Choice Properties REIT has an “enviable position” among retail-based property owners and operators, president and CEO Rail Diamond told analysts during the trust’s Q1 2020 financial results conference call Thursday.
“We are in the enviable position that approximately 75 per cent of our retail portfolio is leased to grocery stores, pharmacies or other necessity-based tenants with stable business operations,” Diamond said.
It has so far been able to skirt the worst impacts from the COVID-19 pandemic, which has shut down major swathes of the Canadian economy.
Choice (CHP-UN-T), one of Canada’s largest REITs with 724 properties and more than 65 million square feet of space, was the first of the major trusts to report Q1 results.
“The impact of the COVID-19 pandemic is profound,” Diamond said, “(but) while it is early and the full impact of the COVID 19 pandemic cannot be predicted, we remain confident that our business model and disciplined approach to financial management will allow us to weather the storm.”
Choice’s relationship with Loblaw
Of its portfolio, its relationship with Loblaw Companies Ltd., and the Weston family are most significant. Loblaw accounts for 56 per cent of Choice’s retail revenues, and its needs-based banners virtually all remain open and operating.
George Weston is its majority unitholder, controlling about 63 per cent of units.
The full impact of the pandemic also did not start hitting home until early- to mid-March. Thus, Diamond said Choice has collected 86 per cent of rents for April and arranged two-month deferrals for about $5 million more.
Choice is also talking with other tenants that requested deferrals, or otherwise have not paid.
Without identifying specific tenants, Diamond said they can be divided into three classes: tenants who need assistance and have received referrals, generally smaller businesses; regional and national tenants not unduly affected; and regional or national tenants which are closed, or have simply indicated they won’t pay rent during the pandemic.
“Some are closed and not operating at the moment so they’ve been significantly impacted,” Diamond said of the latter groups. “We are going to try and work with those tenants.
“Some are operating and really just being opportunistic in this environment, and we are going to try and pursue rent from those tenants as best as possible.”
He said it’s impossible to predict the long-term impact on rent collections.
Choice Q1 financial highlights
Choice reported rental revenues of $340.4 million for the quarter, almost identical to Q1 2019. NOI was down about a million dollars to $231.5 million, with the difference attributable in part to the disposition of 30 properties late in 2019.
Its FFO per unit diluted also dropped slightly, from .252 in Q1 2019 to .244 in Q1 2020 due mainly to an increase in its overall number of outstanding units.
Occupancy was 97.5 per cent across its portfolio, with retail leading the way at 97.8 per cent, followed by industrial at 97.7 per cent and office at 92.9 per cent.
Potential fallout from the pandemic dominated the conversation.
Diamond and CFO Mario Barrafato outlined Choice’s liquidity position, noting it has about $1.3 billion on its credit lines. Its portfolio includes $12 billion of unencumbered assets “which we can either finance or prune to raise capital.”
Barrafato said all of Choice’s maturing 2020 debentures were repaid from $500 million in unsecured debentures issued earlier this year, with an “attractive” average weighted term of 14 years at a rate of 3.15 per cent.
Maintain “strong liquidity position”
“Our top financial priority in the near term is to maintain a strong liquidity position. This includes capital preservation and maximizing the amount to be drawn on our credit facilities,” Diamond said.
“With that in mind, we are monitoring our capital expenditures and where we contemplated using our credit facilities, we are looking at alternate sources of financing.”
Looking ahead, Diamond said construction is continuing at the trust’s two largest developments, 39 East Liberty Village and 390 Dufferin in downtown Toronto. So far, both remain on schedule, although he cautioned there could be delivery delays.
With respect to leasing, Diamond said Choice faced about two million feet of renewals this year, but has dealt with about half of that.
Choice also completed four disposals and acquisitions in Q1, including The Shops at Oakbrook Place just outside Chicago. It also divested its share of an Edmonton multires property and a Halifax-area office asset.
The purchase is a $22-million retail property in Coquitlam, B.C.
“The asset is directly adjacent to our asset on North Road and it was a strategic acquisition with longer-term redevelopment potential,” Diamond said. “The additional land assembly will allow us to unlock greater density and improve the site configuration.”
Diamond said down the road, he sees Choice looking to acquire new assets.
“Over the longer term, our strategy is the same, acquiring high-quality assets,” he said. “Clearly we are in a far stronger financial position than most, and clearly our properties are performing better than most. So, as things start to stabilize we want to be a net acquirer of assets.”