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Choice Properties buys, sells $675M worth of industrial, retail

Choice Properties REIT resumed its investment activity in a major way during Q3 2020, entering in...

Choice Properties REIT resumed its investment activity in a major way during Q3 2020, entering into agreements to acquire or expand its interest in more than a half dozen properties and to divest three portfolios comprising 18 assets. In total, its transactions in the quarter amount to $675 million.

The activity, some of which had been previously announced, is included in the trust’s Q3 2020 financial report which was released Wednesday night.

As noted by analysts on Choice’s Q3 conference call Thursday, the trust (CHP-UN-T) is one of the first to resume significant transaction activity in sectors such as retail and industrial since the COVID-19 pandemic hit Canada earlier this year.

“We are pleased with our financial results for the quarter, which reflect solid earnings, increased rent collections, lower bad debt expense and the resumption of investment activity after a difficult second quarter,” said Rael Diamond, president and CEO, in discussing the trust’s Q3 results.

“Choice Properties completed or entered into agreements to dispose of $341.3 million of properties and to acquire $333.9 million of new properties, consistent with our ongoing commitment to strengthening our balance sheet by improving the quality of our portfolio and reducing leverage.”

Choice REIT acquisition activity

Among the activity are four major acquisitions or divestments.

The largest of the transactions is the previously announced purchase of the remaining 60 per cent interest in West Block (Choice was previously a partner in that asset), and the Weston Centre office and retail site.

Both are in Toronto and were acquired from Wittington Properties Limited for a total of $208.9 million.

Choice issued 16.5 million trust units to finance that deal.

It is also acquiring a four-property industrial portfolio for $85.9 million, sourced off-market through a relationship with an existing tenant.

“The portfolio is comprised of four cross-dock facilities in vector markets, and represents a significant land holding of 56 acres,” said Diamond. “Of note, we’re excited by the opportunity to add a core 27-acre holding in Mississauga, Ont.

“These assets are 100 per cent leased to a national logistics company with a weighted average lease term of nearly 14 years and strong contractual rent steps.”

Choice divests three portfolios

On the divestment side, Choice has sold a 50 per cent non-managing interest in a retail portfolio for $151.1 million. The portfolio consists of 10 assets, containing 591,000 square feet of space. The purchaser has the option to acquire three additional assets (207,000 square feet) for $50.5 million.

“The portfolio is a mix of stand-alone and multi-tenant assets that are all anchored by Loblaw on long-term leases and located in secondary and tertiary markets,” Diamond said.

“The purchaser is a passive, institutional investor and we will retain management of the assets, providing us with incremental fee income through property management and asset management. This is an excellent transaction for Choice and provides potential for a longer-term disposition pipeline with an aligned joint venture partner.”

Choice also has agreements to dispose of two retail portfolios, comprising eight assets and 507,000 square feet, for $107.4 million.

The first portfolio includes three Canadian Tire stores and was sold to CT REIT for $64 million. The properties are in St. Jean-sur-Richilieu, Que., and in Alberta’s Drayton Valley and Leduc.

The second includes five Loblaw-anchored assets which were sold to Fronsac REIT for $43.4 million. The properties are located in Beauport and Roberval, Que., Sydney and New Glasgow, N.S., and Kirkland Lake in Northern Ontario.

The five properties combined represent about 246,000 square feet of GLA and are 100 per cent leased, according to information subsequently released by Fronsac. The going-in cap rate was seven per cent.

“All eight of these assets are located in secondary and tertiary markets,” Diamond said, noting the portfolios were sold at a premium to IFRS values.

“Overall we are encouraged by the interest from institutional partners and the strong pricing for our retail assets.”

Other financial updates

In other updates from the quarterly financials, Choice reported $34.2 million of development spending during the quarter on its intensification, greenfield, mixed-use and residential projects.

During the quarter, it also transferred $88.2 million of properties under development to income-producing status, delivering 255,000 square feet of new GLA at its share.

Thanks to what CFO Mario Barrafato called a “significantly improved” balance sheet, Choice has its credit rating upgraded to BBB high by DBRS Morningstar during the quarter.

Barrafato said the trust increased the weighted average term of its debt and issued $1 billion of unsecured debentures used primarily to address its unsecured debt maturities through the Q3 2021, and to repay debt.

Choice reported net income of $97.2 million for the quarter, compared to a $211 million loss for the same quarter in 2019. The improvement is mainly due to an adjustment of $280.8 million to its unit values and increases in the fair value of its investment properties.

NOI dipped slightly to $229.9 million from $239 million on a year-over-year basis, while AFFO also dipped slightly to $147.6 million from $152 million.

AFFO diluted per unit was $0.207 compared to $0.217, and the diluted AFFO payout ratio was at 89.9 per cent compared to 85.4 per cent.

Overall occupancy for the portfolio, on a year-over-year basis, was 97 per cent compared to 97.7 per cent.

About Choice Properties REIT

Choice is one of Canada’s largest REITS, and is the owner, manager and developer of a portfolio comprising 724 properties totalling 65.6 million square feet of gross leasable area.

The portfolio is comprised of retail properties, predominantly leased to necessity-based tenants, industrial, office and residential assets and offers a substantial development pipeline.

Choice Properties’ strategic alliance with its principal tenant, Loblaw Companies Ltd., is a key competitive advantage providing long-term growth opportunities.

EDITOR’S NOTE: This article has been updated to include additional information about the portfolio sale to Fronsac REIT, which was released after the article was originally published.

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