MONTREAL, May 11, 2021 /CNW/ - PRO Real Estate Investment Trust ("PROREIT" or the "REIT") (TSX: PRV.UN) today reported its financial and operating results for the three-month (or "first quarter" or "Q1") period ended March 31, 2021.
First Quarter 2021 Highlights
- Sale of three non-strategic properties in twelve-month period ended March 31, 2021
- Announcement of proposed acquisition of 12 industrial assets for $86.8 million (excluding closing costs) during Q1 2021, of which $49.2 million have been completed in April 2021
- Close to 100% of gross rent collected in Q1 2021
- 98.2% occupancy rate at March 31, 2021
- 80% of square feet maturing in 2021 renewed to date
- Same property net operating income1 of $9.8 million in Q1 2021, comparable to pre-COVID Q1 2020
- Net operating income1 of $10.1 million in Q1 2021, slightly higher than Q4 2020
- Net income and comprehensive income of $1.6 million in Q1 2021
- Over $30 million in operating liquidity at March 31, 2021, and successful $50 million private placement with major equity investor announced during and closed subsequent to Q1 2021
- AFFO payout ratio1 of 83.0% for Q1 2021, compared to 105.0% for Q1 2020
- Debt to gross book value ratio1 of 57.49% at March 31, 2021, compared to 58.06% at same date last year
- Refinancing of $52 million of mortgages at lower rates and extended 7 and 10-year terms, including a $24.8 million seven-year mortgage commitment to refinance six retail properties subsequent to quarter-end
"PROREIT is off to a solid start to the year, benefiting from a disciplined approach throughout 2020 that now allows us to successfully resume our growth as the economy re-opens. Our strong performance through the pandemic − one of the best amongst our industry peers − is a testament to the stability of our operations, underpinned by our well-positioned portfolio," said James Beckerleg, CEO of PROREIT.
"In the first quarter of 2021, we successfully executed our strategy on many fronts. We are strengthening our portfolio with our announced accretive transactions in the industrial space, while successfully divesting a small number of non-strategic assets. Our recently completed private placement has also further strengthened our ability to capitalize on transformational opportunities as we actively pursue acquisitions in our strong pipeline, mainly in the industrial sector.
"We solidified our financial position in the first quarter of 2021, notably with additional operating liquidity, while reducing our debt and improving our payout ratio, in addition to renewing mortgages at lower rates and extended terms. We also partnered with the Bragg Group of Companies through our private placement and we are pleased to have such a high caliber equity investor by our side to support our growth.
"Our operational metrics also remained robust in the first quarter, with high occupancy rates and successful leasing activities, as evidenced by our renewal rate of 80% of total square feet maturing in 2021 at positive spreads averaging 5%.
"We are moving forward with optimism, poised to benefit from the strong restart of the economy and as vaccination rates increase across Canada. We will continue to execute on our strategy with the same discipline with which we have successfully grown the company to-date in order to create sustainable value for our unitholders," Mr. Beckerleg concluded.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
COVID-19 Impact
PROREIT has worked closely with its tenants since the beginning of the pandemic, including supporting select tenants through rent deferrals and participation in the Canada Emergency Commercial Rent Assistance program ("CECRA") from April 1, 2020 to September 30, 2020. As at March 31, 2021, PROREIT has approximately $0.3 million of rent deferrals to be repaid by tenants over various terms generally not exceeding 12 months. These amounts are being consistently collected on schedule and as per deferral agreements in place. As noted below, monthly gross rent collections have been almost 100% in the previous four months.
PROREIT's monthly collection of gross rent in 2021 is as follows:
April 2021 | March 2021 | February 2021 | January 2021 | |
Gross rent collections, including government and other tenants who typically pay at the end of the month, based on historical collection cycles | 99.9% | 99.9% | 99.8% | 99.8% |
Breakdown: | ||||
Industrial tenants (1) | 100.0% | 100.0% | 100.0% | 100.0% |
Office tenants | 100.0% | 100.0% | 100.0% | 100.0% |
Retail tenants | 99.6% | 99.6% | 99.5% | 99.5% |
Temporary rent deferral agreements under fixed repayment terms | 0.0% | 0.0% | 0.0% | 0.0% |
Gross rent in arrears and discussions with the tenants are ongoing and managed on a case-by-case basis | 0.1% | 0.1% | 0.2% | 0.2% |
(1) | As of January 1, 2021, the REIT reclassed its Commercial Mixed-Use assets to Industrial assets to be consistent with other diversified Canadian REITs. |
FINANCIAL RESULTS
Table 1- Financial Highlights
(CAD $ thousands except unit, per unit amounts and unless otherwise stated) | 3 Months | 3 Months | ||
| ||||
Property revenue | $ | 17,390 | $ | 17,707 |
Net operating income (NOI) (1) | $ | 10,093 | $ | 10,355 |
Total assets | $ | 636,338 | $ | 650,987 |
Debt to Gross Book Value (1) | 57.49% | 58.06% | ||
Interest Coverage Ratio (1) | 2.7x | 2.7x | ||
Debt Service Coverage Ratio (1) | 1.6x | 1.6x | ||
Weighted average interest rate on mortgage debt | 3.66% | 3.72% | ||
Net cash flows provided from operating activities | $ | 207 | $ | 3,300 |
Funds from Operations (FFO) (1) | $ | 3,878 | $ | 5,756 |
Basic FFO per unit (1)(2) | $ | 0.0969 | $ | 0.1442 |
Diluted FFO per unit (1)(2) | $ | 0.0946 | $ | 0.1415 |
Adjusted Funds from Operations (AFFO) (1) | $ | 5,422 | $ | 5,989 |
Basic AFFO per unit (1)(2) | $ | 0.1355 | $ | 0.1500 |
Diluted AFFO per unit (1)(2) | $ | 0.1323 | $ | 0.1473 |
AFFO Payout Ratio – Basic (1) | 83.0% | 105.0% | ||
AFFO Payout Ratio – Diluted (1) | 85.0% | 106.9% | ||
(1) | Non–IFRS measure. See "Non–IFRS and Operational Key Performance Indicators". |
(2) | Total basic units consist of trust units and Class B LP Units (as defined herein). Total diluted units also include deferred trust units and restricted trust units issued under the REIT's long–term incentive plan. |
PROREIT owned 90 investment properties as at March 31, 2021 compared to 93 properties at the same time last year. Total assets amounted to $636.3 million as at March 31, 2021, representing a decrease of $14.6 million, or (2.3)%, compared to $651.0 million as at March 31, 2020. PROREIT sold three non-strategic investment properties at or above their related carrying values during the twelve-month period ended March 31, 2021. Gross proceeds were used to reduce debt and increase operating liquidity.
For the first quarter ended March 31, 2021:
- Property revenue amounted to $17.4 million, a decrease of $0.3 million, or (1.8)%, compared to $17.7 million for the same prior year period. The decrease relates to the sale of three investment properties in the twelve-month period ended March 31, 2021.
- Same property net operating income2 reached $9.8 million, comparable to the same prior year period. Excluding COVID-related expenses of $0.1 million, same property net operating income increased by 0.7% in Q1 2021 compared to the same prior year period.
- Net operating income1 reached $10.1 million, $0.1 million higher than the fourth quarter of 2020, but a decrease of $0.3 million, or (2.5)%, compared to $10.4 million in the same period in 2020. The change mainly relates to the sale of investment properties.
- AFFO1 totaled $5.4 million, comparable with the fourth quarter of 2020, but a decrease of $0.6 million, or (9.5)%, compared to $6.0 million for the same prior year period. The change was mainly driven by the sale of three investment properties, increased capital maintenance expenditures and stabilized leasing costs.
- AFFO payout ratio1 stood at 83.0% compared to 105.0% for the same prior year period, providing greater flexibility for capital allocation decisions.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
RESULTS OF OPERATIONS
Table 2- Reconciliation of Net Operating Income to Net Income and Comprehensive Income
(CAD $ thousands) | 3 Months | 3 Months | ||
Property revenue | $ | 17,390 | $ | 17,707 |
Property operating expenses | 7,297 | 7,352 | ||
Net operating income (NOI) (1) | 10,093 | 10,355 | ||
General and administrative expenses | 1,069 | 683 | ||
Long–term incentive plan expense | 537 | (3,258) | ||
Depreciation of property and equipment | 87 | 74 | ||
Amortization of intangible assets | 93 | 93 | ||
Interest and financing costs | 3,901 | 3,889 | ||
Distributions – Class B LP Units | 166 | 398 | ||
Fair value adjustment – Class B LP Units | 432 | (9,388) | ||
Fair value adjustment – investment properties | 1,170 | (42) | ||
Other income | (561) | (509) | ||
Other expenses | 262 | 278 | ||
Debt settlement costs | 1,303 | - | ||
Net income and comprehensive income | $ | 1,634 | $ | 18,137 |
(1) See "Non–IFRS and Operational Key Performance Indicators". |
For the three months ended March 31, 2021, net income and comprehensive income amounted to $1.6 million, compared to $18.1 million for the same prior year period. The $16.5 million decrease mainly relates to the $9.8 million impact of the non-cash fair value of Class B LP Units (as defined below), the $3.8 million variance in non-cash long-term incentive plan expense, the $1.3 million of debt settlement costs in connection with the repayment of approximately $29 million of mortgages maturing in 2021 and 2022 and the $1.2 million difference in non-cash fair value adjustment on investment properties for the first quarter of 2021 compared to the same prior year period.
Solid Balance Sheet and Liquidity Position
PROREIT is committed to steady improvements to its balance sheet and liquidity position, including improving its debt to gross book value ratio.
As at March 31, 2021, PROREIT had in excess of $30 million of operating liquidity through cash on hand and undrawn operating facilities. Debt to gross book value1 ratio was 57.49% at March 31, 2021, down from 58.06% at March 31, 2020, reflecting debt reduction from three asset sales. The weighted average interest on mortgage debt was 3.66% at March 31, 2021, compared to 3.72% at March 31, 2020.
During the first quarter, PROREIT received $46.6 million in new mortgage financing with an extended ten-year repayment term at a rate of 3.21%. Proceeds were used to repay approximately $29.0 million of mortgages maturing in 2021 and 2022 and to pay yield maintenance fees which totaled $1.3 million. The remaining net $16.3 million was used to reduce operating facilities, increasing liquidity as noted above.
On March 15, 2021, PROREIT announced a binding subscription agreement to issue 8,264,463 trust units from treasury on a non–brokered private placement basis at a price of $6.05 per unit to Collingwood Investments Incorporated, a member of the Bragg Group of Companies, from Nova Scotia, for aggregate gross proceeds of approximately $50 million. The private placement closed in April 2021 and proceeds will be used to partially fund the announced acquisitions, repay certain indebtedness, and the balance if any, to fund future acquisitions and for general business and working capital.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
Portfolio Transactions
PROREIT's portfolio is diversified by asset class and geography, focused on strategic locations in attractive mid-sized Canadian markets.
During the first quarter of 2021, PROREIT sold a non-strategic light industrial building located in the greater Montreal area, for gross proceeds of $8.0 million. The proceeds of the sale were used to repay the property mortgage and for general corporate purposes.
On March 15, 2021, PROREIT announced the proposed acquisition of 12 industrial assets – three properties in Ottawa, Ontario and nine properties in Winnipeg, Manitoba− comprising total gross leasable area ("GLA") of 572,000 square feet, for an aggregate purchase price of approximately $86.8 million (excluding closing costs). This transaction will increase PROREIT's portfolio to 5.0 million square feet of GLA and approximately $700 million of Gross Book Value1 on a pro forma basis.2
Impact of the 12 acquisitions on PROREIT's overall portfolio:
Pro Forma Portfolio
Province | Based Rent % | GLA % | Asset Class | Base Rent % | GLA % | |||||
Maritime Provinces | 38% | 38% | Industrial | 54% | 70% | |||||
Quebec | 12% | 16% | Retail | 33% | 21% | |||||
Western Canada | 17% | 16% | Office | 13% | 9% | |||||
Ontario | 33% | 31% | ||||||||
Total | 100% | 100% | 100% | 100% |
PROREIT has a strong acquisition pipeline, currently including conditional agreements to acquire six institutional-quality industrial assets in Atlantic Canada comprising approximately 500,000 square feet for approximately $47 million. One of these agreements, for a $4.5 million acquisition, is binding on PROREIT, and includes customary closing conditions.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
2 | Gross Book Value at March 31, 2021, pro forma the closing of the acquisitions on anticipated terms. |
OPERATIONAL RESULTS
Table 3 - Operational Highlights
|
March 31, 2021 | March 31, 2020 | |
| ||
Number of properties | 90 | 93 |
Gross leasable area (square feet) | 4,459,225 | 4,580,932 |
Occupancy rate (1) | 98.2% | 98.3% |
Weighted average lease term to maturity (years) | 5.0 | 5.5 |
(1) | Occupancy rate includes lease contracts for future occupancy of currently vacant space. Management believes the inclusion of this committed space provides a more balanced reporting. The committed space at March 31, 2021 was approximately 5,146 square feet of GLA (12,636 square feet of GLA at March 31, 2020). |
GLA decreased (2.7)% to 4,459,225 square feet at March 31, 2021, compared to 4,580,932 square feet at March 31, 2020. The decrease of 121,707 square feet in GLA is mainly attributable to the sale of three investment properties in the twelve-month period ended March 31, 2021.
Occupancy rate remained stable at 98.2% as at March 31, 2021, compared to 98.3% a year earlier. PROREIT's tenant mix is well diversified by industry sector. At March 31, 2021, approximately 86% of the portfolio base rent is from national and government tenants and the top ten tenants represent 37.5% of annual base rent. At March 31, 2021, 66.4% of the base rent in the retail segment is from tenants providing necessary services to the public, including groceries, pharmacies, financial institutions, government offices and medical offices. The ten largest tenants in PROREIT's portfolio accounted for approximately 37.5% on annualized in-place and committed base rent as at March 31, 2021 and have an average remaining lease term of 6.5 years.
SUBSEQUENT EVENTS
On April 14, 2021, PROREIT closed its previously announced private placement of $50 million, with 8,264,463 Units issued from treasury at a price of $6.05 per Unit to Collingwood Investments Incorporated, a member of the Bragg Group of Companies. Together with a related party, Collingwood Investments Incorporated has a voting and economic interest of approximately 19.6% in PROREIT.
On April 26, 2021, PROREIT completed the previously announced acquisition of three properties located in Ottawa for an aggregate purchase price of approximately $49.2 million (excluding closing costs). The remaining nine previously announced acquisitions in Winnipeg, Manitoba, are expected to close in the second quarter of 2021 and are subject to customary closing conditions.
On April 28, 2021, PROREIT sold a non-strategic retail property located in Fredericton, New Brunswick, for gross proceeds of $4.9 million, marginally above IFRS carrying value. The proceeds were used to repay the property mortgage and for general corporate purposes.
On May 7, 2021, PROREIT received a seven-year $24.8 million mortgage commitment to refinance six retail properties having $21.7 million in mortgages maturing in 2022.
Distributions
Distributions to unitholders totaling $0.0375 per trust unit of the REIT were declared monthly during the three months ended March 31, 2021, representing distributions of $0.45 per unit on an annual basis. Equivalent distributions are paid on the Class B limited partnership units of PRO REIT Limited Partnership ("Class B LP Units"), a subsidiary of the REIT.
STRATEGY AND OUTLOOK
PROREIT remains committed to driving growth and creating value for its unitholders, while maintaining a solid financial position to permit sound capital allocation decisions on a long-term basis.
With the ongoing economic recovery and debt financing available at historically low interest rates benefiting the real estate market, business outlook is positive. PROREIT has resumed its growth strategy, focused on the acquisition of high-quality, low-risk real estate in the many attractive Canadian mid-sized cities, with increased exposure to the industrial sector.
Investor Conference Call and Webcast Details
PROREIT will hold a conference call to discuss its first quarter 2021 results on May 12, 2021, at 10:30 a.m. EDT. There will be a question period reserved for financial analysts. To access the conference call, please dial 888-664-6383 or 416-764-8650 or 514-225-6995. A recording of the call will be available until May 19, 2021 by dialing 888-390-0541 or 416-764-8677 Access code: 438569 #
The conference call will also be accessible via live webcast on PROREIT's website at www.proreit.com or at https://produceredition.webcasts.com/starthere.jsp?ei=1458481&tp_key=297ae457dd
Annual Meeting of Unitholders
Due to the COVID-19 pandemic and to prioritize the well-being of its unitholders and employees, PROREIT will host its annual meeting virtually, accessible via webcast on June 8, 2021 at 2 p.m. EDT. Additional information regarding the meeting is contained in the REIT's information circular in connection with the meeting.
About PROREIT
PROREIT (TSX:PRV.UN) is an unincorporated open-ended real estate investment trust owning a diversified portfolio of diversified commercial properties across Canada. Established in March 2013, PROREIT is mainly focused on strong primary and secondary markets in Québec, Atlantic Canada and Ontario, with selective exposure in Western Canada. For more information, go to: www.proreit.com
Non-IFRS and Operational Key Performance Indicators
PROREIT's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, PROREIT discloses and discusses certain non-IFRS financial measures, including net operating income ("NOI"), adjusted funds from operations ("AFFO"), debt to gross book value, interest coverage ratio, debt service coverage ratio, funds from operations ("FFO"), AFFO payout ratio and same property net operating income ("same property NOI"). These non-IFRS measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. PROREIT has presented such non-IFRS measures as management of the REIT believes they are relevant measures of PROREIT's underlying operating performance and debt management. Non-IFRS measures should not be considered as alternatives to net income, cash generated from (utilized in) operating activities or comparable metrics determined in accordance with IFRS as indicators of PROREIT's performance, liquidity, cash flow, and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non-IFRS and Operational Key Performance Indicators" section in PROREIT's management's discussion and analysis for the three month period ended March 31, 2021, available under PROREIT's profile on SEDAR at www.sedar.com.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond PROREIT's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements.
Forward-looking statements contained in this press release include, without limitation, statements pertaining to the execution by PROREIT of its growth strategy, the intended use of proceeds of the private placement, the anticipated closing of the remaining announced acquisitions, the future economic activity, PROREIT's acquisition pipeline, economic conditions and the future performance of PROREIT. PROREIT's objectives and forward-looking statements are based on certain assumptions, including that (i) PROREIT will receive financing on favourable terms; (ii) the future level of indebtedness of PROREIT and its future growth potential will remain consistent with the REIT's current expectations; (iii) there will be no changes to tax laws adversely affecting PROREIT's financing capacity or operations; (iv) the impact of the current economic climate and the current global financial conditions on PROREIT's operations, including its financing capacity and asset value, will remain consistent with PROREIT's current expectations; (v) the performance of PROREIT's investments in Canada will proceed on a basis consistent with PROREIT's current expectations; and (vi) capital markets will provide PROREIT with readily available access to equity and/or debt. Without limitation, there can be no assurance that any discussions or agreements PROREIT may have concerning future acquisitions will result in definitive agreements or property acquisitions, and, if they do, what the terms or timing of any such acquisitions would be.
The forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement. All forward-looking statements in this press release are made as of the date of this press release. PROREIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law.
Additional information about these assumptions and risks and uncertainties is contained under "Risk Factors" in PROREIT's latest annual information form and "Risk and Uncertainties" in PROREIT's management's discussion and analysis for the three month period ended March 31, 2021, which are available under PROREIT's profile on SEDAR at www.sedar.com.
SOURCE PROREIT
Investor Relations: PRO Real Estate Investment Trust, James W. Beckerleg, President and Chief Executive Officer, 514-933-9552; PRO Real Estate Investment Trust, Gordon G. Lawlor, CPA, CA, Executive Vice President, Chief Financial Officer and Secretary, 514-933-9552
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