 5.4%, primarily due to renewal lists, rent escalations and our disposition activity, which continued in the quarter.Moving to Slide 11. Our total portfolio occupancy was largely unimpacted by COVID-19 with only a 10 basis point decline during the quarter. We believe that we will continue to have high tenant demand for our space and as such, low re-leasing risk for any potential vacancy as a result of COVID-19.As highlighted on Slide 12, we continue to advance our super urban strategy in Q2 by further enhancing our portfolio quality through $39 million of development and redevelopment spend focused on our targeted high-growth neighborhoods, while at the same time, disposing of $53 million of properties inconsistent with our super urban strategy. We currently have 600,000 square feet of GLA under development with 67% or 400,000 square feet of this space being residential GLA, all of which is located in the Toronto market.In the first half of 2020, we completed $134 million in dispositions, bringing our total dispositions to approximately $1 billion over the past 18 months. This now puts us 2/3 of the way to achieving our $1.5 billion disposition goal, a goal we set following the share repurchase transaction in the second quarter of 2019.Due to the impact of the pandemic, our disposition program had been temporarily paused throughout most of the quarter, that has since resumed, as Adam mentioned. The average population density surrounding our properties continues to grow and reached 294,000 at quarter end, which is very close to our 300,000 goal and up 89,000 or 43% from January 2016. We've added additional disclosure in our MD&A this quarter.To provide information on our extensive development pipeline totaling 25 million square feet of additional density, of which 7.2 million square feet is included in our IFRS values. We have shown the breakdown of the 7.2 million square feet between active development, which is 600,000 square feet, residential inventory at 143,000 square feet and future incremental density at 6.5 million square feet. We have highlighted that the $512 million value for the 6.5 million square feet of future incremental density included in IFRS relates primarily to the historical cost of this density as we purchased a number of properties with substantial density potential. To date, we have recorded only $128 million of fair value gain on this density. These gains were recognized on properties where we brought in partners at values higher than the carrying value of the assets on our books. Properties where we've assembled the asset over time and marked the historical parcels to current fair market value and properties where we've achieved zoning.Slide 13 shows the factors impacting FFO and the year-over-year changes, which I previously discussed.Slide 14 touches on our other gains, losses and expenses, which are included in FFO.Slide 15 shows our financing activities. We continue to take proactive measures to improve our liquidity and maintain our financial strength, which provides us with greater flexibility as we navigate these uncertain times. Subsequent to June 30, we funded $116 million mortgage at a rate of 2.7%. This is the lowest rate we have ever achieved on a 10-year mortgage. We used the proceeds of this mortgage to repay outstanding balances on our operating line of credit, which enhanced our liquidity.Additionally, one of the measures we announced last quarter to maintain financial strength and flexibility was our cost reduction program. Through this program, we intend to achieve $75 million in savings versus our planned spend for the period April through December of this year. This program includes a reduction in property operating costs and in general and administrative expenses as well as a reduction in development spend and elective maintenance CapEx. Approximately 44% of these savings were achieved in the second quarter and we remain on track to reach our targeted savings goal by the end of the year.Slide 16 touches on our financial strength and flexibility. At quarter end, we had approximately $7 billion or 70% of our assets unencumbered, including the vast majority of our best assets. Our liquidity position as of August 5 remains strong and includes approximately $770 million of cash and undrawn credit facilities.Our term debt maturities are shown on Slide 17. For the remainder of 2020, our maturities totaled just $65 million with $310 million maturing in 2021, all of which could be funded by our existing liquidity.As we look forward to the third quarter, I want to highlight that last year, we reported FFO of $0.34 per share, one of our highest quarters ever. Our Q3 2019 results included some nonrecurring items totaling approximately $6.3 million or $0.03 per share of FFO that will not repeat this year. Additionally, we completed a sizable amount of disposition since the start of Q3 2019, and we do expect to recognize some bad debt expense in Q3 of this year, albeit at a lower level than what we recognized in Q2. As such, we expect our FFO to be lower in Q3 of this year than it was in the prior year.Before I conclude, I would like to recognize and thank our FCR team members who worked so hard to create not 1 but 2 tenant portals during the second quarter. The first portal supported online applications to our small business support program, and the second online portal was created to effectively and efficiently administer the CECRA program. No small feat given the complexity and scope of this program. I would also like to thank all of our team members that supported our 2019 corporate responsibility and sustainability program and our 2019 report, which is available on our website under company then sustainability.Additionally, I would like to highlight that First Capital REIT was added to the S&P TSX Capped REIT Index in June, a key milestone for us in our journey from a corporation to a REIT. We will continue to actively monitor and evaluate all aspects of our business in light of the pandemic with a focus on ensuring we are best positioning our portfolio for future growth. We have and will continue to remain vigilant in following all government directives to ensure the safety of our employees, tenants, customers and neighbors in the communities we operate in. We remain confident that the superior quality of our necessity-based portfolio, which we have enhanced significantly over the past several quarters, has never been more important and will continue to differentiate us in the months and years to come.At this time, we would be pleased to answer any questions you have. Melanie, please open the call for questions.

[Operator]

[Operator Instructions] The first question is from Mark Rothschild.

[Mark Rothschild, MD & Real Estate Analyst]

Looking at the leasing spreads, which remain pretty healthy. Can we learn anything from them from what you achieved in the quarter? I realized sometimes leases take months to work on, and you could have started on things earlier on in the year. But just trying to get any indication on how rents might be moving.

[Adam E. Paul, President, CEO & Trustee]

Mark, yes. I mean -- and we'll see if Carmine or Jodi have anything to add. But what we can tell you is the mix of tenants was about 2/3 of tenants deemed essential by governments and 1/3 not. While the negotiations may have started pre-COVID, these are the deals that actually got signed and committed during the quarter. So certainly, tenants and us would have had the ability to change our mind on things. And so that was not a factor in terms of things got set prior to the lockdowns and then just got formalized during lockdowns. Similar to the 2 dispositions we did, both the tenant and the buyers of those have the ability to change their mind, walk away regardless of when the negotiations generally got started. So we think it's a pretty pure number. Carm, anything to add?

[Carmine Francella, Senior Vice President of Leasing]

The only thing I'd add is that a lot of the discussions were picking up towards the last couple of months of the quarter as tenants started reopening, it started becoming more positive and wanting to engage more.

[Mark Rothschild, MD & Real Estate Analyst]

Okay. My other question is, it seems from your commentary and what I read that, while asset sales, definitely, were going to take a pause earlier, it seems that now you have confidence to resume and that there'll be some activity, to what extent do you think we should see some significant asset sales this year-end? What types of changes in pricing have you seen? And would that depend on the types of assets you're looking to sell, whether it's full interest or partial interest?

[Adam E. Paul, President, CEO & Trustee]

Yes. Look, we're engaged right now on a variety of types of assets. So for the assets we hold, there appears to be decent demand. I think -- and Jodi, I'm sure you have more color to add here. But one of the things that we expected once the markets kind of took a pause is that what I would call the more popular themes today would start to engage first. So today, that would be logistics facilities and to some degree, multifamily assets. And so we started to see that first and then subsequently -- because there was a lot of capital. There was an enormous amount of capital looking for real asset investment in Canada prior to this. And based on the work we've done, almost all of that capital remains available for investment. But obviously, investors, like the rest of the world were -- the world changed quite a bit. So it takes time for people to digest that, review their investment strategies and basically take a more cautious approach. So what it feels like is that we're at the beginning stages of the transaction market resuming. And so there are -- there's a number of transactions in the works, not only at FCR, but in the market. I wouldn't call it deep and broad-based at this point. But certainly, given where we're at in the pandemic, it's been quite encouraging. And the demand, I would say, spans both institutional and private capital. So again, from the assets -- the type of assets we own, which are generally well-located necessity-based retail assets or mixed-use properties or residential density, that's the type of stuff we own, as you know. And like I said, we're engaged right now in a variety of discussions that we would qualify as very preliminary at this point, but very different than where we were 3 months ago on our Q1 call.

[Operator]

The following question is from Sam Damiani.

[Sam Damiani, Director, Institutional Equity Research]

Just on the leasing front, have you done any rent resets or percentage rent deals to date? And do you see this being possible given the current trends that you're seeing?

[Adam E. Paul, President, CEO & Trustee]

Sam, I mean, my guess is yes, Carmine -- because we do those under normal circumstances. But -- so maybe are you asking have we seen an increase in those types of structures. And if you are, correct me if I'm wrong, Carm, but the answer is no. We have not seen an increase in those types of structures. Most of the deals we've done are traditional deals where it's an agreed-upon fixed rent, that's contractual throughout the term.

[Carmine Francella, Senior Vice President of Leasing]

I agree. There's been some discussions in the quarter. But for the most part, we exchanged some short-term rent relief for things that were valuable to us, extended terms and making lease concessions that were -- provide us with long-term value.

[Adam E. Paul, President, CEO & Trustee]

Yes. So what Carmine speaking of is, as we mentioned in our prepared remarks, we had 2 kind of categories of tenants that were subject to some form of concession, ones that fall into the CECRA bucket. And those we left here, tenant qualified. We were supportive. We weren't looking for anything in terms of lease amendments from those tenants. However, we have some very large tenants that have been negatively impacted by this. And with that group of tenants, we did take a different approach. And we did use it as an opportunity to sit down with them and review certain things that they need -- they felt that some short-term relief would be very beneficial to their long-term strength and which we agreed with. But we also use it as an opportunity to get things that are the same for us, which help our long-term strength and value creation. And we felt very good about that just from a social perspective, given the size and sophistication of these tenants to use that as an opportunity, still preserving the relationship. But -- so that's what Carmine's referencing. And in large tenant or what we'll call non-CECRA tenant concessions, it was important and continues to be important for us to review things that either out of that relationship or specific locations are things that we find helpful for us, and we're pursuing avenues to try and secure some of those rights on our behalf.

[Sam Damiani, Director, Institutional Equity Research]

That's great color. And on to that mortgage that you completed at 2.7%, could you identify the property? And is that a rate that you could see replicating throughout your portfolio as you continue to arrange mortgage financing?

[Kay Brekken, Executive VP & CFO]

Sure, Sam. It involved a number of properties across multiple provinces. So I think 6 properties in total and largely focused on properties with a high mix of essential tenants. Do we see that possible to do on additional properties? Certainly, we've had inbound calls from other lenders. And the current interest environment is very attractive. Obviously, managing our secured debt versus our unsecured debt is important to us. Thus we are cognizant of that before we place any secured debt and also looking at any properties where there's redevelopment potential. We're very careful about placing secured debt there as well.

[Sam Damiani, Director, Institutional Equity Research]

And just finally on the King High Line, what's the latest you're seeing there in terms of leasing?

[Adam E. Paul, President, CEO & Trustee]

We're still picking up net absorption, but it certainly slowed through the initial stages of COVID. We've seen a slight increase in tour activity and leasing. Jodi, correct me if I'm wrong, we're about 290 units leased and occupied as of today.

[Jodi M. Shpigel, Senior Vice President of Development]

That's correct, yes. And in the -- Sam, we've -- there's been a number of new leasing signed during the quarter, and we've been able to maintain the rental rates from pre-COVID, so we're pretty pleased with that progress.

[Adam E. Paul, President, CEO & Trustee]

And on the commercial component, which Carm reminded me of, we are now 100% leased. And we actually had at least 1 tenant being Canadian Tire expedite their opening to take advantage of some of the demand or the incremental demand given their business through COVID. So we now have all of our commercial tenants opened, which happened during the quarter.

[Sam Damiani, Director, Institutional Equity Research]

And just on the rents on the apartments holding up, does that include no change to any free rent that might have been given?

[Adam E. Paul, President, CEO & Trustee]

Yes, that's correct. Yes, and still tracking around $4 a foot in terms of rent?

[Operator]

[Operator Instructions] And the following question is from Tal Woolley.

[Tal Woolley, Research Analyst]

You've been in a disposition program, you continue to look to sell some more properties. I'm sure you've received a lot of unsolicited offers for assets over the last period of time. I was wondering if maybe you can sort of characterize where you've kind of seen the most interest when it's been inbound? Has it been in land? Has it been in sort of the mixed-use sites? Or has it been in sort of your more grocery-anchored shopping centers?

[Adam E. Paul, President, CEO & Trustee]

Well, more recently, there's clearly been more demand. And recently, I'd say not just through COVID, but the periods prior to COVID, very strong interest on residential density in specifically Toronto, but also in Montreal and Vancouver. So those properties, we have continued to see very strong interest. All of our super urban mixed-use properties have generally generated very strong interest. And the reality is the plus or minus $1 billion we've sold over the last 18 months, I would have to say we probably saw the least amount of interest in those. But the flip side is we were more proactive and very committed to not necessarily serving the demand of the market, but serving the demand of First Capital strategy, which is to divest of those assets. And obviously, in hindsight, I mean, sometimes you get lucky in this business, so the stuff we've sold with COVID, I think, has really positioned us to fare better through COVID and long-term by not owning at least some of those assets. And Christie is probably the most popular one. We probably get more inbound interest in Christie than probably the rest of our portfolio combined. I mean that's been insatiable. There's probably no major residential developer in the city that has not contacted us over the last couple of years about their interest in that, but it's too early for us to be doing anything on that front with a new partner. But definitely very deep interest for a site like Christie Cookie.

[Tal Woolley, Research Analyst]

Okay. And if we look at the sort of the balance of dispositions that you want to complete, and you mentioned earlier that you were interested or you were potentially open to disposing of some of the density there. Should we expect like -- is that maybe just at the margin or like going forward on dispositions we should maybe expect to see offering nonmanaging interest in some of these density projects be a much more significant component of the disposition program?

[Adam E. Paul, President, CEO & Trustee]

Yes. We're certainly hoping and expecting that to be the case. I mean there's no question that the next meaningful tranche of dispositions are going to be very different than what we've done to date. The reason is, we just don't own very many assets anymore like the ones we've sold. So that puts us in a different position. One of the reasons -- well, there are several, but a couple of the main reasons we are focused on monetizing some of the density pipeline is, number one, it offers a very compelling combination of deleveraging, but managing FFO dilution where is obviously income-producing assets. And especially the higher-yielding ones like we've sold less balancing of leverage metrics with FFO dilution. So that's one factor. Another is, we know that there is a lot more inherent value in the density pipeline than as generally we have received credit for in the market. And so we think it's important to monetize some of that density through third-party transactions with strategic partners. That's not the sole reason we're doing it. But certainly, a benefit, we believe we will get out of it is more comfort for investors to allocate at least some reasonable amount of value to some of that pipeline, which is not reflected at all, in some cases, in our own NAV, but certainly in some others. So we are quite focused on monetizing density. It's great density, and we're in a bit of a volatile market. So we're certainly not going to sell it cheap. But there are a few transactions in the market not involving us that are very supportive of specifically Toronto density values holding in very firm and that's the vast majority of our pipeline. So that's what we're working on. Still early days. But yes, you definitely should not be surprised if at some point, we do a meaningful transaction on some of our density.

[Tal Woolley, Research Analyst]

Okay. And then I guess this question is for Kay. Cost-saving measures you guys had announced a program, how far are you sort of through that process? And how much of that do you feel is reflected in the current quarter's results?

[Kay Brekken, Executive VP & CFO]

Yes. We would say that right now, in Q2, we achieved 44% of the savings to date, and we feel very comfortable with the $75 million number that we will get there by the end of the year in terms of what we were targeting to save.

[Tal Woolley, Research Analyst]

Okay. And then just lastly, can you just enlighten us on any recent conversations you've been having with ratings agencies just about how they're kind of viewing ratings in the context of this pandemic?

[Kay Brekken, Executive VP & CFO]

Sure. So our most recent conversations were with DBRS because they were doing their annual review process. And as we disclosed in our MD&A and as they also disclosed, they have confirmed our rating with a stable outlook. I think our discussions have been a normal course and typical questions that all of our investors and our analysts have been asking has been the nature of the conversations. Our rating agencies have continued to say they plan to break through the cycle, which we view as a positive sign. Obviously, there's less uncertainty than there was previously. So I think that's a positive in terms of where the environment has gone since discussion started at the beginning of the pandemic. And we will continue to remain in touch with them as we always do in providing normal and regular course updates on our business.

[Operator]

The following question is from Jenny Ma.

[Jenny Ma, Analyst]

Just on the topic of dispositions. So I'm just wondering with the additional color on selling some of the density that you have, is that incremental to sort of the $1.5 billion that you've mentioned before in terms of selling your secondary market IPP? Or is it a part of that number?

[Adam E. Paul, President, CEO & Trustee]

No, it'd be a part of that number. We've always said, we don't have $1.5 billion worth of real estate in secondary market. So it was always a fraction of that total. And we're largely through that. So yes, it would be part of the total.

[Jenny Ma, Analyst]

Okay. And I know you mentioned, Adam, that you're going to be doing what's best for First Capital in terms of lease dispositions. So would it -- and given what you said about the reasons why you're focusing more on selling into the density? Would it be fair to presume that it's going to be more heavily tilted towards the density sales, assuming that the market is going to be there? And it sounds like it probably should go out to?

[Adam E. Paul, President, CEO & Trustee]

We hope so, but we've got a lot of irons in the fire right now, and it's a very fluid environment. So I think it would be premature to confirm that. But certainly a possibility and one that would work quite well from our perspective. But there are other scenarios that also work quite well. And it's really just too early to tell where it will all shake out over the next few months.

[Jenny Ma, Analyst]

Okay. And also in terms of the timing of these discussions, is it fair to presume that some of these things are going to be taking a little bit longer than normal. So in terms of actual closings it will probably be towards late at the end of this year and into 2021? Or is there anything that's more on the imminent side aside from what's held for sale on the balance sheet?

[Adam E. Paul, President, CEO & Trustee]

Yes. Again, it's a bit early to tell. Look, I think in an environment like this transactions, even at this stage are more likely to take slightly longer than shorter than they did before. But the environment has changed so much. And we look at the state of the business, the answers to a lot of unknown questions. We're feeling a lot better today than 3 months ago. It feels like a lot has changed since then. But -- so we'll continue to pursue business activities that we think are in our best interest, and we know some of them will not materialize, and we strongly believe some of them will. But yes, I think in terms of anything meaningful, given we've stated we would describe the discussions at more of the preliminary stage that -- and given we're sitting here in August, kind of end of year is probably realistic to be the earliest time frame?

[Jenny Ma, Analyst]

Okay. Great. And then another question on the leasing activity. So it's great to see such strong leasing spreads. I'm wondering if the leasing was basically done sort of in the normal course, like in terms of comparable terms as pre-pandemic? Or were there any other incentives that you had to give to secure those renewals in Q2?

[Carmine Francella, Senior Vice President of Leasing]

Can you ask the question again, sorry?

[Adam E. Paul, President, CEO & Trustee]

Are you asking, Jenny -- are you asking if our deals were more normal course? Or did they include special things like inducements or incentives to get the tenants to renew?

[Jenny Ma, Analyst]

Right.

[Carmine Francella, Senior Vice President of Leasing]

No, they're normal course renewals.

[Adam E. Paul, President, CEO & Trustee]

Normal course renewals.

[Jenny Ma, Analyst]

And I presume that, that's probably been the case for Q3 so far?

[Adam E. Paul, President, CEO & Trustee]

So far.

[Operator]

And there are no further questions registered at this time. I'll turn the meeting back to Adam.

[Adam E. Paul, President, CEO & Trustee]

Thanks very much, Melanie. Thank you very much, everyone, for taking the time to attend our Q2 conference call. We look forward to virtually seeing you at our AGM next month. Have a great afternoon. Thank you.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.