99% contractual rent collection, 40% Increase in NOI and 100% of YTD 2020 lease expirations renewed or re-leased
TORONTO, Nov. 5, 2020 /CNW/ - True North Commercial Real Estate Investment Trust (TSX: TNT.UN) (the "REIT") today announced its financial results for the three and nine months ended September 30, 2020.
"The REIT delivered another productive quarter and further proved our resilience in spite of COVID-19. We continue to work closely with our tenants, which has translated into successful lease renewals and rent collections." stated Daniel Drimmer, the REIT's President and Chief Executive Officer. "The high percentage of revenue generated from credit rated and government tenants is key for the REIT which is evidenced by our continued positive operating results."
Q3 Highlights
- Collected on average approximately 99% of contractual rent in Q3 2020
- Contractually leased and renewed approximately 53,000 square feet with an average increase of approximately 2% (YTD - 6.1%) over expiring rates
- Portfolio occupancy currently at 98% with an average remaining lease term of 4.8 years
- Revenue and NOI increased 32% and 40%, respectively compared to Q3 2019. The majority of which can be attributed to acquisitions totaling $395.8 million in Q4 2019
- Same Property NOI experienced an overall decline of 4.0%, the majority of which can be attributed to vacancy in the REIT's sole asset in Edmonton, Alberta (2.3%), as well as the REIT's participation in the Canada Emergency Commercial Rent Assistance ("CECRA") program and lower non-recurring termination payments and project management fees. Excluding the above, Same Property NOI increased 2.8% for the quarter
- FFO per Unit on both a basic and diluted basis remained stable compared to Q3 2019 at $0.15. AFFO per Unit on both a basic and diluted basis decreased $0.004 and $0.001 to $0.14 in Q3 2020
- Refinanced the remaining 2020 mortgage maturities totaling $23.4 million with a weighted average fixed interest rate of 2.80% for five-year terms
- On September 30, 2020, the REIT disposed of 534 Queens Avenue located in London, ON totaling 19,000 square feet for a sale price of $2.3 million
COVID-19
- To date the REIT has received on average approximately 99% of Q2 2020, Q3 2020 and 99% of October contractual rent, a direct result of its credit and government tenant roster
- A total of 19 tenants participated in the CECRA program which came to an end on September 30, 2020. The REIT's 25% rental contribution resulted in a $0.12 million expense recognized in property operating costs in Q3 2020 ($0.19 million - YTD 2020)
- The REIT agreed to defer approximately $0.43 million of YTD 2020 rental payments for certain tenants the majority of which will be repaid by the end of 2020. As of the date hereof, $0.18 million has been received in accordance with those deferral agreements
On October 9, 2020 the Federal Government announced a new Canada Emergency Rent Subsidy ("CERS") program to assist businesses experiencing a significant drop in revenue as a result of COVID-19 and replaces the CECRA program. Further details regarding CERS, including potential changes to the eligibility criteria, are expected to be finalized in Q4-2020.
In late September 2020, several Canadian provinces declared a "second wave" of COVID-19 has commenced and provinces are adjusting various restrictions, including mandatory closures of certain types of businesses and reduced limits on social gatherings. While these restrictions have not yet had a significant impact on the REIT's operations, we cannot predict the extent to which they may affect the REIT. Certain aspects of the REIT's business and operations that could potentially be impacted include, without limitation, rental income, occupancy, future demand for space and market rents, all of which ultimately impact the underlying valuation of the REIT's investment properties.
With a close to fully occupied portfolio of predominantly government and credit-rated tenants, the REIT is well positioned to maintain stability through these times of uncertainty. The REIT is confident the strategic measures implemented to date will help to ensure its continued success and its ability to provide value to Unitholders.
Key Performance Indicators
| | Three months ended | Nine months ended |
| | September 30 | September 30 |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| Number of properties | | | 48 | | 45 | |
| Portfolio GLA | | | 4,818,500 | sf | 3,687,400 | sf |
| Occupancy rate | | | 98 | % | 97 | % |
| Remaining weighted average lease term | | | 4.8 years | | 4.1 years | |
| Revenue from government and credit rated tenants | | | | | 76 | % | 79 | % |
| Revenue | $ | 33,914 | | $ | 25,668 | | $ | 103,242 | | $ | 76,924 | |
| NOI | 20,901 | | 14,972 | | 63,001 | | 44,943 | |
| Net income and comprehensive income | 9,381 | | 9,145 | | 31,453 | | 22,753 | |
| Same Property NOI | 15,364 | | 16,000 | | 44,899 | | 45,778 | |
| Same Property NOI growth | (4.0) | % | 2.6 | % | (1.9) | % | 1.3 | % |
| FFO | $ | 13,364 | | $ | 9,600 | | $ | 39,994 | | $ | 28,012 | |
| FFO per Unit - basic | 0.15 | | 0.15 | | 0.45 | | 0.45 | |
| FFO per Unit - diluted | 0.15 | | 0.15 | | 0.45 | | 0.44 | |
| AFFO | $ | 12,852 | | $ | 9,530 | | $ | 38,346 | | $ | 27,328 | |
| AFFO per Unit - basic | 0.14 | | 0.15 | | 0.43 | | 0.44 | |
| AFFO per Unit - diluted | 0.14 | | 0.15 | | 0.43 | | 0.43 | |
| AFFO payout ratio - diluted | 104 | % | 102 | % | 104 | % | 104 | % |
| Distributions declared | $ | 13,319 | | $ | 9,824 | | $ | 39,757 | | $ | 28,160 | |
Operating Results
During the past twelve months, the REIT has increased its portfolio by approximately 1.1 million square feet. Q3 2020 occupancy was 98% with an average remaining lease term of 4.8 years. 76% of revenue is generated from Government and credit rated tenants.
Acquisitions totaling $395.8 million during the latter part of Q4 2019 have been the main contributor to the increase in revenue and NOI of 32% and 40%, respectively, when compared to Q3 2019. FFO and AFFO increased 39% and 35% respectively, when compared to Q3 2019. The favourable increase in operating metrics attributable to Q4 2019 acquisition activity was partially offset by lower Same Property NOI and higher finance costs. FFO per Unit on both a basic and diluted basis have remained stable when compared to Q3 2019 at $0.15. AFFO per Unit on both a basic and diluted basis have decreased $0.004 and $0.001, respectively to $0.14 in Q3 2019.
Same Property Results
| | As at September 30 | | |
| Occupancy | 2020 | 2019 | | NOI | Q3 2020 | Q3 2019 | | Variance | Variance % |
| | | | | | | | | | |
| Alberta | 93.3 | % | 98.3 | % | | Alberta | $ | 1,592 | | $ | 2,189 | | | $ | (597) | | (27.3) | % |
| British Columbia | 100.0 | % | 100.0 | % | | British Columbia | 1,259 | | 1,210 | | | 49 | | 4.0 | % |
| New Brunswick | 93.5 | % | 90.0 | % | | New Brunswick | 1,339 | | 1,159 | | | 180 | | 15.5 | % |
| Nova Scotia | 93.4 | % | 91.9 | % | | Nova Scotia | 1,587 | | 1,546 | | | 41 | | 2.7 | % |
| Ontario | 98.4 | % | 98.4 | % | | Ontario | 9,587 | | 9,896 | | | (309) | | (3.1) | % |
| Total | 96.7 | % | 96.7 | % | | | $ | 15,364 | | $ | 16,000 | | | $ | (636) | | (4.0) | % |
Q3 2020 Same Property NOI decreased 4.0% and 1.9% YTD 2020.
A reduction in parking revenue due to lower foot traffic at certain buildings, costs associated with the REIT's participation in the CECRA program, lower one-time termination payments and project management fees along with the continued vacancy at 13140 St. Albert Trail were the main contributors to the decline in the REIT's Same Property NOI.
The vacancy at 13140 St. Albert Trail continues to account for the majority of the decline in Same Property NOI (Q3 - 2.3%, YTD – 2.9%). During the quarter, the REIT was successful in securing a new one-year short term 15,900 square foot lease with the Province of Alberta which will increase occupancy at this property to 94%. Excluding this vacancy, the impact of the CECRA Program and one-time items, Same Property NOI increased 2.8% (YTD – 2.9%).
Increased revenue from contractual rent step ups have been the main driver of Same Property NOI growth in British Columbia and Nova Scotia. Favorable Same Property NOI in New Brunswick is attributed to new lease deals and expansions resulting in an increased occupancy of 93.5%.
Ontario Same Property NOI declined due to a reduction in parking revenue at certain properties and downtime associated with a lease expiration which has been subsequently released at significantly higher market rents.
Debt
| | September 30, 2020 | December 31, 2019 |
| | | |
| Indebtedness to GBV ratio | 58.0 % | 57.6 % |
| Interest coverage ratio | 2.99 x | 3.01x |
| Indebtedness - weighted average fixed interest rate | 3.37 % | 3.38 % |
| Indebtedness - weighted average term to maturity | 4.31 years | 3.87 years |
As at September 30, 2020, Indebtedness to GBV ratio was 58.0%, a level well within the 75% limit set out in the REIT's amended and restated declaration of trust. The weighted average interest rate on the REIT's mortgage portfolio was 3.37%, with a weighted average term to maturity of 4.31 years.
During the nine months ended September 30, 2020, the REIT refinanced fourteen mortgages totaling $152,700 with a weighted average fixed interest rate of 3.07% and weighted average term to maturity of 7.6 years providing the REIT with additional liquidity of approximately $42,100. At the end of Q3 2020, the REIT had $32 million in cash and $20 million available in undrawn unsecured credit facility. The REIT has limited refinancing exposure with only 2.0% of its portfolio maturing from now until the end of 2021.