First Capital Real Estate Investment Trust

TSX:FCR.UN

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the First Capital REIT's Q3 2020 Results Conference Call. [Operator Instructions]. I would like now 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 forward-looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our Q3 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]

Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our Q3 conference call. Some of the positive signs we saw emerging towards the end of Q2 continued through the third quarter, resulting in FFO that was ahead of expectations, entirely through higher-than-expected NOI.This is owing to a number of things, including the resiliency of many of our tenants who were categorized as nonessential by governments. A good number of these tenants reopened and performed well, which is a tribute to both their ability to adapt and the quality of our real estate. Real estate fundamentals and consequently, asset quality are paramount at FCR and have been since our start 20 years ago. I'll focus on that theme today with my comments.So let's start with leasing. Our leasing activity through the pandemic has been strong. In Q2, despite the fears raised by the pandemic, we did a substantial amount of leasing. Following reopenings that took place, Q3 was even better. Since both quarters were squarely during the pandemic environment, I'll speak to them on a combined basis.We completed a total of over 1.3 million square feet of leasing activity across 346 transactions during the last 2 quarters. This volume was comprised of 2 components: the first is renewal activity, which totaled 1 million square feet and spanned a wide array of tenant categories from grocery stores to medical, to restaurants, to gyms. Roughly 60% of this leasing was the tenants who were deemed nonessential by government and 40% that were redeemed essential. For clarity, we consider all of our tenants essential to our efforts to create thriving neighborhoods regardless of how governments classify them during a global pandemic.Heading into this year, we had 38 bank expiries totaling 213,000 square feet in 2020. We have now renewed all 38. The average rent increase across all 1 million square feet of renewals during the last 2 quarters was a healthy 9.2%, consistent with our 10-year average of 9.3%. Our renewal volume also compares well to our historical volume.The second component is our new leasing activity. In Q2 and Q3, we completed just under 300,000 square feet of new leasing on vacant space. Roughly 70% of this new leasing was the tenants, who were deemed nonessential by government. Net rental rates for the new leases in Q3 were consistent with pre-pandemic levels averaging $24 per square foot, roughly 10% higher than in-place rents.We're also encouraged by our pipeline for space that is currently under active negotiation. As always, internal targets for lease-up and tenant mix have been considered and set for all vacant space. We do not operate in a take-what-you-can-get mode. We never have.Enhancing our tenant mix with new retail concepts remains an important part of our strategy. We've added some unique retailers over the last few months. Couple Diamonds is one of our newest tenants in Yorkville Village mall. This innovative concept is a leader in omnichannel retail and aligns well with FCR's ESG focus. For those who aren't familiar, Couples is a digitally native, leading seller of lab-grown diamonds that are chemically identical to mine diamonds, but with a much more positive environmental and ethical impact.Another new tenant that will soon join Couples in Yorkville Village mall with a flagship store is Polestar. Polestar is a global design-focused electric performance car brand. They have a new take on automotive retail, which utilizes carefully designed unique retail environments instead of conventional dealerships.Both tenants are great additions to our offering in Yorkville and are indicative of continued demand for high-quality space in a very dynamic retail marketplace. In fact, our luxury retailers in Yorkville, such as Brunello Cucinelli, Chanel and Versace sales over the last few months have exceeded the same prior year periods.A bulk of our leasing activity continues to come from uses more typical to FCR, including grocery, pharmacy, pet stores, medical uses and restaurants, among others. Yes, we have been doing active deals with restaurants. We have many types of restaurants, and they have been impacted by COVID differently. So this quarter, we have broken the category down further in our MD&A and investor presentation to reflect these differences.Restaurants as a category comprise 14.6% of our rental revenue. Now the components. Quick service restaurants or QSRs have performed quite well with many of our QSR tenants experiencing sales growth over the same prior year period. This group is typically in smaller spaces, sometimes with drive-thrus and are continuing to generate meaningful sales through take-out and delivery and to a lesser extent, right now, in-store dining, where permitted.Coffee shops and national chains are other subcategories, both of which are generally comprised of retailers who have the wherewithal to come through this in prosper, even those in which sales are down.Together, QSR, coffee shops and national chains represent the vast majority of our restaurant category at 12.9% of total rent. The remaining ones are generally comprised of sit-down restaurants that were profitable pre pandemic. However, this group continues to require support.We believe these restaurants will once again become vibrant hubs of the thriving neighborhoods in which we operate. Government aid is well targeted to this group, including the new CERS program. At 1.7% of FCR's rental revenue, this is a fairly small category, but very important to our long-term tenant mix. So we will do our part as well to support them through.We continue to feel good about what we're seeing on the ground and specifically leasing. Market reactions to retail real estate since the start of the pandemic would indicate that many are taking a macro generalized approach. A great majority of investors have not spent time at our properties. This makes it more difficult to recognize the qualities which differentiates FCR from other real estate companies. These include the strength of our locations, our focus on demographics, the above-average performance of our essential tenants and our leasing and operations teams, among others.The physical interaction with real estate provides 1 with a very important perspective. I vividly remember the Great Recession of 2008 and 2009. Like today, there was a very significant disconnect between public market valuations of high quality REITs and the value of their underlying real estate in the private markets or said differently, their net asset values. Like every other crisis, when this has occurred, private market values held and public market values rebounded, although that was never an obvious outcome in the midst of the crisis.I also remember how encouraging it was to spend time at properties and to see what was actually happening on the ground. Real estate has always been a local business and experiencing properties and neighborhoods has always been an essential part of assessing their health. My colleagues and I continue to do just that, although we do it in a larger bus these days. We allocate full days to tour properties together in a safe, socially distance way. And what we're seeing is reassuring and encouraging.Our properties are busy. They're typically the most productive grocery-anchored centers in each of the trade areas in which we operate. Our long-term commitment as the industry leader in property operations for our product type is shining through. Whether it's the additional weather protection measures being installed to manage line queuing as winter approaches or FCR's quick shop, which was rolled out nationally to facilitate curbside pickup and buy online, pick up in store, something that we have now made permanent.We don't just tour our own assets. We also tour competing properties in each respective trade area. We observe how well grocery stores are stocked, which is an indicator of their volume and turnover. We look at access, signage, cleanliness, energy efficiency, parking lot and building conditions and much, much more. We focus on merchandising mix.We speak to store managers and gather valuable information on these tours, and we come away with an on-the-ground sense of how properties are doing, what we can do to improve ours and a lot of raw material for valuable brainstorming sessions that result in action plans. We can't take you with us on these tours. So instead, we have started filming the typical activity at our properties and are releasing short videos of submarkets that cover our portfolio in attempts to bring the on-the-ground sense a little closer.At this time, please refer to Page 4 of our conference call deck. There's a video link that's embedded in the slide, and I would ask you to now please click on it, to play the video. This is our GTA West portfolio comprised of Oakville, Burlington, Brampton and Mississauga. This video footage was all shot during the last 2 weeks. So you get a very current sense.While the activity is evident, I'll provide some additional details on this portfolio. It includes 11 properties totaling 1.7 million square feet on 160 acres of land. It represents roughly 8% of our total portfolio value and carries an IFRS value that is well below current replacement cost. The current occupancy of this GTA West portfolio is 97.6%. Every property with 1 small 20,000 square foot exception as a grocery or food store. The majority of our grocers report sales on an annual basis, which averages $725 per square foot in this portfolio. A very healthy number that will increase substantially once 2020 sales are included.So in summary, an exceptional, well-positioned portfolio that I encourage you to visit, seeing really is believing. While the video is wrapping up, I will finish with ESG. It's wonderful that many of our peers have started to focus on this topic. This is great for our industry. As an ESG pioneer in the real estate sector, we have earned our right as a leader in this area, which means we're able to leverage our position by holding more of our stakeholders accountable to our high ESG standards. We have a track record that includes 11 years of commitment to publishing an annual ESG or CRS report that outlines our activities in progress. Looking back, it included multiyear greenhouse gas emission reduction targets that started 10 years ago. That was also the time frame when we started installing electric car charging stations at our properties. And in 2006, nearly 15 years ago, we committed to building all new developments to lead standards. Our team members fully appreciate that being an industry leader in ESG is business as usual for FCR. It has been long embedded in our DNA and our culture. It is also deeply and naturally intertwined with our super urban strategy.Building on our ESG track record and platform, we are nearing completion of our new 5-year ESG road map that is the most detailed, wide reaching and ambitious set of targets that we have tackled. These targets are good for employee retention, recruitment and engagement, reducing our carbon footprint and reducing operating expenses for our tenants. Simply, it's just good for business. We look forward to sharing further details in due course. Before I turn it over to Kay, I do want to touch on CFO succession. As you know, Kay is soon retiring from full-time executive life. I will hold my departing comments for her until our next conference call. We recently announced that Neil Downey will soon join us as EVP Enterprise Strategies and CFO. Given the opportunities and challenges that lie ahead, his unique skill set will be very beneficial to FCR and our stakeholders. We're thrilled to have someone of Neil's caliber join our leadership team, and we look forward to formally welcoming him very soon. So there's been a lot going on at FCR, and the team has made very meaningful progress. With that, I will now pass things over to Kay to review our 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 mentioned in our press release, we collected 92% of the gross rent due in the third quarter. 86% of the rent due was collected from our tenants directly and 6% was collected from the loan proceeds under the CECRA program.In Q2, we collected 75% of the gross rent due from our tenants. Subsequent to quarter end, we collected 7% from the CECRA loan proceeds bringing our total cash collections for Q2 to 82%. To date, we have collected 90% of the gross rent due for the month of October from our tenants directly. We expect this number to increase as all final payments are processed and as tenants receive funds under the new government support program referred to as CERS, which has not yet been launched but will be applicable starting with October rent. It's important to note that our cash collection rates for Q2 and Q3 do not include the application of any tenant security deposits nor any payments to tenants to secure development rights that were in turn applied to rent collection. We continue to support our small and medium-sized tenants by fully participating in the CECRA program for all applicable periods, including April through September. As a result, we reported a total of $13.4 million of bad debt expense related to this program, including $7.9 million in the second quarter, and $5.5 million in the third quarter. As we mentioned on our second quarter conference call, we took a conservative approach to establishing our Q2 provision as we were still accepting CECRA applications at that time and had not finalized deals with a number of our non-CECRA tenants. At the end of the third quarter, we trued up our provision for the actual number of applications received under the CECRA program, which was lower than our original estimate for actual approved deals with our non-CECRA tenants, and for the Québec CECRA support totaling $500,000 for the second quarter as we received confirmation in the third quarter that this program was proceeding. This resulted in a $2.1 million reversal of our provision in the third quarter and bad debt expense of $3.4 million, which was much lower than the $16.8 million we recorded in Q2.Year-to-date, we recognized $20.2 million of bad debt expense, representing 6% of our total revenue for the second and third quarters. The $20.2 million includes $13.4 million for CECRA program and $6.8 million for other tenants. As of today, 97.3% of our tenants are open in our portfolio versus 96% as of our Q2 reporting date.Now turning to our third quarter results. On Page 8 of our conference call slides, FFO per diluted unit decreased $0.08 over the prior year period. A good portion of this decline was expected, given we recognized $8.7 million or $0.04 per unit of nonreoccurring gains and fees in the third quarter of last year.Of the remaining decline, $0.02 was 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. $0.015 was due to lower interest income due to reduction in our outstanding loans and mortgages receivables. Additionally, FFO was down due to lower same-property NOI, primarily as a result of higher bad debt expense related to COVID-19.Moving to Slide 9. Same-property NOI decreased 5.4% over the prior year for the reason I just mentioned.On Slide 10, we highlight our Q3 lease renewal activity, which totaled 589,000 square feet of renewals completed at a record average rate of $25.20 per square foot. Our year-to-date lease renewal rate increased at 11% is very strong and above our 10-year average increase.On Slide 11, our average net rental rate grew a record 5.8% over prior year. As our strong renewal lift, built in rent escalation, new tenants opening at higher rates, developments coming online and the impact of our disposition program are all driving higher rental rates.Moving to Slide 12. Our total portfolio occupancy decreased 30 basis points from the second quarter, primarily due to the impact of COVID-19. It's important to note that some of this increased vacancy has already created attractive opportunities for us. We have negotiated replacement deals with stronger tenants paying higher rents in 2 of the largest locations that contributed to the increased vacancy. Additionally, one of the other larger vacancies will also allow us to add a use that we don't currently have to one of our centers, ultimately enhancing the overall performance of the entire center.Based on what we know today, we are expecting our Q4 occupancy rate to remain relatively stable and will continue to capitalize on any future vacancy by improving our merchandising mix to drive higher rental rate growth.Slide 13 highlights our largest active developments, which are primarily residential projects located in Toronto. Year-to-date, we've completed $134 million in dispositions, bringing our total dispositions to $1 billion over the past 18 months, putting us to 2/3 of the way to achieving our $1.5 billion disposition goal.As of September 30, the average population density surrounding our properties surpassed our previously stated goal of reaching 300,000 by 2021. This represents an increase of 96,000 or 47% since January 2017. And we remain the North American leader amongst our peer group on this metric.Slide 14 shows the factors impacting FFO and the year-over-year changes which I previously discussed.Slide 15 touches on our other gains, losses and expenses, which are included in FFO.Slide 16 summarizes our ACFO metric. ACFO for the quarter increased primarily due to lower capital expenditures as part of our cost reduction program, which I will discuss shortly.Slide 17 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 to navigate through the pandemic.During the third quarter, we funded a $116 million mortgage at a rate of 2.7%, which is the lowest rate we have ever achieved on a 10-year mortgage. In addition, we completed a $200 million unsecured debenture offering with a term of 7.5 years. We used the proceeds from the new mortgage and the debenture offering to repay higher rate maturing debt and outstanding balances on our operating line of credit, which enhanced our liquidity which now stands at $835 million.Additionally, one of the measures we announced in the first 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, general and administrative expenses, development spend and elective maintenance CapEx. To date, we have achieved savings of approximately $67 million or 89% of our goal and are well positioned to exceed our savings goal by year-end.Slide 18 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 very best assets. Our liquidity position as of November 3 remains strong and includes approximately $835 million of cash and undrawn credit facilities.Our term debt maturities are shown on Slide 19. For the remainder of 2020, our maturities totaled just $3 million with only 6.3% or $302 million of our total debt maturing in 2021, all of which could be funded by our existing liquidity.In terms of our credit ratings, earlier this week, S&P completed their annual review and confirmed their previously assigned rating of BBB minus with a stable outlook.Before I conclude, I would like to recognize and thank our property management team across the country who are FCR's frontline workers. They have done a tremendous job managing our properties and demonstrating the leadership in tenant relations, and working closely with our tenants and service providers throughout the challenges of the pandemic to ensure we were providing a safe environment and adapting to government restrictions and protocols to meet the needs of our tenants, our customers and the communities that we serve.At the same time, they were focused on implementing critical tenant support programs across our portfolio, including our quick pickup program, which facilitates convenient and safe curbside pickup, and administering the coordination of our FCR small business support program, and then transferring their efforts to support the CECRA program. A huge thank you to our entire team of frontline workers for their dedicated efforts and commitment over the past several months.I am also very proud to announce that last week, our urban property, Shops of Oakville South, located in Oakville, Ontario won the BMO -- won the BOMA, sorry, Canada Outstanding Building of the Year Award in the retail building open air category. This award recognizes excellence in property management and acknowledges the performance quality and the people behind it. Judging is based on extensive criteria, including building standards, community impact, tenant relations, energy conservation, sustainability initiatives and emergency preparedness. A well-deserved recognition of the hard work and dedication of our property management team members, which truly demonstrates the FCR values of collaboration and excellence and leading through proactive management.As we navigate through the pandemic, we continue to closely monitor and evaluate all aspects of our business, with a focus on ensuring our portfolio is best positioned for future growth. We have been and continue to be fully committed to supporting our tenants through the pandemic. Through our small business support program and full participation in the CECRA program, we have invested in the financial health of these tenants and will continue to support them in our centers as we all adapt to new realities. We remain confident that the superior quality of our necessity-based urban portfolio 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. Chris, will you please open the call for questions?

[Operator]

[Operator Instructions]. First question is from Pammi Bir.Mr. Bir, are you there? Pammi Bir?

[Pammi Bir, Analyst]

Yes. Yes, I am sorry about that. I was on mute there. Just from a disposition perspective, what can you share with us in terms of the interest that you're seeing currently?

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

Pammi, on dispositions, yes, I mean we expanded on it last quarter. So conditions have improved a little bit since then. So we're engaged in several discussions. Some things are under conditional agreements. Some are in negotiations. We increased our held for sale assets somewhere in the neighborhood of $100 million from Q2.And so we're optimistic that we'll get some of these done. And everyone that we're working on, we think is a good transaction for FCR. And they are taking a bit of time, but that's understandable for a variety of reasons. But we're making progress.

[Pammi Bir, Analyst]

Great. Just, I guess, in terms of the $130 million, can you just describe the mix of that -- I guess, those assets?

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

Yes. It's a mix of some of our more mature, stable IPP assets that are more on the periphery of some of the super urban neighborhoods we have. So that's 1 group. The other is development and density related.

[Pammi Bir, Analyst]

Okay. And just in terms of you -- kind of think of your budgets next year, do you have a target, let's say, in terms of what you'd like to get to from a debt to asset or debt-to-EBITDA perspective?

[Kay Brekken, Executive VP & CFO]

Pammi, we're still in the process of setting our final business plan for next year. So at this stage, we're not giving guidance on specific targets. What I've said previously is we're still committed to the targets in terms of debt to assets and debt-to-EBITDA that we had previously stated, which is returning the metrics to where they were at the end of 2018. Obviously, it's going to take us longer in light of the pandemic, but those targets remain unchanged.

[Pammi Bir, Analyst]

Got it. And I guess just in terms of the development spending for the year ahead, how do you see that shaping up for 2021? And if you could just comment on, I guess, your expected sources of funding?

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

So again -- sorry, go ahead, Kay.

[Kay Brekken, Executive VP & CFO]

So Pammi, as I just mentioned, we're still in the final stages of setting our business plan for next year. So we're not going to give specific guidance on development spend for next year. We'll hope to provide more of an update with our Q4 release. In terms of funding and any development spend, our primary source of funding would be retained cash flow from operations as well as proceeds from our disposition program.

[Pammi Bir, Analyst]

Got it. I guess maybe just 1 last one. Nice to see, I guess, some of the encouraging signs on the leasing front, even at Yorkville. So can you just comment on those leases at Yorkville Village? The terms or how the rents compare to the existing in-place rents at that property?

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

Yes. Look, the mall, as you know, has gone through a massive transformation over the last number of years. And as a result of that, market rents have increased annually at a much higher rate than the general market. That's held through right through the pandemic. So the 2 leases that we spoke of are the highest rents we've ever done in the mall on a per square foot basis. But I just want to clarify, they are very much reflective of market rents and the trend that's evolved in that neighborhood.

[Operator]

The next question is from Tal Woolley.

[Tal Woolley, Research Analyst]

Just wondering on the entitlement side how progress is going there? Do you have any sight lines to any announcements? I just wonder if the sort of municipal infrastructure to do all that stuff is kind of gearing back up at the same pace you expected?

[Jordan Robins, Executive VP & COO]

Tal, it's Jordie. Thanks for the question. So as you know, we've made a number of entitlement submissions prior to 2019. A lot in 2019 and, of course, in 2020 as well. All of them are going according to plan. I can't get into too much detail, of course, because we don't want to prejudice our position as we're working through them with the municipalities across the country, but all of them are proceeding. We really didn't see any material downtime at all during the earlier days of the pandemic. So we're feeling pretty positive about the whole program.

[Tal Woolley, Research Analyst]

Okay. And then just in terms of the operating performance of the portfolio. You've got some obvious properties like -- I'm thinking like the Hazelton Hotel, stuff like that, where there's clearly been a change in the operating environment. And are those -- like is a property like that still like contributing net dollars to NOI at current point? Because I'm just trying to see if we could expect sort of -- as that business ramps up a significant jump?

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

No. I mean the -- when I say no, what I should say is, obviously, the NOI in the hotel is down. But in terms of the bigger part of your question about, should we see a material uptick on the other side of this, the hotel is exceptionally strategic from a real estate perspective, but it's a 77-room hotel. So we got to put the size into context.And so I wouldn't expect -- it's not going to materially impact on the down part of this environment, which we're in the midst of now. And conversely, we started -- we had the best year the hotel has ever had in its history coming into this, and we expect to get back there. We don't know exactly when. But it's going to be similar on the upside, where it's not that material either.

[Tal Woolley, Research Analyst]

And the same thing would be true for like a development asset that's still kind of leasing up like King High Line, like it is contributing net NOI dollars right now into the overall portfolio?

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

Yes, it is. And we've actually done a bunch of leasing there in the last quarter. So we're actually up -- we're about 75% leased there now. So we've leased about 50 units since last quarter, still on track, and targeting around a $4 square foot rental rate.

[Tal Woolley, Research Analyst]

And what's the last piece of that project to be completed?

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

The bridge...

[Tal Woolley, Research Analyst]

It's the bridge?

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

The bridge that connects -- yes. So you would have seen a bit of a delay in what we call the completion point. So one of the things we're revisiting is whether we can lay out some of those time lines in a more meaningful fashion because the bridge that connects really not only that project but the neighborhoods on the North side of King Street to the main Liberty village neighborhood, that south of King Street, where our offices and where our larger holdings are, that will be the last piece that gets completed.

[Tal Woolley, Research Analyst]

Okay. And then just maybe following on where Pammi was going with development, should we expect like a more meaningful update to the development pipeline at the end of the year or 2?

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

When you say a more meaningful update to the development pipeline...

[Tal Woolley, Research Analyst]

Just on the active -- yes, sorry, on the active side, because there's a number of projects there that are sort of smaller and like that -- the similar projects have sort of been there with these smaller tail pieces like King High Line on it. And I just wondered if there will be like kind of a more meaningful refresh of that as we move out into like 2022 and beyond.

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

Yes. Well, are you getting at new projects being added to the pipeline as active projects?

[Tal Woolley, Research Analyst]

Yes.

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

Yes. I mean, look, we're going to be very careful on new development starts. There's no question, it's a more cautious approach right now than it was, say, 9 months ago. Our decision to proceed on projects at the time that was, I guess, originally planned, will be impacted by a variety of factors, including our progress on dispositions, the position of our balance sheet, the risk that we perceive in the development, whether it be on the cost or revenue side, managing the size of any individual project within the context of our overall program and just general market conditions.So -- I mean as great as things have been progressing inside the business, it doesn't take more than us looking at the stock screen to say we're not in a normal environment here. And so that's not lost on us. And decisions like starting multiyear development projects certainly are impacted by that, and we'll have to make those decisions at the time. But yes, there's definitely -- the environment is different than it was 9 months ago from development for a whole bunch of reasons.And as Kay mentioned, we still have our deleveraging targets that are a high priority for us. So that's going to weigh in. And the progress we make on that and the progress we think we will continue to make going forward will be important parts of those decisions as well.

[Operator]

The next question is from Sam Damiani.

[Sam Damiani, Director, Institutional Equity Research]

Just wanted to touch on market rents and leasing costs. Where would you say they are today relative to pre pandemic and has there been any change versus maybe in the summer in Q2 versus your expectations?

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

Sam, we've done a lot of leasing. And I've got to tell you, we have not seen much of a change both in terms of market rents or leasing costs. The only area where we've seen a change is, we've done new leasing with categories that are amongst the most challenged in this current environment, which includes gyms and some restaurants. And so in some cases, a typical fixturing period may have been 45 or 60 days. Now it's kind of 90 days, in some cases, 120 days to give ample time to not only get the space ready but also provide a bit of a buffer given some of the targeted restrictions that have been put in place. So -- Carm, do you have anything? I know on the cost side and the revenue side, things have been like very consistent. We've seen a bit of an uptick in some of the fixturing periods, but very targeted to some of the more restricted categories. Anything else that we're seeing?

[Carmine Francella, Senior Vice President of Leasing]

Early on during COVID, we saw some tenants being apprehensive. Now coming out of the quarters, we're seeing a much stronger tenant demand, especially from categories like QSRs, like gyms, and some value retailers. So the demand is still there and it is getting stronger every month. And we're building a pipeline. The pipeline is, I would call, normal.

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

Yes. When they first hit in the spring, I think it was a really shocking environment for everyone, including our retailers. But notwithstanding there's been a spike in cases, this wave is very different than the first wave, and it feels very different in our business. A lot of our tenants have adapted quite well, and they have an eye on the future and, to Carm's point, the activity has been decent. But to your original question, we have not seen a big change in terms of rents or costs. And we've done a very significant amount of leasing. So I think we have a good data set to look to.

[Sam Damiani, Director, Institutional Equity Research]

Yes. That's excellent color. And then I believe you were mentioning Q4 occupancy should be relatively stable. The same-property NOI growth has been down notably in Q2 and Q3, but if you just set aside bad debt expense, which is always a bit of an unknown, and just look at Q4, obviously, you'll have a hotel in there moving the needle a bit on same property. But what would you guess would be a good same-property NOI growth target for Q4?

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

If you adjust Q2 and Q3 for bad debt, we generally came in low single-digit growth. And that's probably our best guess right now. And I'll note, we did that low single-digit growth on lower occupancy.

[Operator]

[Operator Instructions] The next question comes from Jenny Ma.

[Jenny Ma, Analyst]

I want to dig into the bad debt reversal or the total for Q2 and Q3 a little bit. Kay, you had mentioned there was a bunch of true-ups on both the bad debt and the CECRA. So I just wanted to confirm that the $13.4 million total for CECRA is a clean number, which means the bad debt of $6.8 million for the 2 quarters is also a clear number, is that they're in the right buckets?

[Kay Brekken, Executive VP & CFO]

Yes. So the CECRA program has now closed. All applications have been submitted. So that is a complete and final number. The number for the other tenants is still an estimate because within there, there's rent deferral, and we've assumed some of it's not collectible, for example. So that's still an estimate. Some of it is yet to be determined. So in Q4, we will continue to assess things and we'll make up any true-up if required.

[Jenny Ma, Analyst]

Okay. I'm just trying to think of how you would -- and I don't -- you probably don't have a perfect split, but how you would look at the trend of how bad debt moved from Q2 towards Q3? And what I'm really getting at is sort of how to think about it for Q4 because I would presume there'll be some residual bad debt. Just wondering how you're seeing it trend?

[Kay Brekken, Executive VP & CFO]

Oh sorry, I was on mute. I was talking to Jenny and I guess you couldn't hear me. So sorry. We provided in our conference call deck the amount of abatements for non-CECRA tenants and the amount of deferrals for non-CECRA tenants, both in Q2 and Q3. So if you look at those numbers, you can see that they are trending down, and that is what we would expect in the fourth quarter as well. We would expect a further trend downward.

[Jenny Ma, Analyst]

Okay. Great. I'll take another look at that. With regard to the new program with CERS, this is probably just anecdotal, but I'm wondering how the, I guess, former CECRA tenants have done in terms of paying October rent. I know it was pretty strong in October as well because there's a little bit of a downtick. But just anecdotally, have you seen any sort of -- have those CECRA -- former CECRA tenants been able to sort of pay the full October rent and then deal with the government funding at a later time?

[Kay Brekken, Executive VP & CFO]

So what we're seeing, in terms of the CECRA tenants paying October rent, about 70% of them are paying October rent. As I mentioned in my comments, we do expect that a number of them are waiting for the funds to flow in under the new CERS program, and that will ultimately increase over time as those government funds flow.

[Jenny Ma, Analyst]

Okay. Great. And then moving on to the held for -- the assets held for sale bucket. You talked about the different sort of types of assets in there. Is there any sort of delineation between locations? Or is it concentrated in the GTA? Are you able to give us any color on that?

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

It's not concentrated in a specific geography, Jenny. It spans pretty much every market that we're in.

[Jenny Ma, Analyst]

Okay. Great. And then lastly, could you comment on what you're seeing in the transaction market in general? We've been hearing a lot about bid-ask spreads on -- lots of different kinds of retail assets being quite wide. And we've seen some tick-ups in cap rates in certain markets. Although the transactions aren't happening, it's hard to put these data points in.So what have you been seeing come across your desk? And perhaps maybe in some of the held for sale assets, have you seen any sort of moves on cap rates for retail assets?

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

Yes. Look, we can only speak to the assets we own and the assets we're selling. We're not experiencing what you noted. So the length of time that the transactions are taking are less about spread between bid-ask, more around more in-depth due diligence for people to get comfortable on cash flows.Look, there's talk of cap rates, cap rates going up. The reality is the impact of a low interest rate environment is very beneficial to cap rates. Clearly, that's not been factored into cap rates or valuations at this point. But I think once people get more and more comfortable with the durability of cash flows, there's no question that based on financial theory, a dollar of cash flow earned today in this interest rate environment is worth more than it was before.So that's a bit of a bull case scenario that can very well play out. We'll see what happens. But at this point, we are not seeing what you indicated, Jenny.

[Operator]

Next question is from Dean Wilkinson.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Adam, maybe more a theoretical question or something to pontificate. You issued debt this quarter, long-term debt, the cheapest that you've ever been able to.

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

Yes. It's true.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Your equity is arguably the most expensive -- it's -- the equity is arguably the most expensive if that within for you. Thus, looking at that dynamic, and if we stay in this kind of borrowing environment, could that or would that change the view on how you look at leverage and that near-term target of bringing your debt metrics back to what they looked like in 2018 just given that cost of capital advantage from the gearing?

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

Yes. Look, there's a lot of things that go into those types of decisions. At this stage, we do think there's a long-term benefit of bringing our leverage down, as we indicated. So we certainly can understand the case for doing something very different at this stage. Our Board and the management group continue to be focused on the stated objectives that we've had for some time now.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Fair enough. And your debt rolls, I'm sure it's in the disclosure, but the cost of debt maturing in 2021 was fairly high within it. So there's going to be a substantial savings that come given the...

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

Yes, I mean -- yes. Well, I mean, look, the current forecasts are that interest rates are staying low for a while now. And so we will be a beneficiary of that. I know the focus in general in the capital markets right now is more on the risk side. But if you look at the debt rolling over the next few years at FCR and the cost of it, there's a tailwind certainly in this interest rate environment, but even if they started to creep up a bit, there's still a tailwind.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

They have to go a long way, either debt is mispriced or equity is mispriced. Something will square on that over time.

[Operator]

There are no further questions registered at this time. I'd like to now hand back over to Adam Paul.

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

Okay. Thanks, Chris, and thanks, everyone, for taking the time spent with us during our conference call. That concludes the call and the Q&A. Thank you. Have a great afternoon. Bye-bye.

[Operator]

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