Q3 2020 H&R Real Estate Investment Trust Earnings Call
Welcome to each and our real estate investment Trust Twentytwenty third quarter earnings conference call before.
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Now I'd like to introduce Mr., Tom Hofstetter, Chief Executive Officer, and other teachers I've read. Please go ahead mr. helps better.
Thank you and good morning, everyone.
I'd like to thank you all coming and joining us on call today with me here are leery from our CFO, Pat Sullivan C. O primaries, so we'd love point still blend tower, and Katzenberg Executive Vice President corporate development, and Alex Avery Executive Vice President asset management and strategic initiatives a lot has happened since July.
Last conference call. The U.S. selection is finally over progress on treatment and vaccines or cope and 19 can you covered and appointment and.
And now the collectivity and it seems that societies and getting better at living more normally as we wait for the end of the pandemic, we've continued to prioritize and safety of our employees tenants and visitors to our properties falling all the recommended protocols, including social this and things and frequent going.
From a business perspective, Q3 results reflect the high quality of on portfolio and appeal on our properties to the creditworthy tenants that occupy them and collections average over 93% of the quarter and continue to improve Q3 ever fall for you and it was down less than 5%, primarily due to bad debts on the quarter absent whichever, hoping and it would've been real would have risen by 5%.
Net asset value per unit increased slightly primarily driven by increased investment demand for sunbelt departments.
We're pleased with how well our portfolio has performed through these exceptional times, we are clearly not through the spend demographic and may feel a further economic impact over the next few quarters, but the stability and resilience of our business is clear our <unk> team continues to work closely with our tenants to find mutually beneficial solutions to support the success of our properties. We are confident that day should I read is adequately.
Capitalize on owns great real estate and has the flexibility to take advantage of opportunities and the market immediate arise over the coming quarters and with.
Is that on hand over the call to Larry who will review our quarterly results followed by Patrick will provide an update on our retail portfolio and then over sleep well update us on our multi rest portfolio Larry.
Thank you Tom good morning, everyone.
Overall, we collect and 93% on the rent growth in Q3 2020.
And increased from 90% and Q to Q.
Q4 looks like the trend will continue that's already collected 95% of October's total billing.
We increased our bad debt provision by 13.4 million and Q3. In addition to the 24.5 million books from Q2.
Fundamentals for tenants that fall from credit protection 2.8 million was from what's for the 20 pop up and went to paid once we agree to under the current net Canada emergency commercial rental assistance program.
And 5.5 million on what's for other rent abatements, we expect the growth on a general provision.
Net of these provisions on accounts receivable balance at September Thirtyth, and HR ownership and closed 23.6 million down from 32.5 million on June Thirtyth 2020.
As can be expected most about 13.5 million provision for bad debts arose from our retail division, which accounted for 95% on the portal [noise].
And specifically in on clothes mall portfolio.
GAAP provision for bad debts amongst all four segments can be found on the press release and the empty and <unk>.
As a reminder, we own 100% of 10 and closed malls and on 50% of seven other and close from all these.
These malls and our proportionate share of on a sub accounts for 21% on about total billing.
Same at the property operating income on a cash basis decreased by 5.5% and 3.8% respectively for the three and nine months ended September Thirtyth 2020 on pace with respect to 2000 and not seen periods, primarily due to the provision for bad Day X.
Excluding the provision for bad debt same at the property operating income would have increased by 1.5% and 2.7% respectively.
Same as the property operating income.
From office properties increased by 2% and for the three months ended September Thirtyth 2020 increased 8.1% from a nine month and at September Thirtyth.
Compared to the respective periods in 2019 and.
To that and the nine month ended September Thirtyth 2021 lease termination fees of 3.2 million compared to 5.8 million for the nine month and at September 30 of 2000 and on team.
Excluding lease termination fees same as the property operating income from this office division and would have increased by 1.1% for the nine month and at September Thirtyth.
The average term remaining on an office leases at September Thirtyth was 11.7, yeah.
Subsequent to the quarter, we extended heifers lease on trust So took office tower on Houston.
On an additional 10 years beyond the original expiry of June 2026.
Same as the property operating income on a cash basis from our retail properties decreased by 15.7% and 17.2% for the three and nine months and at September Thirtyth 2020, compared to the respective 2000 and on seen periods, primarily due to the provision for bad day.
Results from the impact of co that.
Excluding the provision for bad debts and property operating income would have increased by 5.3% and 2.1% respectively.
Same property operating income from industrial properties increased by 7.4% and 5.8% respectively for the three month, three and nine month and at September Thirtyth 2020.
Primarily due to an increase in occupancy and rental rate.
On your tenant that's supposed to be putting out the first industrial construction property totaling just under 343000 square feet on a calendar on land and expect right rent payments and on November 14.
Same at the property operating income cash basis from residential properties and U.S. dollar.
Decreased by 12.7% for free month ended September Thirtyth 2020, compared to respect the 2000 and on same period, primarily due to check from park in New York, which has been negatively affected by lower than average lease renewals and a hoffman traffic due to covert.
Excluding Jackson Pollock same at the property operating income and U.S. dollar sales increased by 4.1% and 8.5% for the three and nine months and at September 32020, compared to respect from 2019 period.
Over the course of the next 12 months construction will be completed on one mixed use development and five residential development.
Totally 969 additional units and al share.
Funds from operations FFR was 41 cents per unit for Q3 2020 up from 38 cents per unit and Q2 2020 and down.
From 43 cents per unit and Q3 2019 X.
Excluding the provision for bad debts, AFFO would have been 46 cents, an increase of three cents compared to Q3 2019.
Adjusted funds from operations and for FFO was 35 cents per unit and Q3 2020 up from 29 cents per unit and Q2 and flat from Q3 2019 of 35 cents per unit sales.
Traditions paid as a percentage of IPO or commonly known as the payout ratio was 49% and Q3 2020.
Debt to total assets decreased to 47.2% at the end of Q3 2020 compared to 48.1% at the end of Q2 2020.
As far as liquidity goes as at September Thirtyth, 2028, and our had $1 billion of unused borrowing capacity available and its lines of credit.
We had 54 million of cash on hand, and and unencumbered asset pool of approximately 3.5 billion with only 39 million from low mortgages maturing during the mine during the remainder of 2020 Oh.
Ill now turn the call over to Pat to give an update on our retail division.
Thank you Larry and good morning.
During the third quarter and the retail division incurred an additional $12.8 million and bad debt, bringing the year to date figure to 35.7 million and.
Oh Smalls accounted for approximately 94% of this amount.
As a result from this bad debt provision the retail division has experienced a significant decline and in a wide during the second quarter.
On a positive note without this bad debt provision the retail division would have experienced a 5.3% gain during the quarter from.
And there excluding bad debt provision ex enclosed malls would have posted a 10.4% gain during the quarter and a 4.1% gain through the first nine months of 2020, despite a significant decline and percentage rent and specialty leasing revenue.
Significant leasing and prior quarters and new store openings as resulted in a notable gain and our retail rent and recovery ratios, which we will core which we will continue to benefit from during the duration of 2020 and beyond and.
And the third quarter of 2020, just under 80000 square feet of large format tenants open for a former Sears premise with another three tenants opening and the fourth quarter from approximately 72000 square feet. This.
This is in addition to large format tenants that opened up from about 110000 square feet in Q2.
As we enter 2021 large format tenants encompassing approximately 75000 square feet is committed to open and we are and the final stages from negotiations with several tenants for approximately 55000 square feet more.
Additionally, we are close to finalizing long term renewals and expansions with two tenants that will expand by almost 15000 square feet and total and occupy almost 90000 square feet in aggregate.
[noise] collection on rents and the retail portfolio of trended higher since the low since the low point in May and Q3, we collect and 72% from the enclosed malls and 80% from the retail segment.
Section for October November and enclosed malls are trending above 80%.
With respect to tenant failures, we've retained 65% of the stores that have filed for protection under C.C. double a. and including those that have already been replaced with new tenants. This figure real rises to 82% leased.
And the Chateau, which occupied approximately 43000 square feet from 13 stores felt CCW recently, and we'll be closing all stores and our portfolio.
No share was indicated they will remain at occupancy until March or April 2021, which will afford us time to source replacement tenants for their high profile locations.
We're pleased with the fact that are and close malls and reporting sales in Q3 that are 86% compared to the same period last year with some specifically in larger markets skewing lower well several smaller market properties are posting sales above comparable month the year prior.
Generally those tenants that sell products that are associated with office work such as suits formal footwear and even cosmetics are experiencing lower sales as compared to retailers that sell casual apparel athletic footwear and household goods some of which are posting higher comparable sales figures.
Warm weather across Canada and August sales during that month were somewhat lower than expected. However September sales were solid as a result of schools opening day.
And its continue to state that the most challenging properties are super regional malls and major markets that require regional draw to generate high sales volumes as well as urban properties or rely on daytime traffic.
Most consumers are avoiding traveled a major centers and shopping locally which is benefiting malls and our portfolio.
That are typically located in secondary markets and include a higher concentration of essential services. Thanks.
Thank you on on I'll turn the call over to Felipe.
Thanks, Pat Good morning, everyone I'd like to begin by revisiting our experience through COVID-19 pandemic successful by most metrics due to the complete and exceptional dedication over on sites and corporate staff members.
And so I'll begin with another encouraging collections update.
Hi collections, we mentioned on our last call has persisted throughout the third quarter I'm delighted to announce that our teams have continued to success is evidenced by receipt of over 97% of build and run for every month from August through October I.
Additionally, as of yesterday, Atlanta or had collected over 94% and builds run for the month of November keeping pace with their collections rate of over 97%.
On the value creation funds I'd like to provide an update on or smart apartment pilot program at three real properties and Austin and two properties and Charlotte as of November 1st all hardware had been installed and the software is operational I don't fly property.
As expected and reception from residents and staff.
Positive I mean like this over the next few months will be studying the feasibility of rolling out the smart apartment platform across from portfolio.
As a reminder, these smart apartment packages include smart locks thermostats and leak sensors will provide the resident full from a control all from a single App.
In addition, we expect operational efficiencies ranging from Telus and remote access.
In addition to expense savings via vacant unit climate control.
On the development from the Pearl a 383 unit Midrise multifamily development in Austin, Texas is expected to open this leasing office and the fourth quarter 2020, and is scheduled to fully deliver on the first quarter of next year Nightingale to under 63, and a mid rise development located in Seattle and fill estimated to commence price.
Leasing by the end of this year and will deliver toward.
First quarter of 2021.
Phase one of our Hercules development, and San Francisco and named the exchange receive final CEO and leasing velocity has been stronger than expected in part due to having secured short term leases from the U.S. Navy bring and current occupancy to 64%.
Phase two of our Hercules develop and started construction during the first quarter of 2019 and is expected to deliver and the second quarter of 2021.
Lastly, shoreline and gateway or 35 storey multifamily tower and long Beach, California is on schedule and expected to be delivered in the summer 2021. The project has reached the 35th level and is currently talked out.
On the river landing.
The third quarter also saw the Grand opening of our property and Miami and her river landing a 528 unit multifamily development community and.
Florida.
We're happy to announce that we've already signed and nearly 95 leases to day, well ahead of our budget and occupancy.
For context, we had anticipated securing 95 leases by the end of the month of May 2021.
Additionally, we believe the leasing velocity to be quite strong and given that the leasing team did not moving to leasing office until this week.
Lastly, we expect to receive access to most of the amenities and the coming weeks accelerating the desirability of the property simple.
Simply put we are beyond satisfied with the leasing velocity there were experiencing a river landing.
[noise] trucks, and pork wall Jackson Park experience, the low and operating performance due to cold and my team. We are encouraged with what we believe to be the start of a rebound from an operational perspective, the property gain more new move ins and move outs and the month of October underscoring our belief that we're past the worst of the cold and 19 leasing impairment.
Furthermore, and lease expirations for the fourth quarter for only a small fraction of what they were during the summer months of 2020, and thus we feel strongly about a more favorable trajectory going forward.
Fortunately Jackson Park.
Community amenities or predominantly opened with restrictions, which supported lifestyle competitive advantage within the submarket not to mention or probably two acre park, yet another competitive advantage over the surrounding multifamily properties.
Also of note, we expect a new grocery store and open across the street from the fourth quarter 2020, which we believe will be a major draw and selling point for prospective tenants.
On the operational front at the end of the third quarter went the land to our portfolio, excluding checks and pork was nearly 93% occupied.
Orlando to our portfolio benefited from a strong summer leasing season, and above average retention rate supporting strong operational fundamentals.
On the financial front or see massive quarter and operating income decreased in U.S. dollars from 19.904 million and the third quarter of 2015 to 17 million 376003rd quarter 2020, while this equates to a CMS a quarter over quarter operating income growth of negative 12.7.
So.
This decline is attributed to the operational objects and pork.
On excluding Jackson Parker seen massive quarter over quarter operating income growth equates to a positive 4.1% for the third quarter and a positive 8.5% for the nine months ending September 2020, compared to the respective 2019 period and <unk>.
That I will pass along and conversation back to flow.
Thanks, Lee and thank you to the entire HR team for their hard work and dedication and 2020 and the team has just reviewed and generic portfolio is performing well under challenging circumstances. We are confident our portfolio will continue to deliver stable and growing cash flow underpinned by the quality of our properties and our tenants would now be pleased to answer your questions. Operator. Please.
On the line for questions.
Thank you at this time, if you would like.
Question. Please press star one net on your telephone shame on us.
First question comes from Sam and Mimi from.
<unk> Securities. Please go ahead your line is on.
Thank you good morning, everyone.
Well the first question Tom profit for you when you typically the large for US marks in Q1 a day.
Did it contemplate the kind of you know incentives that might have been provided to hess to extend this lease.
Yeah, we don't believe that it did and we are we're fine with the value and put on has with and nothing's changed.
Well, when we and availed ourselves of is obviously, a and financeability that acid is debt free.
And in addition to being in the liquidity on the asset to be on until he asked the dissolved Lee much greater we've eliminated the future risk of the asset. So we can sell it we can finance it and.
We can do whatever we want with that it's now and asset that's a quite frankly quite quickly.
Okay, and just to just to be clear and not sure. If I heard correctly, you think the and the the lease that you did will not affect the on if rest for value as it currently stands.
I think it provided liquidity, which means it and if anything the value has gone up but I think we're we're happy with the valuations we have then.
And then similarly, we have seen a return to activity within the thus market specifically for shopping centers, just and and very recent weeks and months and.
I know in the press release, and then do you now you say you haven't seen enough transactions to.
To revisit your your valuation your valuations but.
The the transactions that you are seeing as few as they may be or do they support you know the big.
Big write downs that you did take back in Q1.
I think the answer is the same I don't know what you're referring to there has been almost no malls done it on one done in DC and we know that was called free cold and they came back alive I don't know of any other malls and have transacted I think you are still missing a enough and.
Evidence of actual deals that have gotten down to that to have any she took price to have changed your opinion I think we're comfortable at the values and valuations and we yeah.
Okay and just last question is on the Mississauga industrial that looks to be adjacent to the Glaxo's specific client building is it on the north side or on the sell side of the building there that a lot that you bought.
The south.
So sad and will set up an off market deal there was a widely marketed and.
It was offline.
Okay.
And when does construction start there.
On enough another year and nine months to 12 months.
So congrats on that thanks, very much ill turn it back.
Thank you and our next question comes from that core NAC from National Bank Financial. Please go ahead. Your line is open.
Hi, guys.
Thanks for the updates on Jackson Park. It sounds like things are turning around can you speak to the type of tenant that you're targeting and and would you as universities reopen go after the international student market again in terms of leasing that up.
So I'll take that question Matt.
So two questions.
I think the make up from <unk> one of the major factors as to why we're we're currently the situation that we're in right now is due to the fact that.
Heavy concentration.
Of international students.
To be honest I don't think that we would have done anything differently. If we think about the pace of the velocity of the lease up and obviously exceeded your expectations I just from Fourq and enabled us to get.
Exceptional financing and so I'm not sure that we would have done anything differently and.
And in cash from Ford.
My guess is you know again I don't think that the property was and potentially targeting international students just on the day. It was opened whoever came and.
Through their marketing efforts going on at least and <unk>.
Units I would anticipate that as New York City would kind of on freeze no pun intended.
You would see a rebound in that demographic and we would get right back to where we were pretty cool.
Now as to what the exact makeup would be and would it be the same proportion of your students are sort of international students I don't know, but and my guess is it probably would get close.
And then don't forget and it's also November right now and international students won't be coming back for quite a few months by the time they come back I shall and hope that and we leased to others. So in reality just from a pack and perspective, it's not going to be leased to the same proportion of students because students on back and they won't be back even if coal was over there not to be running back we'll probably next September.
So what you're seeing now is young professionals and probably that have started to migrate back to Manhattan or New York City.
Yeah, I think that's a I think thats, a reasonable Steve and I also want to underscore the importance of the amended the mix the Jackson pork has that.
And my knowledge and no other property has and one on city, which is essentially a two acre park and so.
Do you think about that.
Essentially the city shutting down again and ultimately some of the businesses that tenants are from Q.
I'm going to.
And then being close but you have a private parks and you're given the opportunity to attend and to have some outdoor space, which is not close obviously, we're social so social distance and my guess is the desirability of that property over the short term will will increase we we have the very significant competitive mode to the remainder of the market due to those amenities.
And then with regards to river lending a is that and then in Miami and a city and that's a semi urban asset, but the sunbelt generally seems to be outperforming or the northeast and California. This point is that leasing traction there asset specific or is it due to the sunbelt.
Generally seeing reasonable demographics and can you speak to the rental rates as well relative to your forecasts are they coming on line as well.
So the easier I'll deal with the rental rates the run rates or exactly we're very close to where we thought they would be and so there's really no material deterioration there as it relates to the velocity I think its a 100% asset specific.
We have assets and Orlando and Tampa, we had lease ups. We know we know what to expect or new with expects and there's also a couple of properties.
Not and immediate submarket, but within a three to five mile radius of rubber landing, who are also and lease up pace is probably half of ours, which leads me to believe that it is probably a 100%.
[noise] asset specific.
We and and wanted to see we it's you know, it's a big them and not so much myself, but we as h. and or have built one heck of and assets and the the fact that frankly, we have 95 leases seven weeks and.
As a as a testament to the quality of the product.
Okay fair enough.
On the Hess a lease extension can you just where we're right and I don't know what you can provide here, but where where rents relative to prior levels and it. It's an extension for two thirds of the space I think so.
And I assume the full space will be rent paying until 2026, but how should we think and the remaining one third.
Well then the remaining one third is currently and sub assemblies on other than to force, which currently on the market. So I think you can safely assume that the one there and that being that they're not occupying is going to be sublet very shortly I as I said, it's all done other than two floors and either event for tenants that you can assume will stay there for the long term there's no.
The reason that they wouldn't so you can assume that the building and we'll have a a mix of a single to primarily obviously has and one third mix of other tenants and it'll be fully leased and should remain so it is one of the preeminent buildings and the market over there Oh it's.
Its platinum lead so I expect that a it'll be a high profile last day billing and remain fully occupied.
Okay, and then last one from me on the retail side.
It seems like you're actually getting some incremental.
Tenants, taking space and what type of tenants are leasing new space and this market and how do you think about that going forward.
[noise], we're getting on the large format tenant size, it's kind of a just a mixed bag of you know.
Take dollars Ram as a.
There's some office tenants or medical uses some of your other typical big box, guys and and inside the mall itself or not a lot of fashion activity, it's primarily electronics, some food, some or home goods and stuff like that but from.
Cash and activity is really on the smaller side is really like right now.
And and going forward I don't see I don't see us a slowing down in terms of our volume with the larger format deals. We've got a lot of discussions on the go and on the small tenant side. There is a lot of dialogue going on I think on some of the fashion guys.
Or just a waiting.
To see how the pandemic continues to evolve.
But on the electronics side and some of the other uses there is a lot more activity on that should really kick into gear and next year at the start and next year.
Okay, great. Thanks, so lots of moving parts on the quarter, but looks to be moving on the right direction ticker.
Thank you and again, if you would like to ask a question. Please press star one. Our next question comes from Sam Damiani from TD Securities. Please go ahead. Your line is open.
[noise] and thanks, and Patrick just following on the last question there what do you see as the impact on your when it take assets from a from the current situation there and the province.
Yeah, I mean, they the malls are effectively are closing we've we've arranged for online pickup orders from the store to be done inside the mall, which is good given the time of year. It is.
Hopefully, it's a short duration or the.
The government rents assistant program and help subsidize a further 25% of rent for qualified tenants in the event and government closures. So that should help significantly for a lot of the tenants.
But.
But those both malls, we have and went up heavily on that 50% level. So our that will mitigate whatever exposure, we may have but hopefully it's a a short duration for the closures.
Absolutely and just one last question on the new Red subsidy program compared to assess real is it your view that that will ensure a much greater incidence of and 100% of the rent collections.
Compared to investment.
Yeah, and my preliminary reading on it and makes it leads me to believe that a that we should see a lot better and rent collection from the tenant for their their portion that so just simply because I I believe they have to pay the rent in order to get the money from the government.
And from a from a net.
On a ministry to point of view, it's a huge relief for US I think we push through 900 documents related to circa last and with the last program. So it was a tremendous burden on or internal resources.
Thank you very much.
Thank you and our next question comes from Jamie miles from BMO Capital markets. Please go ahead your line is and.
Thank you and good morning.
And just looking at the debt stack and they got from 20 to 21 and it looks like there on few chunky maturity coming up between the first tranche and the mortgage bond and be securing a secure and might have had on that panera soft that's on the trust loan and then of course, the mortgage and just wanted to get stuff from.
Color on how you're thinking about these pieces and and if you intend to sort of roll them over and their current and former look at different ways of accessing debts.
Morning, Jamie, it's Larry and if.
If you look at on mortgage maturities of 832 million on for 2021, we expect we will have to repay two high quality about 285 million of that and we will be able to refinance the rest on.
And as far as the other facilities that are coming due.
And so some of that bankers and feeling.
From a comp pretty confident that we'll be able to renew all of them. So.
So it is really just taking care of $295 million on repayment and 2021 a mortgage on.
The rest everything else, we expect to roll refinery.
So when we think about the the line of credit and secured again, primarily can you remind me how many assets that secure and again.
For us.
<unk>.
Yeah.
Okay, and you expect to sort of roll that over and and how to secure and against these four assets or I guess, the basket baskets assets with and primary.
Well expect that's picked to roll it over and and we'll see what.
And could have assets to be a chip on Tuesday may have to give another asset a security.
And wouldn't be a problem.
Okay, and you left and the unsecured debt in June and just wondering and give us an update on some of the indicative spread you're seeing today versus five months ago.
I don't think we've seen that depends on spreads come on.
And in that much and the lost.
So from a month us on I think that kind of looking at the same kind of spreads on the on unsecured loans.
And what about the secured market.
The secured market spreads have tightened.
Oh, I'm, sorry, I, probably talked and tend.
10 to 15 people both from a from here and on the tenure and.
And lastly, do you have a preference for for being closer to five or 10 years do you want to extend the term out as much as possible notwithstanding on the.
A slight premium to that.
For us it should profit should day I think we would talk to <unk>. So that we would like to extend and as far as possible with tenure.
On based on right because I know you know nail on and yes, all time low so why not take advantage of excess beneath automotive twice and things really depends of you know to get flexibility to sell assets and want to have its a shorter term. So it's not just a question and rates or on locking in the rates for a long period of time, and giving flexibility to being able to sell assets.
Over time and for that reason, we use on security even on screws and more expenses.
Right right, Okay, I understand and I guess, just maybe one more question on the on the mortgages.
There a certain timeframe and the year, where a lot of them come due and that's fairly spread out and 2021.
Core 2021.
Look just.
Just looking at the low now it looks pretty spread out.
On through.
I felt the Oh.
Okay, great. Thank you very much I'll turn it back.
Thank you and our next question comes from marrying SARC from Scotia Bank. Please go ahead. Your line is open.
Thank you and good morning.
My question, just from <unk> to the bow and and whether you know since the low.
Q3 results coal has anything changed either.
Either and ability your appetite.
In terms of.
Constructconnect creep from that building.
No no update theres, nothing new guests and at this point on.
Okay, and then more broadly speaking.
And you'll be hearing and strong appetite in the market for long and.
Office building.
And what kind of which you're on struggle and any incremental thoughts on your ability to extract value through this.
From a slick go away and the business and owning them. So to answer. The question is that's what we do for a living.
So and once we've you know we've extended has to extended bell.
We really have no rollovers to be concerned about and we're very happy putting on coupons and and keeping having fully leased building. So this is quite high and it's really the steady.
Steady as she goes.
Okay. That's it from me.
Sure.
Thank you and our next question comes from sand and mean from TD Securities. Please go.
Go ahead your line is open.
Hi, again.
Just following on on the river landing when will that be transferred into into I.P.P. or will it all happen at once and what would be any guidance on the EPS for full impact and at the time.
[noise] and Sandy the commercial part of it which is the retail part of it will be transferred and Q4.
And residential costs may be transferred and tranches much profit to the price.
Just on the two buildings that we have and be done in a two building phase.
So probably the first building will also be transferred and Q4 and maybe the second building.
In Q1, that's a timing and we have now I have no updates in terms of and the impact of FX follow.
I would expect that initially wallets and not in a well that's not fully leased and they should be some football shortage on telecom on told those assets and stable on.
And are the retailers paying rent.
You know as we open new stores.
Or is there a free rent period, there is about Saturday and 60 90 day free rent period, but the answer is yes, all the major zero and other then TJ Max and still left to be open shortly and planet fitness will the next one.
And that's great and How's the office leasing going.
We have good demand and Miami I think you probably know is.
'cause it cold and has had strong momentum and the rest of the tests and there's many many tenants.
Tenants that have left many occupies office on suppliers that are leaving other states to go to Florida. So we're seeing good demand and we are still negotiating will not finished negotiating and to wrap up through the approval process or perhaps around half the building, where we're seeing the demand.
Thank you.
Thank you and our last question at this time comes from being Wilkinson from RBC. Please go ahead. Your line is on it.
Thanks, Good morning, everyone.
Tom maybe it's a bit of a philosophical question and the capital markets desire notwithstanding to have lower elaborate on real estate on the balance sheet.
In a world, where you know the 10 year bond and 70 basis points and it doesn't like that and any time soon.
How do you guys.
Sort of does it change your view on on leverage and that no. That's flawed metric of debt to gross book value, which we talk about can be anything on it can't be.
And your interest coverage could actually increase by <unk> by actually levering up the balance sheet at this point and and.
So what's what's the view there and in terms of sort of the practicality of that that cost to capital advantage on the debt side of things.
Sorry, D. and we're not sure of your question are you are you asking right.
Right and we lever up and is that your question and order to take advantage of that Uh huh.
And essential essentially yeah.
It's because the cash why doesn't like it well, that's what I'm, saying cash capital markets aside right.
Well, it's not just on my and ways and publicly were public arena on from a price perspective, I think you do it all day long as much as you can especially United States model, which is nonrecourse debt, but that's always been the case quite frankly and low interest rates on a long long time and from the capital markets Downlink and you know we follow the United States a lead on the United States leaders and the capital markets as much.
<unk>.
[noise]. That's helpful is there enough and you're right from a personal perspective, I always believe load up and that but as CEO of a public company I don't think F. G.
She's doing that.
Maybe we should look the privatized [laughter] [laughter] just from the debt reasons alone right just for the just for the debt a low to death, but then you never talk to me the income on Oh, I I got plenty of other reasons to [laughter] alright. Thanks, that's it from me.
Okay.
Thank you and at this time I'll turn the call back to management for closing remarks.
Thank you everybody have a great income.
[noise]. Thank you for joining us today, ladies and gentlemen. This concludes our call you may now disconnect.
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