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First Capital Inc (NASDAQ:FCAP)
Q3 2020 Earnings Call
Nov 4, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the First Capital REIT's Q3 2020 Results Conference Call. [Operator Instructions] I would like now to turn the conference over to Alison. Please proceed with your presentation.

Alison Harnick -- Senior Vice President, General Counsel

Thank you, and good afternoon, everyone. In discussing our financial and operating performance and in responding to your questions during today's call, we may make forward-looking statements. These statements are based on our current estimates and assumptions, many of which are beyond our control and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in our various securities filings, including our Q3 MD&A, our MD&A for the year ended December 31, 2019, and our current AIF, which are available on SEDAR and on our website. These forward-looking statements are made as of today's date and except as required by securities law, we undertake no obligation to publicly update or revise any such statements.

During today's call, we will also be referencing certain financial measures that are non-IFRS measures. These do not have standardized meanings prescribed by IFRS and should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Management provides these measures as a complement to IFRS measures to aid in assessing the REIT's performance. These non-IFRS measures are further defined and discussed in our MD&A, which should be read in conjunction with this conference call.

I'll now turn the call over to Adam.

Adam Paul -- President and Chief Executive Officer

Thank you very much, Alison. Good afternoon, everyone, and thank you for joining us today for our Q3 conference call. Some of the positive signs we saw emerging toward the end of Q2 continued through the third quarter resulting in FFO that was ahead of expectations entirely through higher than expected NOI. This is owning to a number of things, including the resiliency of many of our tenants who are categorized as non-essential by governments. A good number of these tenants reopen and performed well which is attribute to both their ability to adapt and the quality of our real estate. Real estate fundamentals and consequently asset quality are paramount at FCR and have been since our start 20 years ago. I'll focus on that theme today with my comments.

So let's start with leasing. Our leasing activity through the pandemic has been strong. In Q2, despite the fears raised by the pandemic, we did a substantial amount of leasing. Following reopenings that took place, Q3 was even better. Since both quarters were squarely during the pandemic environment, I'll speak to them on a combined basis. We completed a total of over 1.3 million square feet of leasing activity across 346 transactions during the last two quarters. This volume was comprised of two components. The first is renewal activity, which totaled 1 million square feet and spanned a wide array of tenant categories from grocery stores to medical to restaurants to gyms. Roughly 60% of this leasing was to tenants who're deemed non-essential by government and 40% that were deemed essential.

For clarity, we consider all of our tenants essential to our efforts to create thriving neighborhood regardless of how governments classify them during a global pandemic. Heading into this year, we have 38 bank expiries, totaling 213,000 square feet in 2020. We have now renewed all 38. The average rent increase across all 1 million square feet of renewals during the last two quarters was a healthy 9.2%, consistent with our 10 year average of 9.3%. Our renewal volume also compares well to our historical volume.

The second component is our new leasing activity. In Q2 and Q3, we completed just under 300,000 square feet of new leasing on vacant space. Roughly 70% of this new leasing was to tenants who are deemed non-essential by government. Net rental rates for the new leases in Q3 were consistent with pre-pandemic levels averaging $24 per square foot, roughly 10% higher than in-place rents. We're also encouraged by our pipeline for space that is currently under active negotiation. As always, internal targets for lease up and tenant mix have been considered and set for all vacant space. We do not operate in a take what you can get mode. We never have.

Enhancing our tenant mix with new retail concepts remains an important part of our strategy. We've added some unique retailers over the last few months. Couple Diamonds is one of our newest tenants in Yorkville Village Mall. This innovative concept is a leader in omni-channel retail and aligns well with FCR's ESG focus. For those who aren't familiar, Couples is a digitally native leading seller of lab-grown diamonds that are chemically identical to mine diamonds but with a much more positive environmental and ethical impact.

Another new tenant that will soon join Couples in Yorkville Village Mall with a flagship store is Pulsar. Pulsar is a global design focus electric performance car brand. They have a new take on automotive retail, which utilizes carefully designed unique retail environment instead of conventional dealerships. Both tenants are great additions to our offering in Yorkville and are indicative of continued demand for high-quality space in a very dynamic retail marketplace. In fact, our luxury retailers in Yorkville such as Brunello Cucinelli, Chanel and Versace sales over the last few months have exceeded the same prior year periods.

The bulk of our leasing activity continues to come from uses more typical to FCR, including grocery, pharmacy, pet stores, medical uses and restaurants, among others. Yes, we have been doing active deals with restaurants. We have many types of restaurants and they have been impacted by COVID differently. So this quarter we have broken the category down further in our MD&A and investor presentation to reflect these differences. Restaurants as a category comprised 14.6% of our rental revenue.

Now the components, quick service restaurants or QSRs have performed quite well with many of our QSR tenants experiencing sales growth over the same prior year period. This group is typically in smaller spaces, sometimes with drive throughs and are continuing to generate meaningful sales through takeout and delivery, and to a lesser extent right now, in-store dining were permitted. Coffee shops and national chains are other sub-categories, both of which are generally comprised of retailers who have the wherewithal to come through this and prosper even those in which sales are down.

Together, QSR, coffee shops and national chains represent the vast majority of our restaurant category at 12.9% of total rent. The remaining ones are generally comprised of sit down restaurant -- restaurants that were profitable pre-pandemic. However, this group continues to require support. We believe these restaurants will once again become vibrant hubs of the thriving neighborhoods in which we operate. Government aid is well-targeted to this group, including the new service program. At 1.7% of FCR's rental revenue, this is a fairly small category, but very important to our long-term tenant mix. So we will do our part as well to support them through.

We continue to feel good about what we're seeing on the ground and specifically leasing. Market reactions to retail real estate since the start of the pandemic would indicate that many are taking a macro generalized approach. A great majority of investors have not spent time at our properties. This makes it more difficult to recognize the qualities which differentiates FCR from other real estate companies. These include the strength of our locations, our focus on demographics, the above average performance of our essential tenants and our leasing and operations teams among others.

The physical interaction with real estate provides one with a very important perspective. I vividly remember The Great Recession of 2008 and 2009. Like today, there was a very significant disconnect between public market valuations of high quality REITs and the value of their underlying real estate in the private markets or say differently, their net asset values. Like every other crisis when this is occurred, private market values held and public market values rebounded, although that was never an obvious outcome in the midst of the crisis. I also remember how encouraging it was to spend time at properties and to see what was actually happening on the ground. Real estate has always been a local business and experiencing properties and neighborhoods has always been an essential part of assessing their health.

My colleagues and I continue to do just that. Although we do it in a larger bus these days. We allocate full days to tour properties together in a safe socially distance way and what we're seeing is reassuring and encouraging. Our properties are busy. They are typically the most productive grocery anchored centers in each of the trade areas in which we operate. Our long-term commitment as the industry leader in property operations for our product type is shining through, whether it's the additional weather protection measures being installed to manage line queuing as winter approaches or FCR's quick shop which was rolled out nationally to facilitate curbside pick-up and buy online pick-up in store, something that we have now made permanent. We don't just tour our own assets, we also tour competing properties in each respective trade area. We observed how our grocery stores are stocked, which is an indicator of their volume and turnover. We look at access, signage, cleanliness, energy efficiency, parking lot in building conditions and much, much more. We focus on merchandising mix. We speak to store managers and gather valuable information on these tours. And we come away with an on the ground sense of how properties are doing, what we can do to improve hours and a lot of raw material for a valuable brainstorming sessions that result in action plans. We can't take you with us on these tours. So instead, we have started filming the typical activity at our properties and are releasing short videos of sub-markets that cover our portfolio and it tends to bring the on the ground sense a little closer.

At this time, please refer to Page 4 of our conference call deck. There is a video link that's embedded in the slide and I would ask you to now please click on it to play the video. This is our GTA West portfolio, comprised of Oakville, Burlington, Brampton and Mississauga. This video footage was all shot during the last two weeks. So you get a very current sense. While the activity is evident, I'll provide some additional details on this portfolio. It includes 11 properties totaling 1.7 million square feet on a 160 acres of land. It represents roughly 8% of our total portfolio value and carries an IFRS value that is well below current replacement cost. The current occupancy of this GTA West portfolio is 97.6%. Every property with one small 20,000 square foot exception has a grocery or food store. The majority of our grocers report sales on an annual basis, which averages $725 per square foot in this portfolio, a very healthy number that will increase substantially once 2020 sales are included. So, in summary, an exceptional, well positioned portfolio that I encourage you to visit, seeing really is believing.

While the video is wrapping up, I will finish with ESG. It's wonderful that many of our peers have started to focus on this topic. This is great for our industry. As an ESG pioneer in the real estate sector, we have earned our right as a leader in this area, which means we're able to leverage our position by holding more of our stakeholders accountable to our high ESG standards. We have a track record that includes 11 years of commitment to publishing in annual ESG or CRS report that outlines our activities and progress. Looking back, it included multi-year greenhouse gas emission reduction targets that started 10 years ago. That was also the timeframe when we started installing electric car charging stations at our properties. And in 2006, nearly 15 years ago, we committed to building all new developments to lead standards.

Our team members fully appreciate that being an industry leader in ESG is business as usual for FCR. It has been long embedded in our DNA and our culture. It is also deeply and naturally intertwined with our super-urban strategy. Building on our ESG track record and platform, we are nearing completion of our new five-year ESG roadmap that is most detailed, wide reaching and ambitious set of targets that we have tackled. These targets are good for employee retention, recruitment and engagement, reducing our carbon footprint and reducing operating expenses for our tenants. Simply, it's just good for business. We look forward to sharing further details in due course.

Before I turn it over to Kay, I do want to touch on CFO succession. As you know, Kay is soon retiring from full time executive life. I will hold my departing comments for her until our next conference call. We recently announced that Neil Downey will soon join us as EVP Enterprise Strategies and CFO. Given the opportunities and challenges that lay ahead, his unique skill set will be very beneficial to FCR and our stakeholders. We're thrilled to have someone of Neil's caliber join our leadership team and we look forward to formally welcoming him very soon. So there's been a lot going on at FCR and the team has made very meaningful progress.

With that, I will now pass things over to Kay to review our quarter in more detail. Kay?

Kay Brekken -- Executive Vice President and Chief Financial Officer

Thank you, Adam. Good afternoon, everyone, and thank you for joining us today. As we mentioned in our press release, we collected 92% of the gross rent due in the third quarter. 86% of the rent due was collected from our tenants directly and 6% was collected from the loan proceeds under the CECRA program. In Q2, we collected 75% of the gross rent due from our tenants. Subsequent to quarter-end, we collected 7% from the CECRA loan proceeds, bringing our total cash collections for Q2 to 82%. To-date, we have collected 90% of the gross rent due for the month of October from our tenants directly. We expect this number to increase as all final payments are processed and as tenants receive funds under the new government support program referred to as CERS, which has not yet been launched, but will be applicable starting with October rent.

It's important to note that our cash collection rates for Q2 and Q3 do not include the application of any tenant security deposits or any payments to tenants to secure development rates that were in turn applied to rent collection. We continued to support our small and medium sized tenants by fully participating in the CECRA program for all applicable periods, including April through September. As a result, we recorded a total of $13.4 million of bad debt expense related to this program, including $7.9 million in the second quarter and $5.5 million in the third quarter.

As we mentioned on our second quarter conference call, we took a conservative approach to establishing our Q2 provision as we were still expecting CECRA applications at that time and had not finalized deals with a number of our non-CECRA tenants. At the end of the third quarter, we trued up our provision to the actual number of applications received under the CECRA program which was lower than our original estimate, for actual approved deals with our non-CECRA tenants and for the Quebec CECRA support totaling $500,000 in the second quarter, as we received confirmation in the third quarter that this program was proceeding. This resulted in a $2.1 million reversal of our provision in the third quarter and bad debt expense of $3.4 million which was much lower than the $16.8 million we recorded in Q2.

Year-to-date, we recognized $20.2 million of bad debt expense, representing 6% of our total revenue for the second and third quarters. The $20.2 million includes $13.4 million for CECRA program and $6.8 million for other tenants. As of today, 97.3% of our tenants are open in our portfolio versus 96% as of our Q2 reporting date.

Now, turning to our third quarter results. On Page 8 of our conference call slides, FFO per diluted unit decreased $0.08 over the prior year period. A good portion of this decline was expected, given we recognized $8.7 million or $0.04 per unit of non-reoccurring gains and fees in the third quarter of last year. Of the remaining decline, $0.02 was due to the impact of our disposition program on NOI and on interest expense as a portion of the disposition proceeds were used to reduce outstanding debt. $0.015 was due to lower interest income due to reduction in our outstanding loans and mortgages receivables. Additionally, FFO was down due to lower same-property NOI, primarily as a result of higher bad debt expense related to COVID-19.

Moving to Slide 9, same-property NOI decreased 5.4% over the prior year for the reason I just mentioned. On Slide 10, we highlight our Q3 leased renewal activity, which totaled 589,000 square feet of renewals completed at a record average rate of $25.20 per square foot. Our year-to-date lease renewal rate increased at 11% is very strong and above our 10 year average increase.

On Slide 11, our average net rental rate grew a record 5.8% over prior year as our strong renewal lift, built-in rent escalations, new tenants opening at higher rates, developments coming online and the impact of our disposition programs are all driving higher rental rates.

Moving to Slide 12, our total portfolio occupancy decreased 30 basis points from the second quarter, primarily due to the impact of COVID-19. It's important to note that some of this increased vacancy has already created attractive opportunities for us. We have negotiated replacement deals with stronger tenants paying higher rents in two of the largest locations that contributed to the increased vacancy. Additionally, one of the other larger vacancies will also allow us to add a yield that we don't currently have to one of our centers, ultimately enhancing the overall performance of the entire center. Based on what we know today, we're expecting our Q4 occupancy rate to remain relatively stable and will continue to capitalize on any future vacancy by improving our merchandising mix to drive higher rental rate growth.

Slide 13 highlights our largest active developments, which are primarily residential projects located in Toronto. Year-to-date, we've completed $134 million in dispositions, bringing our total dispositions to $1 billion over the past 18 months, putting us to two-thirds of the way to achieving our $1.5 billion disposition goal. As of September 30th, the average population density surrounding our properties surpassed our previously stated goal of reaching 300,000 by 2021. This represents an increase of 96,000 or 47% since January 2017 and we remain the North American leader among our peer group on this metric.

Slide 14 shows the factors impacting FFO and the year-over-year changes which I previously discussed. Slide 15 touches on our other gains, losses and expenses which are included in FFO. Slide 16 summarizes our ACFO metric. ACFO for the quarter increased primarily due to lower capital expenditures as part of our cost reduction programs, which I will discuss shortly.

Slide 17 shows our financing activities. We continue to take proactive measures to improve our liquidity and maintain our financial strength, which provides us with greater flexibility to navigate through the pandemic. During the third quarter, we funded $116 million mortgage at a rate of 2.7%, which is the lowest rate we have ever achieved on a 10 year mortgage. In addition, we completed a $200 million unsecured debenture offering with the term of 7.5 years. We use the proceeds from the new mortgage and the debenture offering to repay higher rate maturing debt and outstanding balances on our operating line of credit, which enhanced our liquidity, which now stands at $835 million. Additionally, one of the measures we announced in the first quarter to maintain financial strength and flexibility with our cost reduction program.

Through this program, we intend to achieve $75 million in savings versus our planned spend for the period April through December of this year. This program includes a reduction in property operating costs, general and administrative expenses, development spend and elective maintenance capex. To-date, we have achieved savings of approximately $67 million or 89% of our goal and are well positioned to exceed our savings goal by year-end.

Slide 18 touches on our financial strength and flexibility. At quarter end, we had approximately $7 billion or 70% of our assets unencumbered, including the vast majority of our very best assets. Our liquidity position as of November 3rd remains strong and includes approximately $835 million of cash and undrawn credit facilities.

Our term debt maturities are shown on Slide 19. For the remainder of 2020, our maturities totaled just $3 million with only 6.3% or $302 million of our total debt maturing in 2021, all of which could be funded by our existing liquidity. In terms of our credit ratings, earlier this week, S&P completed their annual review and confirm their previously assigned rating of BBB- with a stable outlook.

Before I conclude, I would like to recognize and thank our property management team across the country who are FCR's frontline workers. They have done a tremendous job managing our properties and demonstrating the leadership in tenant relations and working closely with our tenants and service providers throughout the challenges of the pandemic to ensure we were providing a safe environment and adapting to government restrictions and protocols to meet the needs of our tenants, our customers and the communities that we serve.

At the same time, they were focused on implementing critical tenant support programs across our portfolio, including our quick pick-up programs, which facilitates convenient and safe curbside pick-up and administering the coordination of our FCR's Small Business Support Program and then transferring their efforts to support the CECRA program. A huge thank you to our entire team of frontline workers for their dedicated efforts and commitment over the past several months.

I'm also very proud to announce that last week our urban property shops at Oakville South located in Oakville Ontario won the BMO -- won the BOMA, sorry, Canada Outstanding Building of the Year Award in the retail building open-air category. This award recognizes excellence in property management and acknowledges performance, quality and the people behind it. Judging is based on extensive criteria, including building standards, community impact, tenant relations, energy conservation, sustainability initiatives and emergency preparedness, a well-deserved recognition of the hard work and dedication of our property management team members, which truly demonstrates the FCR values of collaborations and excellence and leading through proactive management.

As we navigate through the pandemic, we continue to closely monitor and evaluate all aspects of our business with a focus on ensuring our portfolio is best positioned for future growth. We have been and continue to be fully committed to supporting our tenants through the pandemic. Through our Small Business Support Program and full participation in the CECRA program, we have invested in the financial health of these tenants and we'll continue to support them in our centers as we all adapt to new realities. We remain confident that the superior quality of our necessity-based urban portfolio will continue to differentiate us in the months and years to come.

At this time, we would be pleased to answer any questions you have. Chris, will you please open the call for questions?

Questions and Answers:

Operator

Certainly. Thank you. [Operator Instructions] First question is from Pammi Bir. Your line is open. Go ahead. Pammi Bir, your line is open. Mr. Bir, are you there? Pammi Bir?

Pammi Bir -- RBC Capital Markets -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Pammi Bir -- RBC Capital Markets -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Pammi Bir -- RBC Capital Markets -- Analyst

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

Kay Brekken -- Executive Vice President and Chief Financial Officer

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

Pammi Bir -- RBC Capital Markets -- Analyst

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

Kay Brekken -- Executive Vice President and Chief Financial Officer

So...

Adam Paul -- President and Chief Executive Officer

So again, sorry, go ahead, Kay.

Kay Brekken -- Executive Vice President and Chief Financial Officer

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

Pammi Bir -- RBC Capital Markets -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Pammi Bir -- RBC Capital Markets -- Analyst

Great. Thanks very much. I will turn it back.

Adam Paul -- President and Chief Executive Officer

Thank you, Pammi.

Operator

Thank you. The next question is from Tal Woolley. Your line is open. Go ahead.

Tal Woolley -- National Bank Financial -- Analyst

Hi, good afternoon.

Adam Paul -- President and Chief Executive Officer

Hey, Tal.

Tal Woolley -- National Bank Financial -- Analyst

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

Jodi Shpigel -- Senior Vice President, Development

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

Tal Woolley -- National Bank Financial -- Analyst

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

Adam Paul -- President and Chief Executive Officer

No, I mean the -- when I say no, what I should say is obviously the NOI in the hotel is down, but in terms of the bigger part of your question about should we see a material uptick on the other side of this. The hotels exceptionally strategic from a real estate perspective, but it's a 77 room hotel, so if we got to put the size into context...

Tal Woolley -- National Bank Financial -- Analyst

Yeah.

Adam Paul -- President and Chief Executive Officer

And so I wouldn't expect -- it's not going to materially impact on the down part of this environment which we're in the midst of now. And conversely, we started it -- we had the best year the hotels ever had in its history coming into this and we expect to get back there. We don't know exactly when, but it's going to be similar on the upside where it's not that material either.

Tal Woolley -- National Bank Financial -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Tal Woolley -- National Bank Financial -- Analyst

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

Adam Paul -- President and Chief Executive Officer

A bridge.

Tal Woolley -- National Bank Financial -- Analyst

It's the bridge.

Adam Paul -- President and Chief Executive Officer

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

Tal Woolley -- National Bank Financial -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Tal Woolley -- National Bank Financial -- Analyst

Just be on the active, yeah, sorry, on the -- like on the active side because there is a number of projects there that are sort of smaller and like the similar projects have sort of been there with these smaller tail pieces like King High Line on it? And I just wondered if there will be like kind of a more meaningful refresh of that as we move out into like '22 and beyond.

Adam Paul -- President and Chief Executive Officer

Yeah. Well, are you getting at new projects being added to the pipeline...

Tal Woolley -- National Bank Financial -- Analyst

Yeah.

Adam Paul -- President and Chief Executive Officer

As active projects?

Tal Woolley -- National Bank Financial -- Analyst

Yeah.

Adam Paul -- President and Chief Executive Officer

Yeah. I mean, look, we're going to be very careful on new development starts. There is no question it's a more cautious approach right now than it was say nine months ago. Our decision to proceed on projects at the time that was I guess originally planned will be impacted by a variety of factors, including our progress on dispositions, the position of our balance sheet, the risk that we perceive in the development, whether it'd be on the cost or revenue side, managing the size of any individual project within the context of our overall program, and just general market condition.

So, I mean as great as things have been progressing inside the business, it doesn't take more than us looking at the stock screen to say we're not in a normal environment here and so that's not lost on us. And decisions like starting multi-year development project certainly are impacted by that and we'll have to make those decisions at the time. But, yeah, there's definitely -- the environment is different than it was nine months ago from development for a whole bunch of reasons. And as Kay mentioned, we still have our deleveraging targets that are a high priority for us. So that's going to weigh-in and the progress we make on that and the progress we think we will continue to make going forward will be important parts of those decisions as well.

Tal Woolley -- National Bank Financial -- Analyst

Okay. That's great. Thanks a lot, Adam. Appreciate it.

Adam Paul -- President and Chief Executive Officer

Okay. Thank you, Tom.

Operator

Thank you. The next question is from Sam Damiani. Your line is open. Go ahead.

Sam Damiani -- TD Securities -- Analyst

Thanks, and good afternoon, everyone. Just wanted to...

Adam Paul -- President and Chief Executive Officer

Hi, Sam.

Sam Damiani -- TD Securities -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Carmine Francella -- Senior Vice President, Leasing

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

Adam Paul -- President and Chief Executive Officer

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

Sam Damiani -- TD Securities -- Analyst

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

Adam Paul -- President and Chief Executive Officer

If you adjust Q2 and Q3 for bad debt, we generally came in low single-digit growth and that's probably our best guess right now.

Sam Damiani -- TD Securities -- Analyst

That's helpful. Thank you very much.

Adam Paul -- President and Chief Executive Officer

Okay. Thanks, Sam. And I know we did that low-single digit growth on lower occupancy. Okay. Next question please?

Operator

Thank you. [Operator Instructions] The next question comes from Jenny Ma. Your line is open.

Jenny Ma -- BMO Capital Markets -- Analyst

Thank you. Good afternoon.

Adam Paul -- President and Chief Executive Officer

Hi, Jenny.

Jenny Ma -- BMO Capital Markets -- Analyst

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

Kay Brekken -- Executive Vice President and Chief Financial Officer

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

Jenny Ma -- BMO Capital Markets -- Analyst

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

Kay Brekken -- Executive Vice President and Chief Financial Officer

Sorry, I was on mute. I was talking Jenny and I guess you couldn't hear me. So, sorry.

Jenny Ma -- BMO Capital Markets -- Analyst

No worries.

Kay Brekken -- Executive Vice President and Chief Financial Officer

We've reported in our conference call deck, the amount of abatements for non-CECRA tenants and the amount of deferrals for non-CECRA tenants both in Q2 and Q3. So if you look at those numbers, you can see that they are trending down and that is what we would expect in the fourth quarter as well. We would expect a further trend downward.

Jenny Ma -- BMO Capital Markets -- Analyst

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

Kay Brekken -- Executive Vice President and Chief Financial Officer

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

Jenny Ma -- BMO Capital Markets -- Analyst

Okay, great. And then, moving onto the held for -- the assets held for sale bucket. Now, you've talked about the different sort of types of assets in there. Is there any sort of delineations between locations or is it concentrated in the GTA, are you able to give us any color on that?

Adam Paul -- President and Chief Executive Officer

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

Jenny Ma -- BMO Capital Markets -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Jenny Ma -- BMO Capital Markets -- Analyst

Okay. Thank you very much. I'll turn it back.

Adam Paul -- President and Chief Executive Officer

Great. Thank you.

Operator

Thank you. The next question is from Dean Wilkinson. Your line is open. Go ahead.

Dean Wilkinson -- CIBC World Markets -- Analyst

Thanks. Good afternoon, everyone.

Adam Paul -- President and Chief Executive Officer

Hey, Dean.

Dean Wilkinson -- CIBC World Markets -- Analyst

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

Adam Paul -- President and Chief Executive Officer

Yeah, that's true.

Dean Wilkinson -- CIBC World Markets -- Analyst

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

Adam Paul -- President and Chief Executive Officer

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

Dean Wilkinson -- CIBC World Markets -- Analyst

Fair enough. And your debt rolls, I'm sure it's in the disclosures, but the cost of debt maturing in the 2021 was fairly high, wasn't it? So if there is going to be a substantial savings that come given that things are...

Adam Paul -- President and Chief Executive Officer

Yeah. I mean -- yeah, I mean, look our -- the current forecast are that interest rates are stand-alone for a while now. And so...

Dean Wilkinson -- CIBC World Markets -- Analyst

Yeah.

Adam Paul -- President and Chief Executive Officer

We will be a beneficiary of that. I know the focus in general in the capital markets right now is more on the risk side. But if you look at the debt rolling over the next few years at FCR and the cost of it, there is a tailwind certainly in this interest rate environment. But even if they started to creep up a bit, there's still a tailwind.

Dean Wilkinson -- CIBC World Markets -- Analyst

They have to go a long way either debt mis-priced...

Adam Paul -- President and Chief Executive Officer

Yeah.

Dean Wilkinson -- CIBC World Markets -- Analyst

Or equity is mis-priced and something will square...

Adam Paul -- President and Chief Executive Officer

Yeah.

Dean Wilkinson -- CIBC World Markets -- Analyst

On that overtime. Okay, that's great. Thanks everyone. Handed back.

Adam Paul -- President and Chief Executive Officer

Okay. Thank you very much.

Operator

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

Adam Paul -- President and Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Alison Harnick -- Senior Vice President, General Counsel

Adam Paul -- President and Chief Executive Officer

Kay Brekken -- Executive Vice President and Chief Financial Officer

Jodi Shpigel -- Senior Vice President, Development

Carmine Francella -- Senior Vice President, Leasing

Pammi Bir -- RBC Capital Markets -- Analyst

Tal Woolley -- National Bank Financial -- Analyst

Sam Damiani -- TD Securities -- Analyst

Jenny Ma -- BMO Capital Markets -- Analyst

Dean Wilkinson -- CIBC World Markets -- Analyst

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