“The repositioning of our (portfolio) has produced great strength and a lot of new blood into our revenues, and that has contributed a lot to our great performance,” Léonard said in presenting BTB’s Q2 2020 financial results during a conference call last week with analysts.
He said rent collection remained strong across BTB’s properties during Q2, and so far it has limited exposure to bankruptcies or vacancies by retail tenants which comprise about 26 per cent of its portfolio.
“Our portfolio has shown its resilience given the 97 per cent collection results,” Léonard said. That includes funds which will be collected under the federal government’s CECRA program as well as a Quebec government grant program to assist businesses struggling during the COVID-19 pandemic.
BTB REIT Q2 highlights
BTB reported a loss of $1.1 million for the quarter, impacted mainly by $3.6 million in asset fair value writedowns, and a provision for up to $1.1 million in further credit losses related to the pandemic.
“We don’t see any signs of additional problems on the horizon and hopefully our Q3 and Q4 are going to show the resilience of what we are, where we are and how we are managing the business,” Léonard said.
He noted the provisions are “conservative and affect our results negatively, but we felt it was important to take whatever we had to take in this quarter in order to put ourselves into the right path for Q3 and Q4.”
Since January, BTB has written down about $10.5 million in asset values.
Among its other financial highlights, the REIT reported rental revenues of $23.1 million, up slightly year-over-year from $22.4 million.
NOI was $12.4 million, also up YOY from $12.2 million, while FO per unit was 7.5 cents, compared to 9.5 cents in 2019.
The other significant development during the quarter, for BTB’s investors, was a reduction in its annual dividend from $0.42 to $0.30 per share.
It was one of several measures to preserve liquidity, including slashing Q2 capital expenditures from about $1.35 million to $240,000.
BTB reduced its leverage from 61.4 per cent of gross book value to 58.6 per cent on a year-over-year basis.
It also lowered the overall interest rate for its debt, with both Léonard and vice-president/CFO Mathieu Bolté stressing this continues to be a focus for BTB.
On the retail front, BTB is affected by closures and bankruptcies at four locations; a 63,000-square-foot Sportium on Montreal’s South Shore; Aubainerie in Gatineau at a property where BTB is a 50 per cent owner; a Thyme Maternity store (Reitmans banner) of 3,000 square feet in Quebec City; and a Dunn’s Famous restaurant which closed in Dollard-des-Ormeaux in March.
That will cost BTB about $900,000 in lost rent.
The REIT’s occupancy was 92.9 per cent portfolio-wide.
Repositioning began in 2017
In 2017, Léonard announced BTB would begin repositioning its holdings. At the time, the REIT owned 72 properties comprising about 5.1 million square feet of space and valued at $658 million.
Its asset mix was about 40 per cent office, with the remainder split between industrial and retail.
It began divesting smaller, non-core properties and recycling capital in larger assets.
At the time, Léonard told RENX it wanted “bigger and better-located” sites. He also explained it takes “the same time and effort” to manage a 12,000-square-foot site as it does a 50,000-square-foot property.
BTB is still continuing the transformation, but its portfolio at the end of Q2 was 64 properties, comprising 5.3 million square feet and a total asset value of $935 million.
The divestments have continued through 2020 including the July sale of 1001 Sherbrooke, a Montreal office property, for $21.6 million. Léonard said the property was generating $600,000 annually.
“If you do calculate the purchase price versus NOI, you will see the cap rate doesn’t make any sense and that is great justification for us to jump on the sale of this property,” he said.
Insights into retail sector
Léonard also had some insights into the retail segment. Because BTB doesn’t own any enclosed malls, he said it is less susceptible to the effects of the pandemic than some other owners.
He also noted some firms which planned to reassess their commitment to bricks and mortar have shelved those plans since the economy began to reopen.
“They basically told me they weren’t sure they were going to be keeping all the spaces they were leasing across the province of Quebec, because they received a lot of orders through the internet,” Léonard said.
“They adapted their operations so their clients could speak to them directly on Zoom in order to finalize the right products, sign the contract and so on.”
Then the reopening began, and a “positive trend” emerged.
“Ever since they reopened . . . they’ve seen for the past two months their clients are coming back to their stores,” he noted.
“They thought they would migrate to an operation that would be totally focused on internet ordering, and now they are saying, ‘No, our customers . . . prefer to come back to our stores’.”
BTB has fewer than 100 of its 650 or so tenants involved in the federal CECRA support plan, which Léonard called a “long and frustrating process.”
“What we did not anticipate, though, was the fact that the federal government has extended the program for the months of July and August, so obviously there are going to be additional costs that we will have to suffer as a result of this.
“In my opinion, landlords are holding the bag on this one and it’s not very pleasant for the landlord community in general.”
He also said BTB took a hard line with some larger retailers which also sought rent deferrals or other forms of relief.
“There have been people that have basically tried to cry a little bit to get some kind of relief from their lease payments,” he said, “where these multinational corporations who have balance sheets with equity in the billions of dollars (were) trying to beg for rent relief.
“We did not grant rent relief to these types of operators.”
BTB REIT’s shares were trading at $3.21 at the open of markets today, down from a 52-week high of $5.50.
Léonard noted during the call the REIT’s value per share remains at about $5.40, despite the recent writedowns and impairments.