SmartCentres Real Estate Investment Trust

TSX:SRU.UN

Earnings Call Transcript 2020-Q3

[Operator]

Good day ladies and gentlemen, welcome to the SmartCentres REIT Q3 2020 Conference Call. I would like to introduce Peter Forde. Please go ahead.

[Peter Forde, President, CEO & Trustee]

Thank you. Good afternoon. I am Peter Forde, President and CEO. And joining me on the call today are Mitch Goldhar, our Executive Chairman; Peter Sweeney, Chief Financial Officer; and Rudy Gobin, EVP, Portfolio Management and Investments. The call will begin with my -- with comments by Mitch and myself, followed by Peter Sweeney who will talk about our results for the quarter end, including IFRS valuations, liquidity and accounting provisions for bad debts. And then we will take your questions. Our comments will mostly refer to the outlook and mixed-use development initiatives sections of our MD&A, which are posted on our website. I refer you specifically to the cautionary language on Pages 3 and 4 of the MD&A material, which also applies to comments any of the speakers make this afternoon. Some of what you'll hear today, you may have heard before. Our focus is on operating our existing shopping centers and on creating value through real estate development. This process and the value it creates is not conducive to a quarterly reporting cycle. And while we have a significant amount of development projects underway, each has its own time line. We are staying on course and on strategy. Within the context of real estate development, this strategy is moving us forward nicely, with the rewards starting this past quarter with the SmartVMC condo closings. The last 6 months were unusual for all of us. The spread of the pandemic and the accompanying shutdown impacted every one of us personally and from a business perspective to varying degrees. Our REIT was no different. The pandemic added some challenges in the short term, but our focus remained on our long-term strategy. We were intensely fixated on our initiatives to grow the business through mixed-use development. Short-term challenges required our attention in assisting our tenants and keeping our shopping centers operating effectively to take care of the more than 60% of our tenants, which are considered essential services that remained open even at the peak of the shutdowns. These tenants were a priority for us as they were meeting food and other essential needs of communities. Our attention was on assisting our retailers in getting back to opening their stores once the lockdowns were lifted, such that almost 100% of our tenants we're open and operating at the end of the quarter. This percentage was down slightly in October as a result of select new shutdowns. All the way through the pandemic, we remain very focused on our longer-term strategy of development. Mitch's vision 30 years ago to build retail centers with Walmart as an anchor involve many detailed steps just as it does today's mixed-use plans as well as building an operating company around it. The culture of our company is unique in that we are land development people operating shopping centers. We are and always have been comfortable with land, its possibilities and its path to profit. This is our core competency. It is right now and in the foreseeable future that our core competency will differentiate us as we work on the new path, intensifying and repositioning many of our strategically located properties. Another way of saying this, we are a real estate development company that owns many great shopping centers with substantial and reliable recurring income, most of which we developed. But these great shopping centers with their outstanding access on or near highways, transit, visibility, and most importantly, in the midst of growing populations are just a starting point to the development of higher and better uses, and in most cases, residential. And many investors and some analysts are not yet acknowledging or giving us the proper credit for this development that it is now delivering value, and it's here to stay. And with that, I'll pass it over to Mitch.

[Mitchell Goldhar, President of the Council]

Thanks, Peter. This year, we went on the offensive, accelerating, not decelerating, the processes of obtaining zonings and site plan approvals because it is those approvals -- approved land use changes from which value and opportunity is created. This is strategic, utilizing our lasting relationships we have forged over the last 30-plus years with many of the Canadian municipalities as well as government's general receptiveness to moving intensification forward. And now this has started to pay off. On Page 19 and 20 of our MD&A, there's a list of examples of the very active residential and under development applications that were so far submitted by our in-house development teams during the COVID shutdown or have been advanced by our team of professionals such that the applications will be submitted in the next 1 or 2 months. Look at the list on these pages carefully. These are new initiatives, many very exciting projects, and mostly residential. Significant value creation, not recognized in our IFRS balance sheet values, will result from these. The list on these 2 pages encompasses excess of 30 million square feet of additional density. Some built on undeveloped plans, some on top of existing retail and a limited number replacing existing weaker retail, making for a more dynamic, vibrant and welcoming mixed-use center. And of course, that is not at all. For example, many of the future phases of VMC at our lands in Laval Centre in Québec are not included in that number, the several seniors residents we are working on with our partner, Revera. And as a very recent example, we were issued a minister's order, an MZO, for our 72-acre Cambridge retail property, which is on the 401, which will allow for various forms of residential and commercial uses as we redevelop the center over the next 20 years. However, the value from this additional 12 million square feet of density on that site and its rights are created on day 1. As with many of these redevelopments, the MZO will allow for a growing mix of people living and working with the existing shopping center, creating synergies for tenants and residents. Now let's talk about the new development initiatives already under construction. Over the last several years, we have pointed out to the investment community that it is part of our culture to deliver on what we say we will deliver. This was true for the first 2 office towers at SmartVMC here in Vaughan, where we delivered exactly what we said, 100% occupied now with strong tenants in a Downtown Toronto quality tower and under budget. We have just delivered and opened the 177-unit residential rental tower in Laval, Québec, and the first of our 10 SmartStop self-storage developments in Leaside in Toronto. And now our third quarter results include the closings of the first 766 units in the SmartVMC Transit City 1 and 2 55-story towers, our share of the profit contributing $30 million to AFFO for the quarter. By December 31, we expect the closing -- we expect to close the remaining 344 units in these 2 towers, generating an additional $20 million in profit, totaling approximately $0.28 of FFO for the trust, 25% interest in the project for the year. This will be followed in the spring and summer of next year with the closing of 631 units in Transit City 3, generating a further $20 million in profit. For the 3 towers combined, we are not only meeting, but exceeding our original planned profit by more than $35 million. Other specific project highlights. Two additional towers, Transit City 4 and 5, 1,026 units sold out are under construction, 20% deposits now in place from the purchasers. We are nicely set up for recurring flow of condominium cash flows and projects. Two, SmartVMC purpose-built residential rental, 451-unit building is under construction. SmartVMC, the new 140,000-square-foot Walmart store opened on October 22, a couple of weeks ago, allowing for closing of the existing store on the strategically located old Walmart store on a SmartVMC site and freeing up this very valuable land for residential density. Self-storage. In addition to the 2 open and operating properties, there are 4 others under construction: Vaughan, Brampton, Oshawa, Scarborough; and 6 others in the process of obtaining municipal approval, which are generally not controversial. Five, seniors residence. First, let me clarify. With all the troubling pandemic information that's in the news related to seniors, almost all the tragic news relates to government-funded long-term care facilities, a business we are not in. Instead, with our 2 partners, we are developing seniors apartments with extra amenities and limited levels of resident care, all tailored to seniors in new buildings, 6 with Revera, 2 with Group Selection, all of these projects are in the municipal approvals stage. A few general reminders about our development pipeline and capabilities. Most of the development initiatives we are planning are on land we already own, unlocking value, supplemented by select acquisitions with existing or new strategic partners. We use our in-house development team to drive these initiatives. We know the markets, the municipalities and every detail with the properties. This team was actively engaged using our technologies to connect seamlessly to the municipalities, which are also set up to operate remotely. This was a natural for us. We have developed for turbulent times before, both as a private company and as a public REIT. As a general reminder, across our portfolio of properties, none of the additional land value associated with our asset-light residential density or our proposed density is reflected in our property IFRS values. And when we present development project yields or profits from condo projects, land is included in the cost side of the equation at an estimated market price. And all internal fees and capitalized costs are included in costs, which is a more conservative way to present these development yields. After hearing all of this and reading the development initiatives section of our MD&A, you can see that the pandemic did not slow us down. To the contrary, we accelerated our transition to a more diversified REIT by moving municipal approvals forward, which, as stated earlier, is where much of the value is created. And we believe our current unit price is not reflecting the value of any of this development potential. And it is very important to note that we will only move forward with the most capital-intensive construction portions of these initiatives, as market conditions warrant, sufficient presales occur in the case of condos and more than adequate financing is available -- more -- when adequate financing is available. The last development-related comment relates to the disconnect between our unit price and the under-construction in planned mixed-use value creation underway, not to mention the strength of our retail portfolio. It is something we have highlighted before but worth repeating. If our unit price is down, say, 25% from its pre-COVID levels, that would be akin to the markets believing that 1/4 of our entire retail portfolio is going to permanently generate no rent or value of any kind whatsoever for now ad infinitum. That absurdity -- the absurdity of this goes even further and that valuations ignore the intensification opportunities already underway on our undeveloped lands and the opportunity to create value in place of any such vacancies by replacing vacant retail with our mixed-use initiatives. Now I will turn it back to Peter.

[Peter Forde, President, CEO & Trustee]

The financial results for the second and third quarters and, to a lesser extent, for the balance of 2020 are being impacted by the pandemic. Our priority during this period of uncertainty is to protect our employees, the communities we serve, our tenants and our business, while doing everything possible to mitigate the financial implications, ensure liquidity and continue to strengthen our balance sheet. Our operating shopping center portfolio is 97.4% leased at September 30 and remains focused on essential services and value-oriented retail, not fashion, recreational or entertainment retail. It is well suited for these turbulent conditions, as evidenced by the following: 60% based on revenue of the REIT's tenant base is comprised of essential services, which continued to operate throughout the crisis, supporting local communities, meeting the everyday needs of residents for groceries, pharmaceuticals, banking, household maintenance, general merchandise and other essentials. And this 60% of our tenant base being essential services increases to 70% for the markets outside of the Greater-VECTOM area. In these smaller markets, our shopping centers are often the essential service hub of the area. And are, in all cases, anchored by a Walmart store. With the pandemic and the lockdowns, early indicators are that the demand for housing, and therefore, shopping in these less-urban markets is increasing as people consider leaving the urban areas for the suburbs. Good for our shopping centers and the opportunities to intensify on our existing lands in those markets. Walmart, which anchor 75% of our properties and represents over 25% of our rental income, along with our family of value-oriented-focused tenants are well suited to serving its community during this pandemic -- this period of pandemic-induced weaker economic conditions. Walmart Canada plans to spend $3.5 billion over the next 5 years to make the online and in-store shopping experience simpler, faster and more convenient. This continued commitment to its retail operations in Canada speaks to the ongoing strength of Walmart and its growing ability to drive traffic to our centers. Much of this capital expenditure by Walmart will be in our centers given that we own approximately 30% of the Walmart stores in Canada. In addition, we are fortunate to have opened 3 weeks ago in Vaughan as part of this SmartVMC store relocation, a new Walmart prototype store, first of its kind in Canada, which includes a 10,000-square-foot e-commerce omnichannel fulfillment center and a drive-thru pickup facility. It will fulfill as many as 8x the online orders of an average Walmart store. I encourage all of you to get up here to see our VMC project, including this new Walmart store. Virtually all of our revenues from shopping centers are open-format outdoor centers, enabling customers to practice physical distancing while completing shopping for their everyday needs. Shoppers are much more comfortable and feeling safer in this unenclosed format. We recognize the importance of small independent retailers to the Canadian economy, our rent relief focus to date has been on supporting these nonessential small independent retailers, representing approximately 6% of our contracted rent. The federal and provincial governments put in place the Canada Emergency Commercial Rent Assistance, or CECRA program, designed to assist certain tenants such that, effectively, the tenant bears 25% of the cost; the landlord, 25%; and the government, 50%. The program originally applied to April, May and June. After communicating with all of our smaller tenants, we applied for relief for all tenants that qualified, approximately 700 for those 3 months. And once the government extended the program for an additional 3 months, we were pleased and proud to say that we offered the program to 100% of the same tenants. To us, this was an important step in the continuity of business for many of these smaller retailers. We applied and received government funding for all tenants that qualified for the full 6 months. And now the province of Quebec has just announced the details of its plan to top up the federal program for Quebec-based tenants. That is expected to yield a further $450,000 of recovery for us. The federal program through the landlords ended in September and has been replaced by the Canada Emergency Rent Subsidy program, which will assist the qualifying tenants directly. In the meantime, some of our nonessential medium and larger tenants have also asked for some rent relief or have just not met their rent obligations. While protecting our legal rights as a landlord, we have discussions with these tenants about rent deferrals, or in a few limited cases, rent abatement. We have found ways to accommodate tenants with a real need when appropriate and justified, but also factoring in the reality of our own situation and our unitholders. There have been announcements of several tenant restructurings during the COVID period, either through CCAA or bankruptcy filings, major names such as Moores, Comark, Sail, Reitmans and Aldo. Collectively, all such tenants have indicated the intention to close 64 units in our shopping centers, approximately 410,000 square feet, which is less than 1/3 of the total units we have with these same tenants and represents 1.65% of gross revenues. It is expected that the remaining 2/3 of the units with these same tenants -- the same retailers will continue to operate once they're relevant restructuring process is complete. Generally speaking, these tenants have expressed a strong interest in remaining in our Walmart-anchored centers. 145,000 square feet of the 410,000 square feet previously mentioned are 2 sale units, Etobicoke, just near Sherway Gardens; and Vaughan, our 407 redevelopment site on the west side of Highway 400. Discussions with several other retailers for Etobicoke are underway. Property tours have been completed with 2 significant retailers. And the Vaughan location departure will serve only to alter the sequencing of the residential redevelopment plans already underway for this project. So if you back those out, we are left with 265,000 square feet of vacancy from all these COVID-related bankruptcies, a fairly routine amount for our leasing team who has commenced discussion with many potential tenants encompassing a wide variety of uses. As shown on Page 2 of our MD&A, cash recoveries from our tenants continues to improve. In our April update press release, we indicated cash recoveries for the month of April of 67%. As of now, we have collected 82% of gross billings for that month of April, including CECRA recoveries, an improvement of 15%. Gross billings collected improved from that 82% for April to almost 96% for the month of September. And to avoid any confusion, gross billings used in these calculations are based on rent rolls, excluding the tenants that closed through CCAA or bankruptcy process. And now I'll turn it over to Peter Sweeney.

[Peter E. Sweeney, Chief Financial Officer]

Thank you, Peter, and good afternoon, everyone. As we know, these challenging times will test the balance sheets of many real estate companies. However, for many years now, we have encouraged the capital markets and other stakeholders to focus on our commitment to the balance sheet. Our unyielding focus on conservative capital management, our discipline in the deployment of capital, on acquisitions and developments and our continued desire to match gearing and similar debt levels to the long-term nature of our assets, this strategic focus on long-term viability and growth will continue to allow us to manage through this period of uncertainty. In this regard, we note the following highlights relative to the third quarter. Number one, our unencumbered pool of assets continues to grow and increased by $200 million to $5.8 billion. Number two, our conservative debt and aggregate assets ratio reduced further to 44.3%. Number three, our weighted average interest rate for all debt continues to decrease and was 3.37% as compared to 3.46% last quarter, which when coupled with our BBB high credit rating permits us to continue to attract debt capital at historically low interest rates for longer terms. Number four, our interest coverage ratio was maintained at 3.8x and our adjusted debt to adjusted EBITDA multiple improved further to 8.5x, both of these metrics reflecting the business' strong and stable ability to fund its obligations even during these uncertain times. And then lastly, number five, our unsecured to secured debt ratio further improved to 67% to 33%. It's interesting to note that just 1 year ago, this ratio stood at 55% to 45%. And as we have continued to focus on further increasing the proportion of unsecured debt on our balance sheet and given the continued availability of long-term low interest rate unsecured debt, we intend to continue our strategy of repaying maturing secured debt and replacing these amounts with longer-term unsecured debt, which should result in this ratio continuing to improve for the foreseeable future. From a liquidity perspective, as we look to the immediate future and plan to manage through the current environment, in addition to the conservative debt metrics noted above, please also consider the following: A, at the end of the quarter, our liquidity position exceeded $1.15 billion, which is represented by over $400 million of cash on hand, of our undrawn $500 million operating line of credit and our $250 million available accordion feature. Accordingly, we have ample liquidity when and if needed during this period. B, we have approximately $70 million in mortgages maturing over the next 6 months and $250 million in unsecured debt that comes due in December, and we intend to use our existing cash to repay both of these maturing amounts. C, we continue to deploy a strategy that permits construction of any large development project to begin when it has appropriate project financing in place to ensure project completion of our various projects. And we are presently speaking with lenders concerning construction financing alternatives for several of our proposed developments that are expected to begin later this year, including 2 retirement home projects, 2 high-rise rental building projects and 1 townhome project. And then lastly, D, we are so proud to confirm that during the third quarter, we experienced the beginnings of the closings of the first 2 phases of Transit City condos. During the quarter, we recognized approximately $30 million of FFO from these closings, and we expect to recognize an additional almost $20 million in FFO in the final quarter of 2020. Similarly, next year, we expect to recognize approximately $20 million in FFO from the closings of the third building in Transit City, and we expect this recurrence of FFO from closings of condominium townhome developments to continue for many years to come. The FFO generated from these closings further fortifies our liquidity position and supports our distribution strategy. As Peter has mentioned, we continue to experience substantive improvements in our collection levels in the third quarter, and our provisions for bad debt was significantly reduced from our experience in the second quarter. In this regard, in addition to $15.5 million in provisions taken in the second quarter, we provided for an additional $9.7 million in COVID-related provisions in the third quarter. These amounts can be viewed in the following distinct categories: Number one, for those separate eligible tenants, we provided $2.1 million, representing amounts that we, as a landlord, are compelled to provide as part of the federal program that Peter referenced, the CECRA, that ended in September. Number two, for those tenants that were not CECRA eligible, we provided $0.6 million. Number three, for those tenants that have filed under CCAA or similar bankruptcy restructurings, we provided $4.1 million. And then lastly, number four, we recorded additional conservative provisions aggregating $2.9 million for other expected credit losses emanating from the current COVID-19-related business environment. These third quarter provisions represent approximately 65% of those taken in the second quarter, and we expect that any provisions required for the fourth quarter will be substantively reduced further. From a valuation perspective, property value stabilized during the third quarter. We did not experience any reductions in value in our income-producing or development property portfolios during the quarter with cap rates, discount rates and other modeling variables remaining status quo. After 2 quarters of valuation erosion, primarily reflective of additional vacant space and the additional time now expected to backfill such space in the portfolio, much of which is the result of the COVID-19 experience, our third quarter experience is directionally important because it suggests that the market has now begun to stabilize. Based on the discussions that we have had with the appraisal community, we are not expecting any substantive further decline in property values over the balance of the year. It is also important to remember that we have not factored into our IFRS values any values that accrues from the future development of mixed-use space. And these future value increments, as Mitch has noted, that are derived from our proposed mixed-use initiatives are substantial. And finally, a comment on distributions. Our current annual distribution level is $1.85 per unit. And based on our current trading price, this distribution level represents an approximate 7.5% yield on our units, which is approximately 6.75% above the current 10-year government of Canada risk-free rate of return. This spread is extraordinarily higher than we have experienced or, frankly, would expect. Decisions on distributions are always made by our Board. However, given the liquidity, the strength of our balance sheet and near-term prospects for cash flow generation from condominium and townhome closings, management continues to recommend the current distribution levels. And with that, I'll now turn it back over to Peter Forde.

[Peter Forde, President, CEO & Trustee]

Okay. Thanks, Peter. So to sum it up, a very interesting quarter. $30 million of profit in the quarter from condo closings at Transit City 1 and 2 and Vaughan and expected to generate $50 million of profit in total for this year for our REIT's interest in project, a rapidly improving rent collection picture and an accelerated mixed-use intensification and development program. And with that, we'll turn it back to the operator to coordinate us in addressing your questions.

[Operator]

[Operator Instructions] And the first question we have in the queue comes from Brendon Abrams from Canaccord Genuity.

[Brendon Abrams, Analyst of Real Estate]

Just wondering if you can give some color on the leasing environment right now. When you do have a vacancy, your location goes dark, who are the tenants looking to add space or move into these locations? Would they be from adjacent shopping centers? What type of tenants are looking to expand? Maybe just some color on the leasing environment.

[Peter Forde, President, CEO & Trustee]

Rudy, do you want to...

[Rudy Gobin]

Sure. Well, like we have in the past, Brendon, the portfolio of tenancies we have now are continuing and the ones that were open and were carrying on business continue to expand. So our stable of portfolio tenants that we have are asking for expansion space in our other Walmart-anchored sites and in our other sites. So we have a lot of active tenants that would be the typical dollar stores, food stores, liquor stores, pet stores. Even QSR are calling us up because they don't have a lot of sit-down space but a lot of takeout. So a lot of deals and talking and touring of properties with these tenants. In addition to that, we are also marketing and talking to tenants nearby in, of course, the enclosed mall space who have called us up and are asking about what can we do in terms of fitting them in. So that is a segment of the market where, previously, as you know, we would have fashion tenants who may have said we would like to leave the outdoor space and go into an enclosed mall, that has stopped. That activity has stopped. In addition to that, we are looking at all of the, I'm going to call it, service-type uses that serve each of these communities. So that would include industrial uses. That would include labs, medical, even some of the sectoral services have been calling us up again. So while it was very, very quiet in Q2, it started picking back up during Q3. And now for this quarter, going into the fourth quarter, there's a lot of discussions about what space is available and how people can utilize it best in the portfolio. So a lot of activity. It will take a little bit longer to backfill these spaces. But we're making sure we get the right fit, the right mix for each of these communities as we go. And some of the spaces will be -- we will have to, of course, carve it up into smaller spaces if it's smaller users to make it work. But the economics of the deals always seem to make sense because, again, they want to be near in a Walmart-generating traffic center. So it's turned very positive in this last quarter and was improving during the third quarter.

[Brendon Abrams, Analyst of Real Estate]

Okay. That's -- yes, that's good color. And then maybe just sticking on the leasing, perhaps a bit more medium term. Taking a look at the lease maturities in Walmart, in particular, it looks like about 8 million square feet or a little bit more than half of Walmart square footage expires between now and 2025. Just wondering if you could remind us how much in advance you discussed with Walmart in terms of re-leasing space and what your expectations are for maybe the next few years with them?

[Peter Forde, President, CEO & Trustee]

Well, what was that?

[Brendon Abrams, Analyst of Real Estate]

Just in terms of upcoming Walmart lease maturities, maybe you could just remind us historically or in the past how far in advance you would get noticed that they are renewing or not renewing and I guess what your expectations would be over the next several years where there are significant maturities there.

[Mitchell Goldhar, President of the Council]

Well, just -- I'll start off and just say that -- I mean the relationship is you've got many layers to it. And one of the layers is, I mean, it's not like we wait like for renewal notice. I mean we're part of their -- generally part of their strategic planning, so -- in terms of the country. So we know together -- we work together to -- it will be way, way ahead of those things. So it's not like we are like a random situation we're waiting to find out if a tenant expires here, sending in a renewal notice. And given this huge investment that they are committed to in this country, I mean you'd probably appreciate that that's intended to, among many other things, improve the offering of their stores. But I guess, at some point, technically, there is a renewal. And so how does that go? I mean, I don't know, Peter, do you want to maybe illuminate a little bit on how that actually plays out literally?

[Peter Forde, President, CEO & Trustee]

Yes. I mean they're under their lease. I think it varies -- 6 to 12 months' notice depends on which lease that they would officially have to give us. But as Mitch said, it's more a case of the relationship than -- if that was to ever happen, we have much more of a heads-up than that, I suspect. But I can tell you that we're not aware of any -- in that relationship any discussions that would suggest there's any space coming up for fill, that they're not going to. And remember what I said earlier about how much money they're spending on their portfolio. And I would say that the rents that they pay us are -- because of -- many of them came out of the joint venture between Mitch's company and Walmart, that the rents are quite cheap. And it's pretty unlikely that they would ever leave. They're very reasonable and cheap rents that they're paying in many of those locations. But again, just to say, we're not aware of any issues in terms of renewals.

[Operator]

Next question comes from Tai Woolley -- sorry, Tal Woolley from National Bank Financial.

[Tal Woolley, Research Analyst]

Just to follow up quickly on the Walmart leases. Are these expiries, do they come with -- like are they effectively sort of renewal options for Walmart? Or will you actually have a chance to sort of renegotiate up the rent on those renewals?

[Mitchell Goldhar, President of the Council]

No, they are renewal options.

[Tal Woolley, Research Analyst]

Okay. Got it. Just on the Cambridge site, that is -- that site, the 12 million square feet of density, that's currently 100% owned by the REIT?

[Mitchell Goldhar, President of the Council]

Yes, it is.

[Tal Woolley, Research Analyst]

Okay. And do you have intention to bring in partners now, later? Like how are you thinking about that process?

[Mitchell Goldhar, President of the Council]

We don't know yet. I mean we've been approached by a few capable developers. So we'll see if there's enough to go around. There'll probably be -- I mean probably it will make sense to have some partners in parts of it. But obviously, yes, I mean we want to do what's best for the REIT first and foremostly. And obviously, considering everything else that's going on, we'll be able to use Cambridge, among other things, to balance out everything overall balance sheet-wise. But a huge project. So probably imagine there will be a few parts and phases of that one with partnerships.

[Tal Woolley, Research Analyst]

Okay. And do you have any sense of like what density it's sort of trading at on a per available square foot basis in the market in that market?

[Mitchell Goldhar, President of the Council]

I mean we do, but we're not kind of there yet in terms of being sort of able to pinpoint what this is all exactly worth. But I mean -- yes, I mean there's no question, there's a move to -- there's already growth and momentum. I know that's in Transit City area there, but this obviously is very strategically located and [indiscernible] was a result. By the way, it is not to be zoned. It is -- efficiently, it is the actual law of the property now but, anyway, designated. That is law. The -- so yes, I mean it is a great -- timing-wise, a great property for what's going on just in and around the greater sort of [indiscernible]. But putting a number on it like you could just take the density and put on any range of value, and you'll get a pretty good -- you'll get a pretty big range, but you'll see this order of magnitude. But we haven't put one on yet there. It's a good market. So it's not -- we're not out in the -- yes, it's not Northern Manitoba or something. It's super GTA and good timing.

[Tal Woolley, Research Analyst]

Okay. And apart from the fact that it's strategically located on the highways, is there any intention to have further transit built in and around there? Because obviously a big part of the story would be...

[Mitchell Goldhar, President of the Council]

Well, as you know, I mean transit, like, go -- expansions across the [ closure ] is a priority of the province, of the various regions. So I mean we do anticipate this will probably partly potentially -- potential mass transit initiatives to this specific site. But in the meantime, it is literally on the highway, like you can't -- you drive by the site, and you're looking at it for whatever numerous -- on the highway, you're looking at it for numerous seconds. It's -- so it's very easy to get to -- to build transit in the various districts at the moment. And we do have the off-ramp, not just like on the highway, but the off-ramp coming off the 401 flows, like glides right into the middle of this property. And by the way, it's a good shopping center in the meantime. It's just huge. And so over time, it's ideal to phase this mix-used in. It's not -- yes, so a few extra features, but no, I don't know of specific mass transit imminently being built -- to be built right to our doorstep, but things are changing right now rapidly in GTA.

[Tal Woolley, Research Analyst]

Okay. And then, Peter, you had mentioned subsequent condo closing, so we'll have Transit City 3 closing in 2021. What would be the next of the condo or for-sale projects expected to close after that?

[Peter Forde, President, CEO & Trustee]

Likely, the Vaughan Northwest townhome project will have closings in '22. The sale -- those townhouses are expected to be a sales program starting February -- this upcoming February, and construction starts shortly thereafter. And so closings in '22, and then Transit City 4 and 5 the year after that.

[Operator]

[Operator Instructions] Next question comes from Jenny Ma from BMO Capital Markets.

[Jenny Ma, Analyst]

This question is probably for Peter Sweeney, but wanted to ask what is the line item that is the sales tax-related to CECRA. It looks like you had about $1.5 million every quarter for the past couple of quarters.

[Peter E. Sweeney, Chief Financial Officer]

All that is, Jenny, is it's the HST that is -- would have been in the top line -- would have been included in the top line there as a receivable balance, an amount that was charged pursuant to the rent roll that would be coming back given the existence of both CECRA and the REIT's 25% share that the REIT has to, in this case, forgive. That's all that is.

[Jenny Ma, Analyst]

Okay. And then it looks like there was some previously capitalized G&A taken in this quarter that was coming from TC 1 and 2. Just wondering if that was all charged in Q3 related to these projects because of the closing starting or if they're going to be provided into Q4 as well.

[Peter Forde, President, CEO & Trustee]

It actually -- Jenny, I'm going to, I mean, maybe make a comment on what I would call sort of odd accounting. That G&A was actually capitalized -- that relates to periods prior to now. And it's cost that really I think of as project costs. But I guess, under accounting rules, we show it that way. And so there will be some more in the fourth quarter related to the units that are closing in the fourth quarter of the same nature. But it's actually G&A from a prior quarter, that was -- for prior year, actually, that would have been capitalized.

[Jenny Ma, Analyst]

Yes, yes. No, I got that part. I was just wondering if it's being recognized sort of all at once sort of as an event in Q3 because of closing commencement or if it gets spread out proportionally?

[Peter Forde, President, CEO & Trustee]

There'll be an equivalent amount in the fourth quarter as well. And that's sort of factored into when we talk about we're going to have $20 million worth of profit in the fourth quarter. That would be netted off and arriving at that number.

[Jenny Ma, Analyst]

Right. Right. That would be something that basically accompanies any future condo closings as well just as an accounting item, I guess.

[Peter Forde, President, CEO & Trustee]

Yes.

[Operator]

Next, we have a question from Sam Damiani from TD Securities.

[Sam Damiani, Director, Institutional Equity Research]

First off, just wanted to touch on occupancy. Rudy, it was very encouraging to hear your commentary. So -- and I think in the last quarterly call, we were giving guidance for between 100 to 150 basis points of occupancy decline in the latter half of the year. And I guess, in Q3, there was 80 basis points, including transfers of vacant properties under development. Would you say that for Q4, you'll probably be toward the better end of that range as opposed to another sort of 70 basis points of decline in Q4?

[Rudy Gobin]

Yes. Better, meaning lower vacancy, yes. The activity we've seen in the end of the quarter, like in the month of September and certainly in October, this quarter now, we're already into halfway through, it would lead us to believe exactly that, Sam. But there's a lot of tenants wanting to do -- wanting to -- the space. Now it may be that we would end up executing the deals. They may not be in place for Christmas shopping, obviously, because there's a lot of fit-out and work to do to get tenants operational. But in terms of commitments, I would say so, yes, that we've committed deals that we should be on the lower end of that range.

[Sam Damiani, Director, Institutional Equity Research]

Okay. That's helpful. And percentage rent from the outlets, that's been the headwind for the last couple of quarters. Is there an anticipation of that substantially rebounding in the short term?

[Peter Forde, President, CEO & Trustee]

No. I guess -- I'll comment that we're not sure. I guess things -- our traffic is certainly picking up every month at the outlet centers, both Montreal and here. And so we would expect in the fourth quarter that percentage rent would pick up, but we don't know. Things are crowded. Sales have picked up, for sure, in the third quarter. But we don't -- I don't have any read on that yet for the fourth quarter. Rudy?

[Rudy Gobin]

No. And they report, Sam, and that is because they manage the properties, they report sort of a month later. And as you know, a large part of their -- of the shopping is in the last 2 to 3 months of the year for the Christmas holidays. Traffic is significantly up for the people that are going there. They're saying that there is a lot of traffic in the centers, but we can't -- we don't have a handle on sales yet. When they reopened after the April, May, June, there was a lot of activity in the centers, and people were saying that their sales were almost back to pre-pandemic. And that might have been just a rush out to do a lot of shopping before -- people thought kids were going to go back to school and so on. But now with all the schooling being split a little bit home and at school, it's leveled off. And now with the Christmas season, the Thanksgiving shopping was really good. We won't have a good handle on that until December -- for the month of November. But traffic is high and it will only be limited by what the government mandates in terms of social distancing.

[Sam Damiani, Director, Institutional Equity Research]

Okay. And my last question is on Cambridge. That was a significant achievement received there with the MZO. How soon would the first phase of that be under construction? And secondly, when we think of Cambridge, I don't think, apart from maybe 1 or 2 buildings, too much existing stock is above the 5-story level. What gives you the visibility for the demand for that kind of living in that location? And I guess, are there other similar zonings coming or already in place for competing properties nearby?

[Mitchell Goldhar, President of the Council]

Well, first of all, we could have had this conversation a few years ago about Vaughan, about the -- [indiscernible], not just on the subway. I mean you can go to Rutherford and obviously you can go to all kinds of parts of Vaughan and even center. So yes, I mean, this is the way things go -- I mean change. There's great opportunities in these type of markets. You'll see us taking the initiative in markets like Cambridge. But how high will we go? I mean we will figure it out, but it will be higher than what you were referring to. And I mean these kind of changes do get other changes. So I'm not sure if there's anyone next -- I know next door, they've converted a land. They've rezoned land from non-res to res, and they're doing townhouses. Our first phase, I mean, will -- hopefully, will start sometime in the next year there, plus or minus. I mean the margin of error of getting started is pretty high in development just because there's all the servicing and things related to that, but plus or minus. So that's very near term. We'll probably start with some lower stuff initially, maybe even some townhouses actually. And we'll always sprinkle these types of developments with different forms. You'd see us -- I don't know -- we've talked about Alliston, between things in Alliston, in London and markets there a little bit like -- have been overlooked. But there's plan, there's reasons why those things going on there. Cambridge has just got more adrenaline, and those 2 -- but for all kinds of reasons. But even like some of those markets have a lot of potential. You know what we're doing in Barrie as well. So yes, there's going to be a lot of changes, but somebody's kind of initiate the changes. And in some of these cases, it will be us. But the way it will go is, I mean, if the market's not there, we're not going to do it. In the meantime, we've got a sustainable rent-collecting shopping center in the meantime.

[Operator]

All right. And we don't seem to have any other questions -- well, yes, we do actually. We have Dean Wilkinson from CIBC World Markets, which is queued up.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Just on the rather large amount of money that Walmart is spending across their store network. One, are they doing that work independent of you? And have they asked for any capital contribution towards any of that, that would sort of come back in form of rent or anything like that?

[Peter Forde, President, CEO & Trustee]

They're doing it independent of us, but we're obviously involved. We know about it, being the owner of the shopping center in the store. But they are doing their own work inside their store. We do spend up doing some things outside in terms of -- we just coordinate other work we might be doing in the shopping center in any event, like parking lot and re-striping and paving, if necessary. But -- and so -- and then the answer is no, they have not asked us to contribute at all to what they're doing.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. Great. And just turning on to the balance sheet. You've got -- still carrying that elevated level of cash. How -- I mean is it as simple as where post-pandemic someone's come up with a magic cure, be it Pfizer, whoever, that you start looking at utilizing that sort of $425 million? Or do you want to keep that on there -- in the market for development capital?

[Peter E. Sweeney, Chief Financial Officer]

It's a good question, Dean. I think I mentioned we've got some debentures maturing in December that will require $250 million of that $400-plus million that's on the balance sheet. So that will put a large dent into that cash balance. In addition, over the next 6 months, I think we've got, I mentioned, $70-or-so million of mortgages that are maturing that we would intend to repay in full. And again, we would intend to use that cash for those purposes. I think the other question that you might ask is how do we see the future. And the reality is we don't. It's almost impossible to predict with any level of precision or extreme visibility. And so similar to what we did back in early June, where we were uncertain as to what the future might hold given the pandemic and everything associated with it and certainly given how the first 3 or so months of the pandemic period had gone, our Board strongly encouraged us to play it safe and go into the market to raise capital in advance of those liquidity requirements coming down the pipe. And so we've got sufficient, as we know, sufficient liquidity currently. But we do have a large series of debentures maturing in June of next year for $350 million. I mentioned -- you mentioned capital for development. We are trying to ensure that before we commence any development initiative of at least a consequence that we do have a specific project financing facility in place to accommodate the needs of those respective projects, and so they will be funded by traditional project financing. But again, we're still continuing to play it safe. And yet, it is perhaps somewhat dilutive at least temporarily to unitholders. But again, it ensures that we're not exposed in the event that the markets were to close as, frankly, they did in the early part of this pandemic period. So that, I think, would be our preferred strategy, at least in the more immediate future.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Yes. No, it makes sense. I mean, belt and suspenders is probably still the order of the day. And I suppose to the extent that it's going to be cash out, debt off, mathematically your leverage looks the same, but your coverage ratios should improve...

[Peter E. Sweeney, Chief Financial Officer]

Yes.

[Operator]

All right. Yes, Dean was correct. He was the last question in queue at this time.

[Peter Forde, President, CEO & Trustee]

Okay. In that case, we'll just say thank you all for taking the time to participate in our third quarter 2020 call. And please stay safe, everyone. Good afternoon.

[Operator]

Ladies and gentlemen, this concludes the SmartCentres REIT Q3 2020 Conference Call. Thank you for your participation, and have a nice day.