SmartCentres Real Estate Investment's (CWYUF) CEO Peter Forde on Q3 2020 Results - Earnings Call Transcript
SmartCentres Real Estate Investment Trust (OTCPK:CWYUF) Q3 2020 Earnings Conference Call November 12, 2020 2:00 PM ET
Company Participants
Peter Forde – President and Chief Executive Officer
Mitchell Goldhar – Executive Chairman
Peter Sweeney – Chief Financial Officer
Rudy Gobin – Executive Vice President-Portfolio Management and Investments
Conference Call Participants
Brendon Abrams – Canaccord Genuity
Tal Woolley – National Bank Financial
Jenny Ma – BMO Capital Markets
Sam Damiani – TD Securities
Dean Wilkinson – CIBC World Markets
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
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 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 three and four of the MD&A material, which also applies to comments any of the speakers make this afternoon.
Some of what you 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 timeline. 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 six 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 and assisting our tenants, keeping our shopping centers operating effectively to take care of 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 a 100% of our tenants were 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 does today’s mixed-use plans, as well as building and operating company around it. The culture of our company is unique and 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 is now delivering value and it’s here to stay.
And with that, I’ll pass it over to Mitch.
Mitchell Goldhar
Thanks, Peter. This year, we were 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 act of residential and other development applications that were submitted by our in-house development teams during the COVID shutdown, or have been advanced by our team professionals such that the applications will be submitted in the next one or two months.
Look at the list of these pages carefully. Look at the list on these pages carefully. These are the 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 two pages encompasses in excess of 40 million square feet of additional density. Some built on undeveloped lands, some on top of existing retail and a limited number of replacing existing weaker retail making for more dynamic, vibrant and welcoming mixed-use center.
And of course, that is not all. For example, many of the future phases of the VMC in our lands in Laval center 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 Zoning Order or MZO for a 72-acre Cambridge retail property, which is on 41, 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 one. 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 two 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 quarter results include the closings of the first 766 units in this SmartVMC Transit City 1 and 2, 55-story towers. Our share of the profit contributing $30 million to FFO for the quarter, by December 31, we expect the closing – we expect to close the remaining 344 units in these two 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 three towers combined, we’re not only meeting, but exceeding our original plan profit by more than $35 million.
Other specific project highlights. Two additional towers at Transit City 4 and 5, 100 – 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 of 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 the closing of the existing store on the strategically located old Walmart store on the SmartVMC site and freeing up is very valuable land for residential density.
Self-storage, in addition to the two open and operating properties, there are four others under construction; Vaughn, Brampton, Oshawa, and Scarborough, and six 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, there’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 two partners, we’re developing seniors’ apartments with extra amenities and limited levels of resident care, all tailored to seniors in new buildings. Six, with Revera, two with Group Selection, all of these projects are in the municipal approval stage.
A few general reminders about our development pipeline and capabilities, most of the development initiatives we are planning are on land we already owned, 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 and municipalities in every detail about 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 properties, none of the additional land value associated with our as of right residential density or our proposed density is reflected in our property IFRS values. And when we present development project deals 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 would say 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 was 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 pre-sales occur in the case of condos and more than adequate financing is available – more adequate financing is available.
The last development related comment relates to the disconnect between our unit price and the under construction and plan 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 one quarter of our entire retail portfolio is going to permanently generate no rent or value of any kind whatsoever for now and in food item that absurdity – the absurdity of this because even further and that valuations ignore the intensification opportunities already underway on our undeveloped plans and the opportunity to create value in place of any such vacancies by replacing the vacant retail with our mixed-use initiatives.
Now, I will turn it back to Peter.
Peter Forde
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 REITs tenant base is comprised of the essential services, which continued to operate throughout the crisis, supporting the 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 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 anchored 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 dependence induced weaker economic conditions. Walmart Canada plans to spend $3.5 billion over the next five 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 going 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 three weeks ago in Vaughan as part of the SmartVMC store relocation, a new Walmart prototype store. First of it is kind in Canada, which includes a 10,000 square foot e-commerce omni-channel fulfillment center and a drive-through pickup facility. It will fulfill as many as eight times the online orders of 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 release focus to-date has been on supporting these non-essential 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 costs, 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 [ph] for those three months. And once the government extended the program for an additional three months, we were pleased and proud to say that we offered the program to 100% of the same tenants.
to us, that was an important step in continuity of business for many of these smaller retailers. we applied and received government funding for all tenants that qualified for the full six 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 non-essential 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 had 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 one third of the total units we have with these same tenants and represents 1.65% of gross revenues.
It is expected that the remaining two thirds of the units with the same tenants, the same retailers will continue to operate once their 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 two 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 two significant retailers. And the Vaughn 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 165,000 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 users.
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 collected 82% of billings for that month of April, including CECRA recovers and improvement of 15%.
Gross billings collected improved from that 82% for April to almost 96% for the month of September. to avoid any confusion, gross billings used in these calculations are based on rent rolls, excluding the tenants that close through CCAA or bankruptcy process.
And now, I’ll turn it over to Peter Sweeney.
Peter Sweeney
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 or unyielding focused 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 asset 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 a 3.8 times and our adjusted debt to adjusted EBITDA multiple improved further to 8.5 times, both of these metrics, reflecting the businesses 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 one-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 secure debt and replacing these amounts with longer-term unsecured debt, which should result in this ratio continuing to improve for the foreseeable future.
From the 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 six 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 two retirement home projects, two high-rise building projects, and one 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 two phase 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 debts were 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 CECRA eligible tenants, we provided $2.8 million representing amounts that we – as the landlord are compelled to provide as part of the federal program that Peter referenced to 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 expected any provisions required for the fourth quarter will be substantively reduced further. from evaluation perspective, property values 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 two 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’s 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 values increments as Mitch has noted that are derived from our proposed mixed use initiatives are substantial.
And finally, comment on distributions. Our current annual distribution level is $1.85 per units 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’ve 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
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 in Vaughan, and expected to generate $50 million of profit in total for this year for our REITs interest in the 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 and addressing your questions.
Question-and-Answer Session
Operator
Okay. Sure. [Operator Instructions] And the first question that we have in the queue comes from Brendon Abrams from Canaccord Genuity. Please go ahead.
Brendon Abrams
Hi, good afternoon. I’m just wondering if you can get some color on the leasing environment right now. When you do have a vacancy or a 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
Rudy, you want to?
Rudy Gobin
Sure. well, like we have in the past, Brendon, the portfolio of tendencies we have now are continuing and the ones that were open, and we’re carrying on business continue to expand. So, our stable 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 QSRs, 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 users that serve each of these communities. So that would include industrial users that would include labs, medical, even some of the tutorial 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 the 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. And 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 and in a Walmart generating traffic center. So, to turn very positive in this last quarter and I was improving during third quarter.
Brendon Abrams
Okay. That’s – yes, that’s a 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 discuss with Walmart in terms of re-leasing space and what your expectations are for maybe, the next few years with them.
Mitchell Goldhar
Hello, what was that?
Brendon Abrams
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
Well, I’ll just – I’ll start off and just say that what I mean. the relationship is, got many layers to it. And one of the layers is, I mean, it’s not like, we wait like, for their renewal notice. I mean, we’re part of their – we’re generally a part of their strategic planning. So, in terms of the country, so we know together, we worked together to – we’ll be way ahead of those things. So, it sounds like we are like random trio situation, we’re waiting to find out of 10 tenant X, Y, or Z, or sending in a renewal notice and given the huge investment that they’re committed to in this country. I mean, probably appreciate that that’s intended to, by many other things improve the offering of their stores. But I guess then 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, how that actually plays out literally?
Peter Forde
Yes. They’re – I mean, they’re under their lease, I think it varies. They either six to 12 months notice depends on which lease it is that they would officially have to give us. But as Mitch said, it’s more a case of the relationship and if that was to ever happen that we’d be having much more of a heads-up than that I suspect. but I can tell you there 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 cheaper rents that they’re paying in many of those locations, but again, I just to say that we’re not aware of any issues in terms of renewals.
Brendon Abrams
Okay. That’s very helpful. I’ll turn it over. Thanks.
Operator
All right. Next question comes from Tal Woolley from National Bank Financial. please go ahead.
Tal Woolley
Hi. Good afternoon.
Mitchell Goldhar
Good afternoon, Tal.
Tal Woolley
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
No, they are renewal options.
Tal Woolley
Okay. We’ve got it. Okay. Just on the Cambridge site that is – that site the 12 million square feet of density, that’s currently a 100% owned by the REIT?
Mitchell Goldhar
Yes, it is.
Tal Woolley
Okay. And do you have intention to bring in partners now later? Like how are you thinking about that process?
Peter Forde
We don’t know yet. I mean, we’ve been approached by a few capable developers. So, we’ll see there’s enough to go around. They’ll probably be, I mean, probably will make sense to have some partners and parts of it. but obviously, yes, I mean, we want to do what’s best for the REIT first and fore mostly, 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 was. but yes, it’s huge project. So probably, imagine, there will be a few parts and phases of that one with partnerships.
Tal Woolley
Okay. And do you have any sense of like what density sort of trading at on a per buildable square foot basis in the market – in that market?
Mitchell Goldhar
I mean we do, but we’re not kind of there yet in terms of being 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 ended up itself in the Tri-City area there, but this obviously is very strategically located and probably, was rezoned. by the way it is zone; it’s not to be zoned. It is official. It is the actual law of the property now. But anyway designated that there’s 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 cold horseshoe, but putting a number on it, like you could just take the density and put on any range of a 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 – yes, it’s not – it’s not Northern Manitoba or something, it’s super GTA and good timing.
Tal Woolley
Okay. And apart from the fact that it’s strategically located on the highways, is there any intention to have further transit builds doing around there, because that was obviously a big part of the story with City 2 [ph]?
Mitchell Goldhar
As you know, I mean, transit, like go expansions across the north shore is a priority of the province in the various regions. So, I mean, we do anticipate there’ll be – this will probably partly, potentially, some potential mass transit initiatives to this specific site. but in the meantime, it is literally on the highway, like to you – 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 go transit in the various five districts at the moment. And we do have the off-ramp, not just like on the highway, 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 an ideal to phase this mixed shift in. So, yes – I don’t know of a specific mass transit to imminently being built – to be built right to our doorstep, but these things are changing right now rapidly in the GTA.
Tal Woolley
Okay. and then Peter, you had mentioned, you know, 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
likely the Vaughan Northwest townhome project will have closings in 2022. The sale – those townhouses are expected to be – so a sales program started in February – this upcoming, February and construction starts shortly thereafter, so closings in 2022 and then Transit City 4 and 5 a year after that, so...
Tal Woolley
Okay. That’s perfect. Thanks very much, gentlemen. Appreciate it.
Operator
All right. We don’t have any other questions in the queue at this point. [Operator Instructions] All right. So I’m going to have a few people queuing up. Next question comes from Jenny Ma from BMO Capital Markets. Please go ahead. Your phone may be on mute, Jenny.
Jenny Ma
Thanks for that. Good afternoon, everyone. This question is probably for Peter Sweeney, but wanted to ask, what is the line item that is the sales tax related to CECRA, looks like it was about $1.5 million every quarter for the past couple of quarters?
Peter Sweeney
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 REITs 25% share that we have to do in this case forgive that’s all that is.
Jenny Ma
Okay. And then it looks like there was some previously capitalized G&A taken in this quarter that was coming from PC1 and PC2, 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 prorated into Q4 as well?
Peter Sweeney
It actually, I mean that 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 its costs that really, I think of those 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.
Jenny Ma
Okay.
Peter Sweeney
But it’s actually G&A from a prior quarter that was skipped for a prior year or actually that was – would have been capitalized.
Jenny Ma
Yes, yes. I got that one. I was just wondering if it’s being recognized sort of all at once. Sort of as an event in Q3, because of COVID the commencement or if it gets spread out proportionally…
Peter Sweeney
There’ll be an equivalent amount in the fourth quarter as well.
Jenny Ma
Okay.
Peter Sweeney
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 when and arriving at that number.
Jenny Ma
Right, right. So, that would be something that basically accompanies any future condo closings as well, just as an accounting item, I guess.
Peter Sweeney
Yes.
Jenny Ma
Okay, great. Okay. That is all from me. Thank you.
Operator
All right. Next, we have a question from Sam Damiani from TD Securities. Please go ahead.
Sam Damiani
Thanks very much and good afternoon, everyone. First off, just wanted to touch on occupancy, really it was very encouraging to hear your commentary. So, I think in the last quarterly call, we were giving guidance for between 100 basis points 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 into 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?
Peter Forde
Yes. That are 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 that 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 with committed deals that we should be on the lower end of that range.
Sam Damiani
Okay. That’s helpful. Thank you 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 Sweeney
No. I guess, I’ll comment that we’re not sure. I guess that things are 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 – 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, so are you ready?
Peter Forde
No, no. And they report, Simon 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 two to three 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 it – when they were – 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’s lonely be limited by what the government mandates in terms of social distancing.
Sam Damiani
Okay. Thank you. 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, one or two buildings too much existing stock is above the five-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 are already in place for competing properties nearby?
Mitchell Goldhar
Well first of all, we could have had this conversation two years ago about Vaughan, about the highway – it’s not just around the subway. I mean, you can go to Rutherford and obviously, you can go to all kinds of parts of Vaughan even, center Bathurst [ph]. I mean, so yes, I mean, these are – 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, we all we go, I mean, we’ll try to figure it out, but it’ll be higher than what you were referring to. And I mean these kinds of changes to get other changes. So, I’m not sure if there’s anyone next. I know next door they’ve converted land – they’ve rezoned land from non-res to res and they’re doing townhouses.
Our first phase, I mean, realistic, hopefully we’ll start sometime in the next year there, plus or minus, I mean, the margin that they’re getting started is pretty high in development, just because there’s all these servicing and things related to that. But plus or minus, so that’s very near term, probably start with some lower stuff initially. Maybe, even some townhouse is actually, we’ll always sprinkle these types of developments with different forms. I don’t know, we’ve talked about between things analysis in London and markets that are a little bit quite. I mean, overlooked, but there’s demand, there’s reasons why there’s things going on there. Cambridge is start more adrenaline than the nose to but for all kinds of reasons, but even like some of those markets have a lot of potential, what we’re doing in Berry as well. So yes, there’s going to be a lot of changes, but somebody is got up initiate the changes and some of these cases, it will be us. but the way the market’s up there, we’re not going to do it in the meantime, we’ve got a sustainable rent collecting shopping center in the meantime.
Sam Damiani
That’s great. Congratulations again, on it. Then I’ll turn it back.
Operator
All right. And we don’t seem to have any other questions. Yes, we do actually. We have Dean Wilkinson from CIBC World Markets, which is queued up. Go ahead.
Dean Wilkinson
Thanks. Just on the rather large amount of money that Walmart is spending across their store network. Are they doing that work independent of you? And have they asked for any capital contributions towards any of that, that would sort of come back in the form of rent or anything like that?
Peter Forde
They’re doing it independent of us meaning, but we’re obviously involved, where 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 stand 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 Wilkinson
Okay, great. And just turning onto the balance sheet, you’ve got – still carrying that elevated level of cash. How, I mean, is it as simple as in we’re post-pandemic, someone’s come up with a magic viewer, the advisor, whoever that you start looking at utilizing that sort of $425 million or do you want to keep that on there and your market for development capital?
Peter Sweeney
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 million plus that’s on the balance sheet. So that will put a large dent into that cash balance. In addition, over the next six months, I think we’ve got, I mentioned $70 million or so 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’re uncertain as to what the future might hold, given the pandemic and everything associated with it. And certainly, given how the first three or so months of the pandemic period had gone.
Our board strongly encouraged us to play a stake 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 yes, it is perhaps a 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 Wilkinson
Yes. now, it makes sense. And then the 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, the leverage looks the same, but your coverage ratios should improve significantly.
Peter Sweeney
Yes. Yes.
Dean Wilkinson
Okay. That’s it. I’m probably the last question. So thanks, guys.
Peter Forde
Thanks, Dean.
Operator
All right. Yes, Dean was correct. He was the last question in the queue at this time.
Peter Forde
Okay. Well 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.
