TORONTO, April 29, 2021 /CNW/ - Choice Properties Real Estate Investment Trust ("Choice Properties" or the "Trust") (TSX: CHP.UN) today announced its consolidated financial results for the three months ended March 31, 2021. The 2021 First Quarter Report to Unitholders is available in the Investors section of the Trust's website at www.choicereit.ca, and has been filed on SEDAR at www.sedar.com.
"We are pleased to report a strong start to 2021 with stable and expected financial and operational results for the first quarter, as our portfolio of high-quality real estate assets continued to produce solid earnings and rent collections," said Rael Diamond, President and Chief Executive Officer of the Trust. "In addition, we advanced a key development initiative and completed an important acquisition in the quarter. We announced a new partnership with The Daniels Corporation to revitalize and redevelop our Golden Mile Shopping Centre in Toronto and we acquired approximately 300 acres of future industrial development land in the Greater Toronto Area, providing us an opportunity to significantly increase our existing industrial footprint."
Summary of GAAP Basis Financial Results
($ thousands except where otherwise indicated) (unaudited) | Three Months | ||||||||
March 31, 2021 | March 31, 2020 | Change | |||||||
Net income (loss) | $ | (62,198) | $ | 332,742 | $ | (394,940) | |||
Net income (loss) per unit diluted | (0.086) | 0.475 | (0.561) | ||||||
Rental revenue | 326,539 | 324,911 | 1,628 | ||||||
Fair value gain (loss) on Exchangeable Units(1) | (217,683) | 386,062 | (603,745) | ||||||
Fair value gains (losses) excluding Exchangeable Units(2) | 59,220 | (135,665) | 194,885 | ||||||
Cash flows from operating activities | 148,632 | 104,147 | 44,485 | ||||||
Weighted average Units outstanding - diluted | 722,930,485 | 700,625,695 | 22,304,790 | ||||||
1. | Exchangeable Units are recorded at their fair value based on the market trading price of the Trust Units, which results in a negative impact to the financial results when the Trust Unit price rises and a positive impact when the Trust Unit price declines. |
2. | Fair value gains (losses) excluding Exchangeable Units includes adjustments to fair value of investment properties and unit-based compensation. |
Quarterly Results
Choice Properties had a net loss of $62.2 million for the first quarter of 2021 as compared to net income of $332.7 million in the first quarter of 2020. The decrease was mainly due to an unfavourable change of $603.7 million in the adjustment to the fair value on the Exchangeable Units, partially offset by a $209.1 million favourable change in the fair value of investment properties, including properties held within equity accounted joint ventures. For the quarter, bad debt expense was $1.6 million on a GAAP basis ($1.9 million on a proportionate share basis) as compared to bad debt expense of $0.9 million on a GAAP and proportionate share basis in the first quarter of 2020.
The Trust has continued to support its tenants that have been negatively impacted by the pandemic by providing rent relief through rent deferrals and other arrangements. During the three months ended March 31, 2021, the Trust recorded a bad debt expense of $1.9 million on a proportionate share basis that reflects the support provided to tenants as well as the increased collectability risk for certain tenants with amounts past due.
Summary of Proportionate Share(1) Financial Results
As at or for the period ended ($ thousands except where otherwise indicated) (unaudited) | Three Months | ||||||||
March 31, 2021 | March 31, 2020 | Change | |||||||
Rental revenue(1) | $ | 341,608 | $ | 340,417 | $ | 1,191 | |||
Net Operating Income ("NOI"), cash basis(1)(3) | 229,633 | 231,531 | (1,898) | ||||||
Same-Asset NOI, cash basis(1)(3) | 214,393 | 215,957 | (1,564) | ||||||
Adjustment to fair value of investment properties(1) | 60,895 | (148,206) | 209,101 | ||||||
Occupancy (% of GLA) | 97.0% | 97.5% | (0.5)% | ||||||
Funds from operations ("FFO")(2) | 170,608 | 170,670 | (62) | ||||||
FFO(2) per unit diluted | 0.236 | 0.244 | (0.008) | ||||||
Adjusted funds from operations ("AFFO")(2) | 155,316 | 151,773 | 3,543 | ||||||
AFFO(2) per unit diluted | 0.215 | 0.217 | (0.002) | ||||||
AFFO(2) payout ratio - diluted | 86.1% | 85.4% | 0.7% | ||||||
Cash distributions declared | 133,706 | 129,561 | 4,145 | ||||||
Weighted average number of Units outstanding - diluted | 722,930,485 | 700,625,695 | 22,304,790 | ||||||
1. | A non-GAAP measurement which includes amounts from directly held properties and equity accounted joint ventures. |
2. | A non-GAAP measurement. |
3. | Includes a provision for bad debts and rent abatements. |
Quarterly Results
For the three months ended March 31, 2021, Funds from Operations ("FFO", a non-GAAP measure) was $170.6 million or $0.236 per unit diluted compared to $170.7 million or $0.244 per unit diluted for the three months ended March 31, 2020. Funds from operations was relatively unchanged year-over-year, as an increase in non-recurring lease surrender revenue and savings from lower borrowing costs were partially offset by higher bad debt expense and a decline in interest income due to fewer mortgages receivable outstanding as compared to prior year. The results were also impacted by a higher than usual amount of excess cash on the balance sheet during the first quarter as a result of proceeds from property dispositions in 2020 as part of capital recycling initiatives.
The decline on a per unit basis was primarily due to the higher weighted average number of units outstanding as a result of: (i) the Trust units issued as consideration for the acquisition of two assets from Wittington Properties Limited in July 2020 and (ii) the Exchangeable Units issued as consideration for the acquisition of six assets from Weston Foods (Canada) Inc. in December 2020.
Transaction Activity
Since the end of the prior quarter, the Trust completed $163.4 million of acquisitions and $88.9 million of dispositions on a proportionate share basis(1). Notable transactions include:
- the acquisition of an 85% interest in approximately 300 developable acres of future industrial development land in Caledon, Ontario, for $138.0 million. This purchase price comprised a $100.0 million cash payment and a commitment to pay the remaining $38.0 million balance contingent on certain milestones being met over the development lifecycle;
- the acquisition of the Trust's joint venture partner's 50% interest in two industrial buildings in Calgary, Alberta, for $25.4 million, thereby bringing the Trust's ownership interest to 100%;
- the previously announced disposition of the Trust's 50% interest in land held for development in Richmond Hill, Ontario, for aggregate proceeds of $66.4 million; and
- the disposition of the Trust's 70% interest in a 20 acre land parcel in Brampton, Ontario, for $17.5 million.
The Trust has also made ongoing investments in its development program with $20.6 million of spending during the quarter on a proportionate share basis(1). During the quarter, the Trust also transferred $25.9 million of properties under development to income producing status, delivering 35,000 square feet of new GLA on a proportionate share basis(1).
Outlook and Impact of COVID-19
Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and development of high-quality commercial and residential properties. Our goal is to provide net asset value appreciation, stable net operating income growth and capital preservation, all with a long-term focus. Although there remains uncertainty on the longer-term impacts of the COVID-19 pandemic, Choice Properties remains confident that its business model and disciplined approach to financial management will continue to position it well.
Our diversified portfolio of retail, industrial and office properties is 97.0% occupied and leased to high-quality tenants across Canada. Our portfolio is primarily leased to grocery stores, pharmacies or other necessity-based tenants, and logistics providers, who continue to perform well in this environment and provide stability to our overall portfolio. This stability is evident by our rent collections, which were 98% for the first quarter.
We continue to advance our development initiatives, which provide us with the best opportunity to add high-quality real estate to our portfolio at a reasonable cost. We have a mix of development projects ranging in size, scale and complexity, including retail intensification projects which provide incremental growth to our existing sites, to larger, more complex mixed-use developments which will drive net asset value growth in the future. The majority of our active development pipeline is focused on growing our rental residential portfolio. We expect to complete construction on two of our rental residential projects underway in Toronto later this year and have commenced construction on two additional high-rise residential projects, including one project in Brampton located next to the Mount Pleasant GO Station and one in the Westboro neighbourhood in Ottawa.
During the quarter we announced a new partnership with The Daniels Corporation for the first phase of our plan to revitalize and redevelop our Golden Mile Shopping Centre in Toronto. This project is adjacent to the new Eglinton Crosstown light rail transit line and envisions the transformation of our existing retail site into a mixed-use and transit-oriented community. The first phase of the project will include two condominium towers, a purpose-built rental building, and ground floor retail and institutional uses. The project is in the planning phase and we expect to commence construction in 2023.
Capital recycling remains an important part of our strategy as we continue to seek opportunities to improve our portfolio quality. In the first quarter, we completed the disposition of two parcels of non-strategic development land. Proceeds from the dispositions were used to acquire an 85% ownership interest in approximately 300 developable acres of future industrial development land in Caledon, Ontario. The land is well located and represents a unique opportunity for us to significantly increase our existing footprint in a very strong industrial market.
We have a strong balance sheet that positions us well to manage broader market volatility brought about by the COVID-19 pandemic. Our disciplined approach to financial management is based on a conservative approach to leverage and financing risk by maintaining strong leverage ratios and a staggered debt maturity profile. For 2021, the Trust has approximately $470 million of debt obligations coming due, a manageable amount which we intend to refinance with longer term debt or repay with excess cash on hand. From a liquidity perspective, the Trust has approximately $1.7 billion of available cash comprised of $1.5 billion as the unused portion of the Trust's revolving credit facility and $178.0 million in cash and cash equivalents, in addition to approximately $12.4 billion in unencumbered assets.
Update on Rent Collection
Rent collection for the first quarter was at the higher end of collections within the industry and was primarily due to the stability of the Trust's necessity-based portfolio.
For the three months ended March 31, 2021, the Trust collected or expects to collect approximately 98% of contractual rents:
% Collected | First Quarter 2021 | |
Retail | 98% | |
Industrial | 99% | |
Office | 98% | |
Total | 98% | |
In determining the expected credit losses on rent receivables, the Trust takes into account the payment history and future expectations of likely default events (i.e. asking for rental concessions, applications for rental relief through government programs, or stating they will not be making rental payments on the due date) based on actual or expected insolvency filings or company voluntary arrangements and likely deferrals of payments due, and potential abatements to be granted by the landlord. These assessments are made on a tenant-by-tenant basis.
The Trust's assessment of expected credit losses is inherently subjective due to the forward-looking nature of the assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis of assumptions which may not prove to be accurate given the uncertainty caused by COVID-19. Based on its review, the Trust recorded bad debt expense of $1.9 million in property operating costs, on a proportionate share basis(1), during the three months ended March 31, 2021, with a corresponding amount recorded as an expected credit loss against its rent receivables.
($ thousands) | Three months ended | As a % | ||
Total recurring tenant billings | $ | 368,927 | 100.0% | |
Less: Amounts received and deferrals repaid to date | (361,208) | 97.9% | ||
Balance outstanding | 7,719 | 2.1% | ||
Total rents expected to be collected pursuant to deferral arrangements | (749) | (0.2)% | ||
Total rents to be collected excluding collectible deferrals | 6,970 | 1.9% | ||
Less: Provision recorded related to recurring tenant billings | (1,936) | (0.5)% | ||
Balance expected to be recovered in time | $ | 5,034 | 1.4% | |
The Trust's provision for recurring tenant billings for the three months ended March 31, 2021, is comprised of the following:
($ thousands) | Three months ended | ||
Provisions for tenants with negotiated rent abatements | $ | (511) | |
Provisions for additional expected credit losses | (1,425) | ||
Total provision recorded related to recurring tenant billings | $ | (1,936) | |
Due to continued uncertainty surrounding the pandemic, it is not possible to reliably estimate the length and severity of COVID-19 related impacts on the financial results and operations of the Trust and its tenants, as well as on consumer behaviours and the economy in general. For more information on the risks presented to the Trust by the COVID-19 pandemic, please see Section 12, "Enterprise Risks and Risk Management" of the Trust's MD&A for the year ended December 31, 2020 and its Annual Information Form for the year ended December 31, 2020.
Non-GAAP Financial Measures and Additional Financial Information
In addition to using performance measures determined in accordance with International Financial Reporting Standards ("IFRS" or "GAAP"), Choice Properties also measures its performance using certain non-GAAP measures, and provides these measures in this news release so that investors may do the same. Such measures and related per-unit amounts are not defined by IFRS and therefore should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Furthermore, the supplemental measures used by management may not be comparable to similar measures presented by other real estate investment trusts or enterprises. These terms, which include the proportionate share basis of accounting as it relates to "equity accounted joint ventures", net operating income ("NOI"), funds from operations ("FFO") and adjusted funds from operations ("AFFO"), are defined in Section 13, "Non-GAAP Financial Measures", of the Choice Properties MD&A for the three months ended March 31, 2021, and are reconciled to the most comparable GAAP measure.
Choice Properties' unaudited interim period condensed consolidated financial statements and MD&A for the three months ended March 31, 2021 are available on Choice Properties' website at www.choicereit.ca and on SEDAR at www.sedar.com. Readers are directed to these documents for financial details and a fulsome discussion on Choice Properties' results.
Management's Discussion and Analysis and Consolidated Financial Statements and Notes
Information appearing in this news release is a select summary of results. This news release should be read in conjunction with the Choice Properties 2021 First Quarter Report to Unitholders, which includes the unaudited interim period condensed consolidated financial statements and MD&A for the Trust, and is available at www.choicereit.ca and on SEDAR at www.sedar.com.
Conference Call and Webcast
Management will host a conference call on Friday, April 30, 2021 at 9:00AM (ET) with a simultaneous audio webcast. To access via teleconference, please dial (647) 427-7450 or (888) 231-8191. A playback will be made available two hours after the event at (416) 849-0833 or (855) 859-2056, access code: 3856238. The link to the audio webcast will be available on www.choicereit.ca in the "Investors" section under "Events & Webcasts".
Annual and Special Meeting of Unitholders
Choice Properties' Annual and Special Meeting of Unitholders will take place on Friday, April 30, 2021 at 11:00AM (ET). Due to the public health impact of the COVID-19 pandemic and in consideration of the health and safety of our Unitholders, employees and the broader community, this year's meeting will be held in a virtual meeting format only, by way of a live webcast. Unitholders can attend the meeting by joining the live webcast online at https://web.lumiagm.com/463063746. Refer to "How do I attend and participate in the virtual Meeting?" in the Management Proxy Circular which can be viewed online at www.choicereit.ca or under Choice Properties' SEDAR profile at www.sedar.com, for detailed instructions on how to attend and vote at the meeting. The webcast of the meeting will be archived on our website following the meeting. Please refer to the investors page at www.choicereit.ca for additional details on the virtual meeting.
About Choice Properties Real Estate Investment Trust
Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and development of high-quality commercial and residential properties.
We believe that value comes from creating spaces that improve how our tenants and communities come together to live, work, and connect. We strive to understand the needs of our tenants and manage our properties to the highest standard. We aspire to develop healthy, resilient communities through our dedication to social, economic, and environmental sustainability. In everything we do, we are guided by a shared set of values grounded in Care, Ownership, Respect and Excellence. For more information, visit Choice Properties' website at www.choicereit.ca and Choice Properties' issuer profile at www.sedar.com.
Cautionary Statements Regarding Forward-looking Statements
This news release contains forward-looking statements relating to Choice Properties' operations and the environment in which the Trust operates, which are based on management's expectations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. Management undertakes no obligation to publicly update any such statement, to reflect new information or the occurrence of future events or circumstances, except as required by law.
Numerous risks and uncertainties could cause the Trust's actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in Section 12, "Enterprise Risks and Risk Management" of the Trust's MD&A for the year ended December 31, 2020, which includes detailed risks and disclosure regarding COVID-19 and its impact on the Trust, and those described in the Trust's Annual Information Form for the year ended December 31, 2020.
SOURCE Choice Properties Real Estate Investment Trust
