Plan includes Redirecting Monthly Distributions to Maximize Buyback under the NCIB and Unit Consolidation
/NOT FOR DISTRIBUTION IN THE
"This news release constitutes a "designated news release" for the purposes of the REIT's prospectus supplement dated
"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. At the end of the quarter, the REIT's IFRS NAV per Unit was approximately
Third Quarter 2023 Highlights
- Maintained strong portfolio occupancy of 93% with an average remaining lease term of 4.4 years (91% and 4.4 years including investment properties held for sale).
- Completed the sale of
360 Laurier Avenue West ,Ottawa, Ontario ("the Laurier Property") totaling 107,100 square feet onJuly 10, 2023 for a sale price of$17.5 million . - Completed the sale of
32071 South Fraser Way ,Abbotsford, BC (the "Abbotsford Property") totaling 52,300 square feet onJuly 31, 2023 for a sale price of$24.0 million . - Contractually leased and renewed approximately 86,900 square feet with a weighted average lease term of 7.7 years and a 1.5% increase over expiring base rents.
- Excluding termination income and investment properties held for sale, revenue and net operating income ("NOI") decreased 1% and 4%, respectively, compared to Q3-2022. Due to significant termination income included in 2022 and lower same property NOI ("Same Property NOI"), revenue and NOI decreased 11% and 18%, respectively, compared to Q3-2022.
- Same Property NOI decreased 1.6% excluding investment properties held for sale and termination fees.
- During 2022, the REIT received termination income from one tenant at
6925 Century Avenue ,Mississauga, Ontario that downsized a portion of their space effective Q4-2022. To date, 60% of this vacancy has been contractually re-leased with rents commencing in the latter half of 2023. Q3-2023 FFO and AFFO basic and diluted per Unit decreased$0.04 to$0.11 which is consistent and in line with Q2-2023. Excluding termination fees, Q3-2023 FFO and AFFO basic and diluted per Unit were lower by$0.02 and$0.03 respectively compared to Q3-2022 due to the loss of rental revenue from the above vacancy. - Excluding investment properties held for sale only, Q3-2023 Same Property NOI decreased 8.8% as a result of the significant termination fee income recorded in the prior year period.
$48.3 million of Available Funds at the end of Q3-2023.- The REIT repurchased 83,500 Units for
$0.2 million under the NCIB.
YTD Highlights
- Completed the sale of
400 Carlingview Drive ,Toronto, Ontario (the "Carlingview Property") onMarch 10, 2023 for a sale price of$7.25 million . - Contractually leased and renewed approximately 512,800 square feet with a weighted average lease term of 5.0 years and a 11% increase over expiring base rents.
- The REIT repurchased 208,400 Units for
$0.5 million under the NCIB. - 50% reduction to the monthly cash dividend from
$0.0495 per Unit to$0.02475 per Unit or$0.297 per Unit on an annualized basis ("Distribution Reduction"). The new declared distribution was paid onApril 17, 2023 to Unitholders of record onMarch 31, 2023 . The Distribution Reduction is expected to provide an additional$25 million in cash annually that will be used to improve the REIT's capital profile. - Effective
June 30, 2023 ,Tracy Sherren , the REIT's President and Chief Financial Officer and President, Canadian Commercial, Starlight Investments, retired from her executive positions at the REIT and Starlight Investments.Ms. Sherren will remain as a trustee of the REIT.Martin Liddell , the current Chief Financial Officer at Starlight, was appointed as Chief Financial Officer of the REIT in addition to his positions at Starlight.
Subsequent Events
- The REIT refinanced a
$3,834 mortgage for a three year term.
The REIT's presentation currency is the Canadian dollar. Unless otherwise stated, dollar amounts expressed in this press release are in thousands of dollars.
Key Performance Indicators
Three months ended | Nine months ended | |||
| | |||
2023 | 2022 | 2023 | 2022 | |
Number of properties | 44 | 47 | ||
Portfolio GLA | 4,791,500 sf | 4,975,200 sf | ||
Occupancy (1) | 93 % | 95 % | ||
Remaining weighted average lease term (1) | 4.4 years | 4.4 years | ||
Revenue from government and credit rated tenants | 78 % | 80 % | ||
Revenue | $ 32,789 | $ 36,677 | $ 99,337 | $ 108,124 |
NOI (2) | 18,082 | 21,976 | 55,202 | 65,855 |
Net income and comprehensive income | (42,472) | 8,046 | (34,684) | 16,241 |
Same Property NOI (2) | 20,142 | 22,974 | 60,145 | 69,289 |
FFO (2) | $ 10,351 | $ 14,436 | $ 31,770 | $ 43,635 |
FFO per Unit - basic (2) | 0.11 | 0.15 | 0.34 | 0.47 |
FFO per Unit - diluted (2) | 0.11 | 0.15 | 0.34 | 0.47 |
AFFO (2) | $ 10,101 | $ 14,290 | $ 31,148 | $ 43,248 |
AFFO per Unit - basic (2) | 0.11 | 0.15 | 0.33 | 0.47 |
AFFO per Unit - diluted (2) | 0.11 | 0.15 | 0.33 | 0.47 |
AFFO payout ratio - diluted (2) | 69 % | 97 % | 83 % | 95 % |
Distributions declared | $ 7,012 | $ 13,900 | $ 25,731 | $ 41,300 |
(1) Excludes investment properties held for sale. |
Operating Results
Excluding termination income and investment properties held for sale, revenue and NOI decreased 1% and 4%, respectively, in Q3-2023 while revenue remained flat and NOI decreased 5% YTD-2023.
Revenue and NOI decreased 11% and 18%, respectively, in Q3-2023 and YTD-2023 when compared to the same periods in 2022. The decrease in revenue and NOI was largely a result of the decrease in termination income and lower revenue from a tenant in the REIT's greater
Q3-2023 FFO and AFFO decreased
Q3-2023 FFO and AFFO basic and diluted per Unit decreased
Same Property NOI(1)
As at | |||||||||
Occupancy (2) | 2023 | 2022 | NOI | Q3 2023 | Q3 2022 | Variance | Variance % | ||
94.8 % | 95.7 % | $ 3,514 | $ 3,541 | $ (27) | (0.8) % | ||||
100.0 % | 98.7 % | 1,284 | 1,256 | 28 | 2.2 % | ||||
85.8 % | 83.8 % | 1,297 | 1,015 | 282 | 27.8 % | ||||
89.5 % | 96.9 % | 1,776 | 1,752 | 24 | 1.4 % | ||||
94.2 % | 96.5 % | 12,503 | 14,778 | (2,275) | (15.4) % | ||||
Total | 93.2 % | 95.2 % | $ 20,374 | $ 22,342 | $ (1,968) (1,968) | (8.8) % |
Q3-2023 Same Property NOI decreased 1.6% (YTD-2023 - 3.6%) excluding termination fees and investment properties held for sale. Excluding investment properties held for sale only, Q3-2023 Same Property NOI decreased 8.8% (YTD-2023 - 11.8%) as a result of the significant termination fee income recorded in the prior year periods.
British Columbia Same Property NOI increased due to contractual rent increases. New Brunswick Same Property NOI increased as a result of a new lease that commenced in
Ontario Same Property NOI decreased mainly due to termination fees received in Q3-2022 relating to a tenant in the REIT's GTA portfolio that downsized a portion of their space effective
Debt and Liquidity
Indebtedness to GBV ratio (1) | 61.4 % | 59.3 % |
Interest coverage ratio (1) | 2.43 x | 3.00 x |
Indebtedness (1) - weighted average fixed interest rate | 4.03 % | 3.54 % |
Indebtedness (1) - weighted average term to maturity | 2.99 years | 3.27 years |
At the end of Q3-2023, the REIT had access to Available Funds of approximately
Subsequent to
(1) This is a non-IFRS financial measure. Refer to the Non-IFRS financial measures section below. |
Distribution Reallocation
After careful consideration, the Board has determined that the most effective use of available capital is to reallocate substantially all distributions paid to Unitholders ("Distribution Amounts") for the month commencing
Unit Consolidation
The REIT announced that it intends to affect a Consolidation of its Voting Units and Class B LP Units on the basis of 5.75:1 Voting Units and Class B LP Units (together, the "Consolidated Units"). The Consolidation will become effective on or about
The Consolidation will affect all Unitholders uniformly and will not alter any Unitholder's percentage interest in the REIT's equity, except to the extent that the Consolidation would result in a Unitholder owning fractional Consolidated Units. Any fractional Consolidated Units of a Unitholder resulting from the Consolidation will be rounded down to the nearest whole number of Consolidated Units. The Consolidation will reduce the number of the REIT's Units total issued and outstanding from 92,020,251 Units to approximately 16,003,521 Units and 2,420,164 Class B LP Units and SV Units to approximately 420,891 Class B LP Units and SV Units respectively. Proportional adjustments will be made to the number of the REIT's Units issuable upon exercise or conversion of the Class B LP Units.
Holders of Consolidated Units held in book-entry form or through a bank, broker or other nominee will have their positions automatically adjusted to reflect the Consolidation, subject to a broker's particular processes, and do not need to take any action in connection with the Consolidation. Unitholders of record will be receiving information from
The Units will commence trading on the
About the REIT
The REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of
The REIT is focused on growing its portfolio principally through acquisitions across
Non-IFRS measures
Certain terms used in this press release such as FFO, AFFO, FFO and AFFO payout ratios, NOI, Same Property NOI, indebtedness ("Indebtedness"), gross book value ("GBV"), Indebtedness to GBV ratio, net earnings before interest, tax, depreciation and amortization and fair value gain (loss) on financial instruments and investment properties ("Adjusted EBITDA"), interest coverage ratio, net asset value ("NAV") per Unit, Total Equity and Available Funds are not measures defined by International Financial Reporting Standards ("IFRS") as prescribed by the
Reconciliation of Non-IFRS financial measures
The following tables reconcile the non-IFRS financial measures to the comparable IFRS measures for the three and nine months ended
NOI
The following table calculates the REIT's net operating income, a non-IFRS financial measure:
Three months ended | Nine months ended | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Revenue | $ | 32,789 | $ | 36,677 | $ | 99,337 | $ | 108,124 |
Expenses: | ||||||||
Property operating costs | (9,699) | (9,526) | (28,800) | (27,048) | ||||
Realty taxes | (5,008) | (5,175) | (15,335) | (15,221) | ||||
NOI | $ | 18,082 | $ | 21,976 | $ | 55,202 | $ | 65,855 |
Same Property NOI
Same Property NOI is measured as the net operating income for the properties owned and operated by the REIT for the current and comparative period. The following table reconciles the REIT's Same Property NOI to NOI:
Three months ended | Nine months ended | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Number of properties | 43 | 43 | 43 | 43 | |||
Revenue | $ | 31,319 | $ | 34,839 | 93,990 | $ | 103,698 |
Expenses: | |||||||
Property operating | (9,203) | (9,153) | (27,350) | (26,190) | |||
Realty taxes | (4,795) | (4,858) | (14,356) | (14,473) | |||
$ | 17,321 | $ | 20,828 | 52,284 | $ | 63,035 | |
Add: | |||||||
Amortization of leasing costs and tenant inducements | 2,429 | 1,569 | 6,726 | 4,729 | |||
Straight-line rent | 392 | 577 | 1,135 | 1,525 | |||
Same Property NOI | $ | 20,142 | $ | 22,974 | 60,145 | $ | 69,289 |
Less: Investment properties held for sale | (232) | 632 | 812 | 1,987 | |||
Same Property NOI excluding investment properties held for sale | 20,374 | 22,342 | 59,333 | 67,302 | |||
Reconciliation to condensed consolidated interim financial statements: | |||||||
Acquisitions and dispositions | (90) | 1,799 | 1,894 | 4,862 | |||
Amortization of leasing costs and tenant inducements | (2,428) | (1,584) | (6,735) | (4,772) | |||
Straight-line rent | 226 | (581) | 710 | (1,537) | |||
NOI | $ | 18,082 | $ | 21,976 | 55,202 | $ | 65,855 |
FFO and AFFO
The following table reconciles the REIT's FFO and AFFO to net income and comprehensive income, for the three and nine months ended
Three months ended | Nine months ended | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Net income and comprehensive income | $ | (42,472) | $ | 8,046 | $ | (34,684) | $ | 38,437 |
Add (deduct): | ||||||||
Fair value adjustment of Unit-based compensation | (54) | (105) | (486) | (587) | ||||
Fair value adjustment of investment properties | 50,087 | 6,842 | 68,391 | 10,122 | ||||
Fair value adjustment of Class B LP Units | (584) | (1,629) | (9,179) | (5,045) | ||||
Transaction costs on sale of investment property | 1,131 | — | 1,375 | — | ||||
Distributions on Class B LP Units | 181 | 400 | 679 | 1,298 | ||||
Unrealized gain on change in fair value of derivative instruments | (366) | (702) | (1,061) | (5,362) | ||||
Amortization of leasing costs and tenant inducements | 2,428 | 1,584 | 6,735 | 4,772 | ||||
FFO | $ | 10,351 | $ | 14,436 | $ | 31,770 | $ | 43,635 |
Add (deduct): | ||||||||
Unit-based compensation expense | 114 | 93 | 446 | 541 | ||||
Amortization of financing costs | 329 | 405 | 1,071 | 1,133 | ||||
Rent Supplement | 743 | — | 2,228 | — | ||||
Amortization of mortgage discounts | (8) | (11) | (25) | (36) | ||||
Instalment note receipts | 13 | 15 | 41 | 47 | ||||
Straight-line rent | (226) | 581 | (710) | 1,537 | ||||
Capital reserve | (1,215) | (1,229) | (3,673) | (3,609) | ||||
AFFO | $ | 10,101 | $ | 14,290 | $ | 31,148 | $ | 43,248 |
FFO per Unit: | ||||||||
Basic | $ | 0.11 | $ | 0.15 | $ | 0.34 | $ | 0.47 |
Diluted | $ | 0.11 | $ | 0.15 | $ | 0.34 | $ | 0.47 |
AFFO per Unit: | ||||||||
Basic | $ | 0.11 | $ | 0.15 | $ | 0.33 | $ | 0.47 |
Diluted | $ | 0.11 | $ | 0.15 | $ | 0.33 | $ | 0.47 |
AFFO payout ratio: | ||||||||
Basic | 69 % | 97 % | 83 % | 95 % | ||||
Diluted | 69 % | 97 % | 83 % | 95 % | ||||
Distributions declared | $ | 7,012 | $ | 13,900 | $ | 25,731 | $ | 41,300 |
Weighted average Units outstanding (000s): | ||||||||
Basic | 94,469 | 93,408 | 94,525 | 92,604 | ||||
Add: | ||||||||
Unit options and Incentive Units | 34 | 26 | 28 | 95 | ||||
Diluted | 94,503 | 93,434 | 94,553 | 92,699 |
Indebtedness to GBV Ratio
The table below calculates the REIT's Indebtedness to GBV ratio as at
|
| |||
Total assets | $ | 1,336,568 | $ | 1,450,315 |
Deferred financing costs | 6,777 | 7,070 | ||
GBV (1) | $ | 1,343,345 | $ | 1,457,385 |
Mortgages payable | 804,120 | 846,689 | ||
Credit Facility | 18,100 | 14,400 | ||
Unamortized financing costs and mark to market mortgage adjustments | 3,044 | 3,745 | ||
Indebtedness (1) | $ | 825,264 | $ | 864,834 |
Indebtedness to GBV (1) | 61.4 % | 59.3 % |
Adjusted EBITDA
The table below reconciles the REIT's adjusted EBITDA to net income and comprehensive income for twelve month period ended
Nine months ended | |||||
2023 | 2022 | ||||
Net income and comprehensive income | $ | (56,589) | $ | 57,353 | |
Add (deduct): | |||||
Interest expense | 32,055 | 27,978 | |||
Fair value adjustment of Unit-based compensation | (479) | (479) | |||
Transaction costs on sale of investment property | 1,375 | — | |||
Fair value adjustment of investment properties | 100,194 | 2,761 | |||
Fair value adjustment of Class B LP Units | (8,724) | (4,531) | |||
Distributions on Class B LP Units | 1,054 | 1,747 | |||
Unrealized loss on change in fair value of derivative instruments | (1,143) | (6,331) | |||
Amortization of leasing costs, tenant inducements, mortgage premium and financing costs | 10,175 | 7,910 | |||
Adjusted EBITDA (1) | $ | 77,918 | $ | 86,408 |
Interest Coverage Ratio
The table below calculates the REIT's interest coverage ratio for the twelve month period ended
Nine months ended September 30 | ||||
2023 | 2022 | |||
Adjusted EBITDA | $ | 77,918 | $ | 86,408 |
Interest expense | 32,055 | 27,978 | ||
Interest coverage ratio | 2.43 x | 3.09 x |
Available Funds
The table below calculates the REIT's Available Funds as at
|
| |||
Cash | $ | 6,383 | $ | 9,501 |
Undrawn Credit Facility | 41,900 | 53,600 | ||
Available Funds | $ | 48,283 | $ | 63,101 |
NAV per Unit
The table below calculates the REIT's NAV per Unit as at
|
| |||
Units | Amount | Units | Amount | |
Unitholders' Equity | 92,007,751 | 91,813,073 | ||
Add: Class B LP Units | 2,432,664 | 5,207 | 2,526,414 | 14,628 |
Total Equity (including Class B LP Units) | 94,440,415 | 94,339,487 | ||
NAV per Unit |
Forward-looking Statements
Certain statements contained in this press release constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking statements are provided for the purposes of assisting the reader in understanding the REIT's financial performance, financial position and cash flows as at and for the periods ended on certain dates and to present information about management's current expectations and plans relating to the future. Readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking information may relate to future results, performance, achievements, events, prospects or opportunities for the REIT or the real estate industry and may include statements regarding the financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes, distributions, plans, the benefits of reallocating the Distribution Amounts to the NCIB, or through other acquisition programs, the impact of the Consolidation and the objectives of or involving the REIT,. In some cases, forward-looking information can be identified by such terms as "may", "might", "will", "could", "should", "would", "expect", "plan", "anticipate", "believe", "intend", "seek", "aim", "estimate", "target", "goal", "project", "predict", "forecast", "potential", "continue", "likely", or the negative thereof or other similar expressions suggesting future outcomes or events.
Forward-looking statements involve known and unknown risks and uncertainties, which may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, assumptions may not be correct and objectives, strategic goals and priorities may not be achieved. A variety of factors, many of which are beyond the REIT's control, affect the operations, performance and results of the REIT and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not limited to: risks and uncertainties related to the Units; risks related to the REIT and its business; fluctuating interest rates and general economic conditions, including increased levels of inflation; credit, market, operational and liquidity risks generally; occupancy levels and defaults, including the failure to fulfill contractual obligations by tenants; lease renewals and rental increases; the ability to re-lease and find new tenants for vacant space; the timing and ability of the REIT to acquire or sell certain properties; the ongoing effects of COVID-19 and work-from-home flexibility initiatives on the business, operations and financial condition of the REIT and its tenants, as well as on consumer behavior and the economy in general, including the ability to enforce leases, perform capital expenditure work, increase rents, raise capital through the issuance of Units or other securities of the REIT; the benefits of reallocating the Distribution Amounts to the NCIB, or through other acquisition programs, the impact of the Consolidation; and obtain mortgage financing on the REIT's properties (the "properties"). The foregoing is not an exhaustive list of factors that may affect the REIT's forward-looking statements. Other risks and uncertainties not presently known to the REIT could also cause actual results or events to differ materially from those expressed in its forward-looking statements. The reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements as there can be no assurance actual results will be consistent with such forward-looking statements.
Information contained in forward-looking statements is based upon certain material assumptions applied in drawing a conclusion or making a forecast or projection, including management's perception of historical trends, current conditions and expected future developments, as well as other considerations believed to be appropriate in the circumstances. There can be no assurance regarding: (a) the ongoing effects of COVID-19 and work-from-home initiatives on the REIT's business, operations and performance, including the performance of its Units; (b) the REIT's ability to mitigate any impacts related to fluctuating interest rates, inflation and the after effects of COVID-19 including the shift to hybrid working; (c) the factors, risks and uncertainties expressed above in regards to the post COVID-19 environment on the commercial real estate industry and property occupancy levels; (d) credit, market, operational, and liquidity risks generally; (e) the availability of investment opportunities for growth in
The forward-looking statements made relate only to events or information as of the date on which the statements are made in this MD&A. Except as specifically required by applicable Canadian law, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
SOURCE
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