True North Commercial REIT (TNT.UN-T) is temporarily ceasing distributions to unitholders to use those funds to buy back its shares, and will consolidate its units on a 5.75:1 basis, the trust announced this week in its Q3 financial report.

The suspension of the distributions – True North calls it a “redirection and reallocation” – makes it the second Canadian office REIT to undertake such a move this week. Slate Office REIT also announced a suspension of its distributions in its Q3 financials.

True North had previously halved its distribution to $0.297 per unit on an annual basis, and suspended its distribution reinvestment plan (DRIP) in April. 

"The next logical step in the REIT's strategy involves the reallocation of substantially all distributions to purchase the maximum number of units available under the NCIB which will be immediately accretive to unitholders, with the intention to revisit the reallocation in approximately six months, or earlier if appropriate, to reinstate a sustainable distribution to unitholders,” Daniel Drimmer, the REIT's chief executive officer, stated in the announcement.

So far in fiscal 2023, True North has bought back 208,400 units for approximately $500,000.

“At the end of the quarter, the REIT's IFRS NAV per unit was approximately $4.97 resulting in the current unit price trading at a significant discount to intrinsic value and supporting the buyback of units under the NCIB as a very attractive use of the REIT's capital,” Drimmer said in the announcement. “The REIT remains focused on delivering long-term value for our unitholders by allocating available capital to generate the highest potential return, while pro-actively managing risk.” 

True North shares opened at $1.29 on the Toronto Stock Exchange Thursday morning, after ending last week at $1.45. They had peaked briefly above the $8 mark during early 2020, and had been above $6 as recently as late February before declining.

True North's share consolidation

The consolidation of shares will reduce the number of True North units from 92,020,251 to approximately 16,003,521, and 2,420,164 Class B LP units and SV Units to approximately 420,891 Class B LP Units and SV Units respectively.

It is to take effect on November 24.

True North had adopted a strategy to be a pure-play office REIT prior to the onset of the COVID-19 pandemic and the resulting shift to work-from-home for many traditional office workers. The trust reported a portfolio of 44 properties, compared to 47 properties at the end of the year-earlier period.

Among its Q3 highlights, True North reported a net loss of $43.47 million for Q3, compared to income of $8.04 million for Q3 2022. It took just over $50 million in fair value adjustment write downs in the quarter.

The REIT reported a portfolio occupancy of 93 per cent and a remaining average lease term of 4.4 years. Its current gross leasable area is 4.79 million square feet.

True North has completed the sale of three properties in 2023, including two during Q3 in Ottawa and Abbotsford, B.C. for $41.5 million. 

'Pleased' with leasing in 2023

It leased or renewed approximately 86,900 square feet at a 1.5 per cent increase over expiring lease rates during Q3. Year-to-date it has leased or renewed 512,800 square feet at average renewal rates of 11 per cent over expiring rents.

"We are also pleased with the continued strong leasing momentum resulting in a weighted average lease term of 7.7 years on new lease deals and renewals completed in the third quarter, while continuing to build strong relationships with the REIT's tenants to maintain high occupancy levels,” Drimmer observed.

Revenue and NOI decreased one per cent and four per cent, respectively, from Q3 2022 excluding termination income and properties held for sale. Including those factors, revenue and NOI decreased 11 per cent and 18 per cent compared to the year-earlier period.