High quality government and credit rated tenant base results in 99% contractual rent collection, NOI growth of 21% and strong occupancy of 98%
545,600 sq ft leased/renewed with a WALT of 7.8 years during 2020
/NOT FOR DISTRIBUTION IN THE U.S. OR OVER U.S. NEWSWIRES./
TORONTO , March 3, 2021 /CNW/ - True North Commercial Real Estate Investment Trust (TSX: TNT.UN) (the "REIT") today announced its financial results and provides a COVID-19 update for the three months and year ended December 31, 2020.
"The fourth quarter brought 2020 to a successful conclusion with continued strong rent collections and positive operating results despite the COVID-19 pandemic" stated Daniel Drimmer , the REIT's President and Chief Executive Officer. "Contractual rent collection of 99%, increased liquidity, positive leasing spreads and high tenant retention has positioned the REIT to effectively navigate through these times of uncertainty."
Q4 Highlights
- Collected approximately 99% of contractual rent in Q4 2020
- Contractually leased and renewed approximately 60,300 square feet with an average increase of approximately 8.3% over expiring rates, including 32,500 square feet with the Federal Government of Canada
- Portfolio occupancy of 98% with an average remaining lease term of 4.7 years
- On December 11, 2020 , the REIT entered into a new $60 million floating rate revolving credit facility for a two-year term maturing on December 1, 2022 resulting in up to $85 million in cash and undrawn credit facilities at the end of Q4 2020
- Revenue and NOI increased 23% and 21%, respectively compared to Q4 2019. The majority of which can be attributed to acquisitions totaling $395.8 million in Q4 2019, offset by Same Property NOI decrease of 2.3%
- Same Property NOI experienced an overall decline of 2.3%, the majority of which can be attributed to the REIT's only asset in Edmonton, Alberta and lower parking revenue due to reduced foot traffic at certain properties due to COVID-19. Excluding the above, Same Property NOI increased 2.7% for the quarter
- FFO per Unit and AFFO per Unit on both a basic and diluted basis increased $0.01 compared to Q4 2019 to $0.15 and $0.14 , respectively
YTD Highlights
- Collected approximately 99% of contractual rent during 2020
- Contractually leased and renewed approximately 545,600 square feet with a weighted average lease term of 7.8 years and an average increase of approximately 6.4% over expiring rates. 368,000 square feet of 2020 leasing activity was with Federal government tenants
- Revenue and NOI increased 31% and 35%, respectively compared to YTD 2019.
- Same Property NOI decreased by 1.9%. A reduction in parking revenue due to lower utilization at certain properties, rent concessions associated with the Canada Emergency Commercial Rent Assistance ("CECRA") program, lower one-time termination payments and project management fees along with vacancy and lower rental rates in the REIT's Edmonton, Alberta property were the main contributors to the decline in Same Property NOI. Excluding the impact of the above, Same Property NOI increased 2.4% for 2020
- FFO per Unit on both a basic and diluted basis increased $0.02 compared to YTD 2019 to $0.60 and $0.59 , respectively
- AFFO basic per Unit remained stable at $0.57 and AFFO diluted per Unit increased $0.01 to $0.57
COVID-19
- Since the beginning of the pandemic, the REIT has received approximately 99% of its 2020 contractual rent, a trend which continues in the first two months of 2021 and is a direct result of its credit and government tenant roster.
- A total of 19 tenants (46,000 square feet) participated in the CECRA program which came to an end on September 30, 2020 . The REIT's 25% rental contribution resulted in a $0.19 million expense recognized in property operating costs in 2020.
- On October 9, 2020 , the Federal Government announced a new Canada Emergency Rent Subsidy program ("CERS") to assist businesses experiencing a significant drop in revenue as a result of the COVID-19 pandemic. Currently 5 tenants have applied to CERS and the REIT recognized a $0.02 million expense in property operating costs representing a 35% rental provision granted to tenants in Q4 2020.
- The REIT agreed to defer approximately $0.44 million of YTD 2020 rental payments for certain tenants. As of March 3, 2021 , $0.42 million of rent deferrals have been received in accordance with those deferral agreements.
While vaccination programs have begun to be implemented throughout Canada , industries, including retail and commercial real estate, continue to be affected in varying degrees by COVD-19. It continues to be difficult to predict the duration and extent of the impact of COVID-19 on the REIT's business and operations, both in the short and long-term. 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 and its ability to maintain its distributions.
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.
Key Performance Indicators
| | Three months ended
December 31 | Years ended
December 31 |
| |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| Number of properties | | | | | | | | 47 | | 49 | |
| Portfolio GLA | | | | | | | | 4,798,300 | sf | 4,836,400 | sf |
| Occupancy | | | | | | | | 98 | % | | 97 | % |
| Remaining weighted average lease term | | | | | | | | 4.7 years | | | 4.7 years | |
| Revenue from government and credit rated tenants | | | | | | | | 75 | % | | 76 | % |
| Revenue | $ | 36,189 | | $ | 29,533 | | $ | 139,431 | | $ | 106,457 | |
| NOI | | 20,741 | | | 17,122 | | | 83,742 | | | 62,065 | |
| Net income and comprehensive income | | 8,299 | | | 1,425 | | | 39,752 | | | 24,178 | |
| Same Property NOI | | 15,314 | | | 15,670 | | | 59,756 | | | 60,935 | |
| Same Property NOI growth | | (2.3) | % | | 1.9 | % | | (1.9) | % | | 1.2 | % |
| FFO | $ | 13,213 | | $ | 11,110 | | $ | 53,207 | | $ | 39,122 | |
| FFO per Unit - basic | | 0.15 | | | 0.14 | | | 0.60 | | | 0.58 | |
| FFO per Unit - diluted | | 0.15 | | | 0.14 | | | 0.59 | | | 0.57 | |
| AFFO | $ | 12,743 | | $ | 10,886 | | $ | 51,089 | | $ | 38,214 | |
| AFFO per Unit - basic | | 0.14 | | | 0.13 | | | 0.57 | | | 0.57 | |
| AFFO per Unit - diluted | | 0.14 | | | 0.13 | | | 0.57 | | | 0.56 | |
| AFFO payout ratio - diluted | | 105 | % | | 112 | % | | 104 | % | | 106 | % |
| Distributions declared | $ | 13,382 | | $ | 12,449 | | $ | 53,139 | | $ | 40,609 | |
Operating Results
Towards the end of 2019, the REIT increased its portfolio by approximately 1.1 million square feet through acquisitions totaling $395.8 million , which was the main contributor to increases in revenue and NOI of 23% and 21%, respectively. Q4 2020 occupancy was 98% with an average remaining lease term of 4.7 years. 75% of revenue is generated from government and credit rated tenants.
FFO and AFFO increased 19% and 17%, respectively, when compared to Q4-2019. The favourable increase in operating metrics is attributable to Q4-2019 acquisition activity which was partially offset by lower Same Property NOI and higher finance costs. FFO and AFFO per Unit on both a basic and diluted basis increased $0.01 to $0.15 and $0.14 when compared to Q4 2019.
On September 30, 2020 and November 5, 2020 the REIT completed the sale of 534 Queens Avenue and 197-199 Dundas Street, both located in London, Ontario for a sale price of $2.25 million and $1.4 million , respectively. Together these properties comprised a total of 39,200 square feet. These dispositions are in line with the REIT's strategy to focus on office properties in larger urban markets.
Same Property Results
| | As at December 31 | | |
| Occupancy | 2020 | 2019 | | NOI | Q4 2020 | Q4 2019 | | Variance | | Variance % |
| | | | | | | | | | |
| Alberta | 94.1 | % | 91.4 | % | | Alberta | $ | 1,848 | | $ | 2,080 | | | $ | (232) | | (11.2) | % |
| British Columbia | 100.0 | % | 100.0 | % | | British Columbia | 1,263 | | 1,240 | | | 23 | | 1.9 | % |
| New Brunswick | 93.7 | % | 90.7 | % | | New Brunswick | 1,256 | | 1,188 | | | 68 | | 5.7 | % |
| Nova Scotia | 92.8 | % | 92.4 | % | | Nova Scotia | 1,591 | | 1,567 | | | 24 | | 1.5 | % |
| Ontario | 98.7 | % | 99.2 | % | | Ontario | 9,356 | | 9,595 | | | (239) | | (2.5) | % |
| Total | 96.9 | % | 96.5 | % | | | $ | 15,314 | | $ | 15,670 | | | $ | (356) | | (2.3) | % |
Q4 2020 Same Property NOI decreased 2.3% and 1.9% YTD 2020.
A reduction in parking revenue due to lower utilization at certain properties, rent concessions associated with the CECRA program, lower one-time termination payments and project management fees along with vacancy and lower rental rates at the REIT's Edmonton property were the main contributors to the decline in Same Property NOI.
The REIT's lone asset in Edmonton continues to account for the majority of the decline in Same Property NOI (Q4 2020 - 1.1% and YTD 2020 - 2.4%). During the third quarter, the REIT was successful in securing a new one-year short term 15,900 square foot lease with the Province of Alberta . Additionally, during the fourth quarter, the REIT secured and commenced a 10 year lease for 7,744 square feet increasing occupancy at this property to 97% at the end of Q4 2020.
Increased revenue from contractual rent step ups have been the main driver of Same Property NOI growth in British Columbia and Nova Scotia . Favourable Same Property NOI in New Brunswick is attributed to new lease deals and expansions resulting in increased occupancy of 93.7%.
Ontario Same Property NOI declined due to a reduction in parking revenue at certain properties due to COVID-19 and downtime associated with a lease expiry the majority of which has been subsequently re-leased at significantly higher market rents with rents commencing in the first half of 2021. This decline was partially offset by new lease deals and an increase in expiring rates on renewals at certain properties.
Excluding the Edmonton property, rent concessions associated with the CECRA and CERS program, lower parking revenue from reduced foot traffic and downtime noted in the Ontario portfolio, Same Property NOI increased 2.7% (YTD 2020 – 2.4%).
Debt and Liquidity
| | December 31, 2020 | December 31, 2019 |
| | | |
| Indebtedness to GBV ratio | 57.8% | 57.6% |
| Interest coverage ratio | 2.96 x | 3.01 x |
| Indebtedness - weighted average fixed interest rate | 3.37% | 3.38% |
| Indebtedness - weighted average term to maturity | 4.06 years | 3.87 years |
As at December 31, 2020 , Indebtedness to GBV ratio was 57.8%, 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 4.06 years.
During the year ended December 31, 2020, the REIT refinanced fourteen mortgages totaling $152.7 million 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 $42.1 million . The REIT has limited refinancing exposure with only 2.0% of its portfolio maturing from now until the end of 2021.
On December 11, 2020 , the REIT entered into a new $60 million floating rate revolving credit facility for a two-year term maturing on December 1, 2022 resulting in up to $85 million in cash and undrawn credit facilities at the end of Q4 2020.
About the REIT
The REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario . The REIT currently owns and operates a portfolio of 47 commercial properties consisting of approximately 4.8 million square feet in urban and select strategic secondary markets across Canada focusing on long term leases with government and credit rated tenants.
The REIT is focused on growing its portfolio principally through acquisitions across Canada and such other jurisdictions where opportunities exist. Additional information concerning the REIT is available at www.sedar.com or the REIT's website at www.truenorthreit.com .
Non-IFRS measures
Certain terms used in this press release such as funds from operations ("FFO"), adjusted funds from operations ("AFFO"), net operating income ("NOI"), same property net operating income ("Same Property NOI"), indebtedness ("Indebtedness"), gross book value ("GBV"), Indebtedness to GBV ratio, net earnings before interest, tax, depreciation and amortization and fair value gain (loss) on financial instruments and investment properties ("Adjusted EBITDA"), interest coverage ratio, and adjusted cash provided by operating activities are not measures defined by International Financial Reporting Standards ("IFRS") as prescribed by the International Accounting Standards Board ("IASB"), do not have standardized meanings prescribed by IFRS and should not be compared to or construed as alternatives to profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. FFO, AFFO, NOI, Same Property NOI, Indebtedness, GBV, Indebtedness to GBV ratio, Adjusted EBITDA, interest coverage ratio and adjusted cash provided by operating activities as computed by the REIT may not be comparable to similar measures presented by other issuers. The REIT uses these measures to better assess the REIT's underlying performance and provides these additional measures so that investors may do the same. Details on non-IFRS measures are set out in the REIT's Management's Discussion and Analysis for the three months and year ended December 31, 2020 ("MD&A") and the Annual Information Form ("AIF") are available on the REIT's profile at www.sedar.com .