PROREIT (PRV-UN-T) had its best year ever from both financial and operational standpoints in 2019, and president and CEO Jim Beckerleg remains confident it’s in a good position to deal with fallout from the COVID-19 pandemic.
“We believe we have the strength and resilience to manage through this turbulent time,” Beckerleg said in his opening statement during PROREIT’s March 26 conference call to discuss its 2019 fourth-quarter and fiscal-year results. “Our portfolio has strong foundations and is well-diversified.”
PROREIT is an unincorporated open-ended real estate investment trust that was established in March 2013 and graduated to the Toronto Stock Exchange last May. It owns 10 office, 26 industrial, 49 retail and eight commercial mixed-use properties across Canada, representing more than 4.5 million square feet of gross leasable area (GLA).
A greater emphasis was placed on the industrial and commercial mixed-use sectors last year, and they combined to represent 65 per cent of PROREIT’s GLA at year end.
The portfolio is mainly focused on primary and secondary markets in Québec, Atlantic Canada and Ontario, with selective exposure in Western Canada. Ottawa, Montreal, Halifax, Winnipeg, Moncton and Southwestern Ontario account for more than 70 per cent of GLA.
Strong financial and occupancy numbers
PROREIT’s same-property income increased in all four of its asset class segments last year. Its 2019 net operating income was $35.5 million, up $9.4 million from the previous year.
“Our cash-flow position has been sound and we count on a good mix of high-profile anchor tenants going forward,” said Beckerleg.
PROREIT acquired eight properties in 2019 and raised its total asset value to $634.7 million at the end of the year, an increase of $125.1 million.
The REIT’s occupancy rate also increased for the third consecutive year to 98.4 per cent, with a weighted average lease term of 5.6 years.
“Almost nine per cent of our base rent comes from government tenants,” said Beckerleg. “As per our necessity-based retail segment, fully 65 per cent of tenants are grocery stores, drug stores, banks, government or medical offices.”
PROREIT closed a $58-million equity raise in August.
It also benefited from the full impact of the internalized property management platform it gained through the 2018 acquisition of Compass Commercial Realty Limited.
This will enable it to continue to generate internal growth and economies of scale over time.
PROREIT’s 2020 acquisitions
PROREIT closed the acquisition of a 135,494-square-foot light industrial property in Moncton for $8.4 million in March. The temperature-controlled building, located next to the Trans-Canada Highway, is occupied by a national logistics company with a long‑term lease including annual rent step-ups until December 2032.
The Moncton property might be PROREIT’s last near-term acquisition, however.
Its share price dropped from $7.39 on Feb. 27 to $3.70 on March 31 as the stock market was battered by reactions to COVID-19, plunging oil prices and other factors.
“We’re constructed for growth and we want to still expand, but certainly the markets aren’t open for that sort of thing right now,” said Beckerleg. “We certainly couldn’t issue equity near the price we’re trading at, which is at a very substantial discount to our net asset value.”
Still, with PROREIT’s strong business fundamentals and balance sheet, Beckerleg believes it’s in a position to weather the current situation and seize acquisition opportunities when the situation improves.
Dealing with uncertainty
“We remain committed to protecting and creating value for our unitholders,” said Beckerleg. “We are actively monitoring this current situation and we are working to be proactive in mitigating the risks facing our business.”
Beckerleg doesn’t foresee occupancy levels slipping at this point. Fifty-two per cent of tenant leases maturing in 2020 have already been renewed and Beckerleg expects that to increase as renewals come up later in the year.
Executive vice-president, chief financial officer and secretary Gordon Lawlor said national brands and governments represent 91 per cent of PROREIT’s retail tenants, while local and regional businesses represent just nine per cent.
These smaller businesses are the most at risk, especially if store closures and lower consumer activity due to COVID-19 are extended.
“With respect to the additional measures taken by the governments in Quebec and Ontario to constrain COVID-19, many of our tenants in these two provinces are considered essential,” said Beckerleg. “That should help lessen the impact of the crisis for them on a go-forward basis.
“Nevertheless, we will need to provide for some delays or forbearance measures for certain tenants. We are certainly committed to working with them in this regard.”