- Property revenue of $17.2 million, 26.9% increase from Q2 2019
- Net operating income1 of $9.8 million, 15.7% increase from Q2 2019
- Net loss and comprehensive loss of $2.8 million
- AFFO1 of $5.2 million, 7.6% increase from Q2 2019
- Successful renewal of 76% of leases maturing in 2020 to date
- Occupancy rate firm at 98.1%
- Secured additional liquidity subsequent to quarter-end
MONTRÉAL, Aug. 12, 2020 /CNW/ - PRO Real Estate Investment Trust ("PROREIT" or the "REIT") (TSX: PRV.UN) today reported its financial and operating results for the three-month period (or "second quarter") ended June 30, 2020.
"We are pleased to report a solid operating and financial performance during the second quarter, highlighting the soundness of our business strategies, and our disciplined financial approach. With exceptional rent collection during this challenging period – to date among the better in our sector – we have been able to maintain a strong financial position while continuing to build a solid structure for the use of our capital going forward," said Jim Beckerleg, President and CEO, PROREIT.
"Over the past few months, the global pandemic and consequent economic disruption have changed the environment in which we operate. As property owners and responsible community members, we are taking appropriate measures to protect the health and safety of our tenants, employees and various stakeholders in accordance with public health directives. Committed to maintaining our long-standing and strong tenant relationships, we supported smaller tenants requiring assistance, both through the Canada Emergency Commercial Rent Assistance program and deferral arrangements that we put in place," added Mr. Beckerleg.
"We are truly gratified with a tenant base that has held up outstandingly well so far, reflecting the soundness of our diversification strategy and focus on strong secondary markets outside of larger metropolitan cores. Our combined commercial mixed-use and industrial portfolio now account for close to half of our base rent while our retail portfolio, almost exclusively comprised of community strip centres providing essential services and products anchored by grocery and drugstores, has also contributed to our solid results," added Mr. Beckerleg.
"The past four months have demonstrated the strength of our business model, and we remain fully committed to staying the course so that we can continue to create long-term value for our unitholders as the economy recovers. I wish to sincerely thank our employees and tenants who have adapted with agility to the challenges they have faced over the past months," concluded Mr. Beckerleg.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
COVID-19 Impact
Throughout the ongoing COVID-19 global pandemic, PROREIT has remained fully committed to ensuring the health and safety of its employees, tenants and the communities in which it owns properties. In the second quarter of 2020, PROREIT supported certain tenants that have been negatively impacted by the pandemic by providing rent deferrals on a case-by-case basis as well as participating in the Canada Emergency Commercial Rent Assistance ("CECRA") program, which provides qualifying tenants with a 75% gross rent reduction − 50% funded by the government and 25% by the landlord incurring a rent abatement. For the six-month period ended June 30, 2020, PROREIT recorded a $0.4 million provision in relation to COVID-19 bad debt provisions, CECRA participation and rent abatements.
As previously announced, PROREIT's monthly collection of gross rent as of July 21, 2020 is as follows:
July 2020 | June 2020 | May 2020 | April 2020 | |
Gross rent collection, including government and | 98.5% | 95.3% | 90.4% | 92.5% |
Breakdown: | ||||
Industrial tenants | 97.9% | 96.2% | 87.5% | 90.7% |
Mixed-use commercial tenants | 100.0% | 95.6% | 96.3% | 99.5% |
Office tenants | 100.0% | 98.7% | 90.5% | 92.0% |
Retail tenants | 97.4% | 92.1% | 88.4% | 88.2% |
Temporary rent deferral agreements under fixed | 0.6% | 3.3% | 7.7% | 5.3% |
Gross rent in arrears and ongoing discussions with | 0.9% | 1.4% | 1.9% | 2.2% |
Results
TABLE 1- FINANCIAL HIGHLIGHTS
(CAD $ thousands except unit, per unit amounts and | 3 Months | 3 Months | 6 Months | 6 Months | ||||
| ||||||||
Property revenue | $ | 17,212 | $ | 13,561 | $ | 34,919 | $ | 27,071 |
Net operating income (NOI) (1) | $ | 9,773 | $ | 8,448 | $ | 20,128 | $ | 16,906 |
Total assets | $ | 646,321 | $ | 524,217 | $ | 646,321 | $ | 524,217 |
Debt to Gross Book Value (1) | 58.71% | 58.26% | 58.71% | 58.26% | ||||
Interest Coverage Ratio (1) | 2.8x | 2.6x | 2.9x | 2.6x | ||||
Debt Service Coverage Ratio (1) | 1.6x | 1.6x | 1.7x | 1.6x | ||||
Weighted average interest rate on mortgage debt | 3.72% | 3.87% | 3.72% | 3.87% | ||||
Net cash flows provided from (used in) operating | $ | 900 | $ | (382) | $ | 4,200 | $ | 4,159 |
Funds from Operations (FFO) (1) | $ | 4,835 | $ | 1,509 | $ | 10,591 | $ | 5,869 |
Basic FFO per unit (1)(2) | $ | 0.1208 | $ | 0.0480 | $ | 0.2649 | $ | 0.1865 |
Diluted FFO per unit (1)(2) | $ | 0.1180 | $ | 0.0467 | $ | 0.2594 | $ | 0.1818 |
Adjusted Funds from Operations (AFFO) (1) | $ | 5,217 | $ | 4,848 | $ | 11,206 | $ | 9,677 |
Basic AFFO per unit (1)(2) | $ | 0.1304 | $ | 0.1541 | $ | 0.2803 | $ | 0.3075 |
Diluted AFFO per unit (1)(2) | $ | 0.1274 | $ | 0.1501 | $ | 0.2745 | $ | 0.2998 |
AFFO Payout Ratio – Basic (1) | 86.3% | 102.2% | 96.3% | 102.4% | ||||
AFFO Payout Ratio – Diluted (1) | 88.3% | 104.9% | 98.4% | 105.1% | ||||
(1) | Non–IFRS measure. See "Non–IFRS and Operational Key Performance Indicators". |
(2) | Total basic units consist of trust units of PROREIT 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 93 investment properties at June 30, 2020, compared to 84 properties at the same time last year. Total assets amounted to $646.3 million at June 30, 2020, representing an increase of $122.1 million, or 23.3%, compared to $524.2 million at June 30, 2019. The increase is mainly due to the acquisition of nine investment properties in the twelve-month period ended June 30, 2020.
For the second quarter ended June 30, 2020:
- Property revenue was $17.2 million. The increase of $3.7 million, or 26.9%, compared to the same period last year, is primarily due to incremental revenues from property acquisitions completed in the twelve-month period ended June 30, 2020.
- Same property net operating income1 was $7.8 million, a decrease of $0.4 million, or 4.3%, compared to the same quarter last year. The decrease is mainly attributable to COVID-19 related bad debt provisions, CECRA participation and rental abatements.
- Net operating income1 was $9.8 million, an increase of $1.3 million, or 15.7%, compared to $8.4 million for the same period last year. This increase results primarily from the favourable impact of property acquisitions completed in the twelve-month period ended June 30, 2020, partially offset by COVID–19 related bad debt provisions, CECRA participation and rental abatements of $0.4 million.
- AFFO1 totalled $5.2 million, a $0.4 million increase compared to $4.8 million for the same period last year, or a 7.6% increase year over year. This increase is mainly due to property acquisitions completed in the twelve-month period ended June 30, 2020, partially offset by COVID–19 related bad debt provisions, CECRA participation and rental abatements of $0.4 million.
- AFFO payout ratio1 stood at 86.3% compared to 102.2% for the same period last year, a 15.6% improvement. The favorable variance mainly relates to the revision of PROREIT's monthly distributions to $0.0375 per unit from $0.0525 commencing April 2020.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
For the six-month period ended June 30, 2020:
- Property revenue was $34.9 million. The increase of $7.8 million, or 29.0%, compared to the same period last year, is primarily due to incremental revenues from property acquisitions completed in the twelve-month period ended June 30, 2020.
- Same property net operating income1 was $16.0 million, a decrease of $0.3 million, or 2.1%, compared to the same period last year. The decrease is mainly attributable to COVID-19 related bad debt provisions, CECRA participation and rental abatements.
- Net operating income1 was $20.1 million, an increase of $3.2 million, or 19.1%, compared to $16.9 million for the same period last year. This increase results primarily from the favourable impact of property acquisitions completed in the twelve-month period ended June 30, 2020, partially offset by COVID–19 related bad debt provisions, CECRA participation and rental abatements of $0.4 million.
- AFFO1 totalled $11.2 million, a $1.5 million increase compared to $9.7 million last year, or a 15.8% increase year over year. This increase is mainly due to property acquisitions completed in the twelve-month period ended June 30, 2020, partially offset by COVID–19 related bad debt provisions, CECRA participation and rental abatements of $0.4 million.
- AFFO payout ratio1 stood at 96.3% compared to 102.4% for the same period last year, a 6.0% improvement. The favorable variance mainly relates to the revision of PROREIT's monthly distributions to $0.0375 per unit from $0.0525 commencing April 2020.
- During the first quarter of 2020, PROREIT acquired a 100% interest in a 135,494 square-foot light industrial property in Moncton, New Brunswick, for $8.4 million before closing costs.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
TABLE 2- RECONCILIATION OF NET OPERATING INCOME TO NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months | ||||
Property revenue | $ | 17,212 | $ | 13,561 | $ | 34,919 | $ | 27,071 |
Property operating expenses | 7,439 | 5,113 | 14,791 | 10,165 | ||||
Net operating income (NOI) (1) | 9,773 | 8,448 | 20,128 | 16,906 | ||||
General and administrative expenses | 893 | 574 | 1,576 | 1,097 | ||||
Long–term incentive plan expense | 942 | 395 | (2,316) | 1,667 | ||||
Depreciation of property and equipment | 67 | 54 | 141 | 72 | ||||
Amortization of intangible assets | 93 | 93 | 186 | 186 | ||||
Interest and financing costs | 3,787 | 3,325 | 7,676 | 6,550 | ||||
Distributions – Class B LP Units | 186 | 419 | 584 | 848 | ||||
Fair value adjustment – Class B LP Units | 1,442 | 571 | (7,946) | 3,926 | ||||
Fair value adjustment – investment properties | 5,301 | (6,777) | 5,259 | (6,728) | ||||
Other income | (490) | (819) | (999) | (1,345) | ||||
Other expenses | 322 | 491 | 600 | 810 | ||||
Transaction costs | - | 3,045 | - | 3,076 | ||||
Net income (loss) and comprehensive income | $ | (2,770) | $ | 7,077 | $ | 15,367 | $ | 6,747 |
(1) | See "Non–IFRS and Operational Key Performance Indicators". |
For the three months ended June 30, 2020, net loss and comprehensive loss was $2.8 million, compared to net income and comprehensive income of $7.1 million for the same prior-year period. The $9.8 million decrease mainly relates to the $12.1 million difference in the non-cash fair value adjustment on investment properties, partially offset by a $1.3 million favourable impact in net operating income for the quarter ended June 30, 2020, compared to the same period in 2019.
For the six months ended June 30, 2020, net income and comprehensive income was $15.4 million, an increase of $8.6 million compared to $6.7 million for the same period last year, mainly as a result of the favourable $11.9 million impact of the non-cash fair value of Class B LP Units combined with the $4.0 million non-cash long-term incentive plan and $3.2 million favourable impact in net operating income, partially offset by the $11.9 million difference in non-cash fair value adjustment on investment properties for the six months ended June 30, 2020, compared to the same period last year.
During the quarter, PROREIT internally reviewed the capitalization rates and expected future cash flows on certain retail related properties resulting in a fair market value expense of approximately $4.5 million for the three- and six-month periods ended June 30, 2020.
Strong Balance Sheet and Solid Cash Position
PROREIT continued to exercise prudent capital management and remains committed to maintaining a conservative balance sheet. At the end of the quarter, its debt to gross book value1 ratio was 58.71% and the weighted average interest on mortgage debt was 3.72%. PROREIT has no mortgage maturities coming due in 2020, with only $6 million due in 2021.
PROREIT has an adequate liquidity position, with $10 million of cash and credit available as at August 12, 2020. PROREIT has a term loan with an alternative lender to finance acquisitions and fund deposits on future acquisitions, reduced to $9 million in April 2020, that is fully drawn.
Subsequent to quarter end, on July 16, 2020, PROREIT entered into a new non-revolving credit facility of $5 million bearing interest at prime plus 325.0 basis points or bankers' acceptance rate plus 425.0 basis points. PROREIT continues to seek other sources of liquidity, although not required at this time.
TABLE 3- TOTAL PORTFOLIO BASE RENT
BY ASSET CLASS
June 30, 2020 | June 30, 2019 | |||
Number of | % | Number of | % | |
Retail | 49 | 36.2 | 49 | 46.3 |
Commercial Mixed Use | 8 | 18.6 | 7 | 10.1 |
Office | 10 | 15.7 | 9 | 16.1 |
Industrial | 26 | 29.6 | 19 | 27.6 |
TOTAL | 93 | 100.0 | 84 | 100.0 |
BY PROVINCE
June 30, 2020 | June 30, 2019 | |||
Number of | % | Number of | % | |
Maritime Provinces | 39 | 42.3 | 32 | 43.7 |
Quebec | 16 | 14.7 | 16 | 18.3 |
Western Canada | 26 | 14.4 | 26 | 18.3 |
Ontario | 12 | 28.6 | 10 | 19.7 |
TOTAL | 93 | 100.0 | 84 | 100.0 |
Acquisitions made during the twelve-month period ended June 30, 2020 contributed to the diversification of PROREIT's asset portfolio. PROREIT's combined commercial mixed-use and industrial exposure increased to 48.2% at the end of the second quarter of 2020 while the Ontario, Quebec and Maritime markets accounted for 85.6% of its portfolio.
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1 | Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
TABLE 4- OPERATIONAL HIGHLIGHTS
June 30 | June 30 | |
Operational data | ||
Number of properties | 93 | 84 |
Gross leasable area (square feet) ("GLA") | 4,580,932 | 3,701,132 |
Occupancy rate (1) | 98.1% | 97.9% |
Weighted average lease term to maturity (years) | 5.4 | 5.7 |
(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 June 30, 2020 was approximately 12,728 square feet of GLA (8,787 square feet of GLA at June 30, 2019). |
GLA increased 23.8% to 4,580,932 square feet at June 30, 2020, compared to 3,701,132 square feet at June 30, 2019. The increase of 879,800 square feet in GLA is a result of the acquisition of nine investment properties in the twelve-month period ended June 30, 2020.
Well-diversified and Resilient Tenant Base
Occupancy rate remained solid at 98.1% as at June 30, 2020, compared to 97.9% a year earlier. The anchored, high- profile 10 largest tenants by base rent in PROREIT's portfolio accounted for approximately 36.4% of base rent at June 30, 2020, and comprise approximately 6.9 years of remaining lease term. Credit quality tenants represent 47.5% of in-place annualized base rent, and 87% of the portfolio base rent is from national and government tenants. 67% of the base rent in the retail segment is from tenants providing essential services to the public, including grocery stores, pharmacies, financial institutions, government offices and medical offices.
Weighted average lease term to maturity stood at 5.4 years, and over 76% of PROREIT's leases maturing in 2020 have been renewed to date, at an additional 2% average annual rent increase.
Distributions and DRIP
Distributions to unitholders totaling $0.0375 per trust unit of the REIT were declared monthly during the three months ended June 30, 2020, 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.
As announced on April 22, 2020, monthly distributions, which were previously of $0.0525 per unit, were revised to $0.0375 per unit, allowing for a reduction of PROREIT'S debt and for flexibility in allocating capital to the benefit of unitholders. Concurrently, in response to the current stock market volatility flowing from the COVID-19 pandemic, PROREIT also suspended its distribution reinvestment plan ("DRIP") effective April 22, 2020, with distributions only being paid in cash. The DRIP will remain suspended until further notice and distributions of PROREIT will be paid only in cash.
On July 21, 2020, subsequent to quarter-end, PROREIT announced a cash distribution of $0.0375 per unit for the month of July 2020. The distribution is payable on August 17, 2020, to unitholders of record as at July 31, 2020.
Outlook
PROREIT will continue to proactively monitor the situation and adapt its near-term strategy in light of the global pandemic and consequent economic disruption, while mitigating the potential risks facing its business.
While it is impossible to predict the extent or the duration of the impact of the COVID-19 pandemic, PROREIT believes that its stable portfolio, solid financial position and experienced team makes it well-positioned to benefit from an eventual economy recovery. PROREIT remains fully committed to its long-term strategy and to creating value for its unitholders.
Investor Conference Call and Webcast Details
PROREIT will hold a conference call to discuss its second quarter 2020 results on August 13, 2020, at 10:00 a.m. ET. 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 (conference id: 17158864). A recording of the call will be available until August 20, 2020, by dialing (888) 390-0541 or 416-764-8677, access code 158864.
The conference call will also be accessible via live webcast on PROREIT's website at www.proreit.com or https://produceredition.webcasts.com/starthere.jsp?ei=1348066&tp_key=3b0ca72815
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 same property net operating income (or same property NOI), adjusted funds from operations or AFFO, AFFO payout ratio, net operating income or NOI, debt to gross book value, gross book value, interest coverage ratio, debt service coverage ratio, and funds from operations or FFO. 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 months ended June 30, 2020 (the "Q2 2020 MD&A"), 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 ability of the REIT to executive its growth strategy, the duration and impact on the REIT and its tenants of the COVID-19 pandemic, the liquidity position and cash flow of the REIT and its capacity to pay all expenses, the future use of capital available to the REIT, and the future performance of the REIT. PROREIT's objectives and forward-looking statements are based on certain assumptions, including management's perceptions of historical trends, current conditions and expected future developments.
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 "Risks and Uncertainties" in the Q2 2020 MD&A, both of which are available under PROREIT's profile on SEDAR at www.sedar.com.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
About PROREIT
PROREIT (www.proreit.com) is an unincorporated open-ended real estate investment trust owning a diversified portfolio of 93 commercial properties across Canada representing over 4.5 million square feet of GLA. 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.
SOURCE PROREIT
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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