- 21.1% year-over-year increase in property revenue from 2019
- Net operating income1 grew 14.2% on year-over-year basis
- Net income and comprehensive income up 40.7% from 2019
- 9.9% year-over-year increase in AFFO1 from 2019
- 97% of leases matured in 2020 renewed
MONTREAL, March 24, 2021 /CNW Telbec/ - PRO Real Estate Investment Trust ("PROREIT" or the "REIT") (TSX: PRV.UN) today reported its financial and operating results for the three-month (or "fourth quarter") and twelve-month (or "full year") periods ended December 31, 2020.
"I am proud of what we achieved in 2020 in the context of a global pandemic with far reaching public health and economic repercussions. We adapted with agility in a shifting environment, taking proactive steps to mitigate the impact on our employees, tenants and the communities where we own properties," said Jim Beckerleg, President and CEO, PROREIT.
"Our solid 2020 financial and operational results confirmed the resiliency of our high-quality portfolio and the soundness of our business model. Our consistently robust rent collection rates across every asset class throughout the pandemic is a testament to the strength of our well-diversified tenant base and the quality of our long-standing tenant relationships. Adjusted for the sale of a small non-strategic property, our renewal rate for 2020 exceeded 97%, at positive spreads of 3.5% in year one.
"Underpinned by the stability of our cash flows, the prudent management of our operations and solid liquidity levels served us well in 2020. We successfully strengthened our balance sheet with attractive mortgage refinancing, new term loans, and non-strategic property sales.
"Our solid foundation enabled us to return to our growth strategy in early 2021, in a re-opening and expanding economy. On March 15, 2021, we announced the proposed acquisition of 12 assets for $86.8 million, increasing our exposure in the strong industrial sector in the attractive Ottawa and Winnipeg markets. Coincidently, we also announced a $50 million private placement with a major Canadian private investor, Collingwood Investments Incorporated, a member of the Bragg Group of Companies, of Oxford, Nova Scotia. These funds will in part support the announced acquisitions and increase our liquidity position, which in turn will allow us to capture significant growth opportunities in the pipeline. With these opportunities propelling PROREIT to the next stage of growth, we can move forward with our strategic priorities with sound capital allocation in order to create value for our unitholders," Mr. Beckerleg concluded.
COVID-19 Impact
PROREIT has worked closely with its tenants throughout the year, including supporting select tenants through rent deferrals and participation in the Canada Emergency Commercial Rent Assistance program ("CECRA"). CECRA provides qualifying tenants with a 75% gross rent reduction, 50% funded by the government and 25% by the landlord incurring a rent abatement. As at December 31, 2020, PROREIT has approximately $0.3 million of rent deferrals to be repaid by tenants over various terms not exceeding 12 months. These amounts are being consistently collected on schedule and as per deferral agreements in place. For the year ended December 31, 2020, PROREIT recorded $0.8 million of COVID–19 related provisions, including $0.1 million of CECRA participation.
_____________________________ |
|
1 |
Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
As previously announced, PROREIT's monthly collection of gross rent since November 2020 is as follows:
February |
January |
December |
November 2020 |
|
Gross rent collections, including government and other tenants who typically |
99.8% |
99.8% |
99.8% |
99.8% |
Breakdown: |
||||
Industrial tenants |
100.0% |
100.0% |
100.0% |
100.0% |
Mixed-use commercial tenants |
100.0% |
100.0% |
100.0% |
100.0% |
Office tenants |
100.0% |
100.0% |
100.0% |
100.0% |
Retail tenants |
99.5% |
99.5% |
99.3% |
99.2% |
Temporary rent deferral agreements under fixed repayment terms |
0.0% |
0.0% |
0.0% |
0.0% |
Gross rent in arrears and discussions with the tenants are ongoing and managed |
0.2% |
0.2% |
0.2% |
0.2% |
Financial Results
Table 1- FINANCIAL HIGHLIGHTS
(CAD $ thousands except unit, per unit amounts and |
3 Months |
3 Months |
Year Ended |
Year Ended |
||||
Financial data |
||||||||
Property revenue |
$ |
17,589 |
$ |
17,315 |
$ |
69,810 |
$ |
57,627 |
Net operating income (NOI) (1) |
$ |
10,002 |
$ |
10,050 |
$ |
40,529 |
$ |
35,481 |
Total assets |
$ |
634,484 |
$ |
634,737 |
$ |
634,484 |
$ |
634,737 |
Debt to Gross Book Value (1) |
57.82% |
57.52% |
57.82% |
57.52% |
||||
Interest Coverage Ratio (1) |
2.6x |
2.6x |
2.6x |
2.6x |
||||
Debt Service Coverage Ratio (1) |
1.6x |
1.6x |
1.6x |
1.6x |
||||
Weighted average interest rate on mortgage debt |
3.73% |
3.74% |
3.73% |
3.74% |
||||
Net cash flows provided from operating activities |
$ |
10,273 |
$ |
7,937 |
$ |
23,410 |
$ |
17,435 |
Funds from Operations (FFO) (1) |
$ |
4,789 |
$ |
5,017 |
$ |
20,908 |
$ |
15,296 |
Basic FFO per unit (1)(2) |
$ |
0.1197 |
$ |
0.1259 |
$ |
0.5227 |
$ |
0.4417 |
Diluted FFO per unit (1)(2) |
$ |
0.1169 |
$ |
0.1233 |
$ |
0.5112 |
$ |
0.4314 |
Adjusted Funds from Operations (AFFO) (1) |
$ |
5,366 |
$ |
5,676 |
$ |
22,436 |
$ |
20,422 |
Basic AFFO per unit (1)(2) |
$ |
0.1341 |
$ |
0.1425 |
$ |
0.5609 |
$ |
0.5897 |
Diluted AFFO per unit (1)(2) |
$ |
0.1310 |
$ |
0.1395 |
$ |
0.5486 |
$ |
0.5759 |
AFFO Payout Ratio – Basic (1) |
83.9% |
110.5% |
88.3% |
106.8% |
||||
AFFO Payout Ratio – Diluted (1) |
85.9% |
112.9% |
90.2% |
109.4% |
||||
(1) |
Non–IFRS measure. See "Non–IFRS and Operational Key Performance Indicators. |
(2) |
Total basic units consist of trust units and Class B LP Units (as defined herein). Total diluted units also include deferred trust units and restricted trust units issued under the REIT's long–term incentive plan. |
PROREIT owned 91 investment properties as at December 31, 2020 compared to 92 properties at the end of 2019. Total assets amounted to $634.5 million as at December 31, 2020, compared to $634.7 million as at December 31, 2019, a decrease of $0.2 million. PROREIT acquired one investment property and sold two investment properties during the twelve-month period ended December 31, 2020.
During the fourth quarter of 2020, PROREIT completed the sale of a non-strategic office building located in the greater Montreal area for gross proceeds of $5.0 million, marginally higher than its IFRS carrying value. The sale was the result of an unsolicited offer and proceeds were used to reduce debt, more specifically operating facilities, and for general corporate purposes.
For the twelve-month period ended December 31, 2020:
- Property revenue amounted to $69.8 million, an increase of $12.2 million, or 21.1%, compared to $57.6 million for the same prior year period. The increase was mainly driven by the incremental revenue from net acquisition activity over the past two years.
- Same property net operating income1 amounted to $31.2 million, a slight decrease of $0.7 million, or 2.2%, compared to the same prior year period. The decrease was primarily driven by COVID-19 related bad debt provisions, CECRA participation and rental abatements, as well as the decreased retail and office occupancy, partially offset by contractual rent increases and higher rental rates on lease renewals.
- Net operating income1 was $40.5 million, an increase of $5.0 million, or 14.2%, compared to $35.5 million in 2019. The increase is mainly the result from the favourable impact of net property acquisitions completed over the past two years.
- AFFO1 totaled $22.4 million, an increase of $2.0 million, or 9.9%, compared to $20.4 million for the same prior year period. The increase mainly relates to the net acquisition activity over the past two years.
- AFFO payout ratio1 stood at 88.3% compared to 106.8% for the same prior year period. The favourable variance mainly relates to the revision of PROREIT's monthly distributions to $0.0375 per unit from $0.0525 commencing April 2020.
For the fourth quarter ended December 31, 2020:
- Property revenue amounted to $17.6 million, an increase of $0.3 million, or 1.6%, compared to $17.3 million for the same prior year period. The increase was mainly driven by contractual rent increases and higher rental rates on lease renewals.
- Same property net operating income1 reached $9.7 million, an increase of $0.1 million, or 0.6%, compared to the same prior year period. The increase was mainly driven by contractual rent increases and higher rental rates on lease renewals, offset by a slight decrease in average occupancy.
- Net operating income1 amounted to $10.0 million, comparable to the same period in 2019.
- AFFO1 totaled $5.4 million, a decrease of $0.3 million, or 5.5%, compared to $5.7 million for the same prior year period. The decrease reflects an increase in maintenance capital expenditures and leasing commissions.
- AFFO payout ratio1 stood at 83.9% compared to 110.5% for the same prior year period. The improvement resulted from the same reason noted for the twelve-month period above.
_____________________________ |
|
1 |
Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
TABLE 2- RECONCILIATION OF NET OPERATING INCOME TO NET INCOME AND COMPREHENSIVE INCOME
(CAD $ thousands) |
3 Months |
3 Months |
Year Ended |
Year Ended |
||||
Property revenue |
$ |
17,589 |
$ |
17,315 |
$ |
69,810 |
$ |
57,627 |
Property operating expenses |
7,587 |
7,265 |
29,281 |
22,146 |
||||
Net operating income (NOI) (1) |
10,002 |
10,050 |
40,529 |
35,481 |
||||
General and administrative expenses |
899 |
598 |
3,328 |
2,318 |
||||
Long–term incentive plan expense |
2,112 |
714 |
585 |
3,043 |
||||
Depreciation of property and equipment |
92 |
60 |
299 |
197 |
||||
Amortization of intangible assets |
93 |
93 |
372 |
372 |
||||
Interest and financing costs |
3,877 |
3,847 |
15,382 |
13,491 |
||||
Distributions – Class B LP Units |
171 |
407 |
928 |
1,662 |
||||
Fair value adjustment – Class B LP Units |
2,104 |
466 |
(5,257) |
4,547 |
||||
Fair value adjustment – investment properties |
(5,604) |
2,554 |
4,667 |
(7,429) |
||||
Other income |
(549) |
(425) |
(2,110) |
(2,369) |
||||
Other expenses |
394 |
287 |
1,263 |
1,467 |
||||
Transaction costs |
- |
131 |
- |
3,207 |
||||
Net income and comprehensive income |
$ |
6,413 |
$ |
1,318 |
$ |
21,072 |
$ |
14,975 |
(1) |
See "Non–IFRS and Operational Key Performance Indicators". |
For the year ended December 31, 2020, net income and comprehensive income amounted to $21.1 million, an increase of $6.1 million compared to $15.0 million for the same prior year period. This mainly reflects the favourable $9.8 million impact of the non-cash fair value adjustment on Class B LP Units (as defined herein), the $5.0 million favourable impact in net operating income[3] as well as the $2.5 million favourable variance in non-cash long-term incentive plan expense, partially offset by the $12.1 million difference in non-cash fair value adjustment on investment properties for the twelve-month period ended December 30, 2020 compared to the same period last year.
During the year ended December 31, 2020, PROREIT updated independent external appraisals for 70 of its 91 properties resulting in a fair market value gain of approximately $4.0 million.
For the three months ended December 31, 2020, net income and comprehensive income amounted to $6.4 million, compared to $1.3 million for the same prior year period. The $5.1 million increase mainly relates to a favourable $8.1 million impact in the non-cash fair value adjustment on investment properties for the fourth quarter of 2020 compared to the same prior year period, partially offset by the $1.4 million variance in non-cash long-term incentive plan expense for the quarter ended December 31, 2020 compared to the same period in 2019.
_____________________________ |
|
1 |
Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
Solid Balance Sheet and Liquidity Position
PROREIT continued to exercise prudent capital management and remains committed to a strong balance sheet. Debt to gross book value1 ratio remained stable at 57.82% at December 31, 2020, from 57.52% at December 31, 2019. The weighted average interest on mortgage debt was 3.73% at December 31, 2020, compared to 3.74% at December 31, 2019.
On November 26, 2020, PROREIT entered into a new financing commitment with a current lender to increase its operating liquidity. Secured by a second charge security on a pool of 14 properties, the new term loan of $13.3 million has a three–year term at an annual interest rate of 6.45%. Net proceeds of the loan were used to pay down portions of certain term loans and credit facilities, increasing the REIT's operating liquidity by approximately $9 million.
As announced on March 4, 2021 subsequent to year-end, PROREIT increased its operating liquidity to approximately $35 million of availability through cash on hand and undrawn operating facilities, following a mortgage refinancing and asset sales. These transactions are expected to improve PROREIT's debt to gross book value ratio.
OPERATIONAL RESULTS
TABLE 3- OPERATIONAL HIGHLIGHTS
December 31 2020 |
December 31 2019 |
|
Operational data |
||
Number of properties |
91 |
92 |
Gross leasable area (square feet) ("GLA") |
4,547,317 |
4,445,498 |
Occupancy rate (1) |
98.0% |
98.4% |
Weighted average lease term to maturity (years) |
5.2 |
5.6 |
(1) |
Occupancy rate includes lease contracts for future occupancy of currently vacant space. Management believes the inclusion of this committed space provides a more balanced reporting. The committed space at December 31, 2020 was approximately 20,879 square feet of GLA (33,464 square feet of GLA at December 31, 2019). |
GLA increased 2.2% to 4,547,317 square feet at December 31, 2020, compared to 4,445,498 square feet at year-end 2019. The increase of 101,819 square feet in GLA is mainly attributable to the acquisition of one property, offset by the sale of two smaller buildings in the twelve-month period ended December 31, 2020.
Occupancy rate remains stable at 98.0% as at December 31, 2020, slightly down from 98.4% a year earlier.
PROREIT's tenant mix is well diversified by industry sector. At December 31, 2020, approximately 86% of the portfolio base rent is from national and government tenants and the top ten tenants represent 37.1% of annual base rent. 66.5% of the base rent in the retail segment is from tenants providing necessary services to the public, including groceries, pharmacies, financial institutions, government offices and medical offices. The ten largest tenants in PROREIT's portfolio accounted for approximately 37.1% on annualized in-place and committed base rent as at December 31, 2020 and have an average remaining lease term of 6.5 years.
______________________ |
|
1 |
Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
PROREIT's diverse tenant base has a staggered lease maturity profile with no more than 18.2% of base rent maturing in any given period before 2026. 78.2% of leases maturing in 2021 are currently renewed.
SUBSEQUENT EVENTS
On March 15, 2021, PROREIT announced the proposed acquisition of 12 institutional-quality industrial assets comprising total GLA of 572,000 square feet located in Ottawa and Winnipeg. The aggregate purchase price is approximately $86.8 million (excluding closing costs) and is expected to be satisfied by a combination of approximately $33.1 million in cash from a private placement of trust units and approximately $53.7 million aggregate principal amount of new 5-year mortgage financings. PROREIT also announced a strong acquisition pipeline, including non-binding letters of intent to acquire six institutional-quality industrial assets in Atlantic Canada comprising approximately 500,000 square feet for approximately $47 million. The private placement and the acquisitions are subject to customary conditions, including regulatory approvals.
Impact of the 12 acquisitions on PROREIT's overall portfolio:
Pro Forma Portfolio
Province |
Based Rent % |
GLA % |
Asset Class |
Base Rent % |
GLA % |
|||||
Maritime |
38% |
38% |
Industrial and |
54% |
70% |
|||||
Quebec |
12% |
16% |
Retail |
33% |
21% |
|||||
Western Canada |
17% |
16% |
Office |
13% |
9% |
|||||
Ontario |
33% |
31% |
||||||||
Total |
100% |
100% |
100% |
100% |
On February 26, 2021, PROREIT announced proceeds of $46.6 million in new mortgage financing with an extended ten-year repayment term at a rate of 3.21%. Proceeds were used to repay approximately $29.0 million of mortgages maturing in 2021 and 2022 and to pay yield maintenance fees which totalled $1.3 million. The remaining net $16.3 million will be used to reduce operating facilities and for general corporate purposes.
On February 18, 2021, PROREIT announced the sale of a non-strategic light industrial building located in the greater Montreal area, for gross proceeds of $8.0 million. The proceeds of sale were used to repay the property mortgage and for general corporate purposes.
Distributions
Distributions to unitholders totaling $0.0375 per trust unit of the REIT were declared monthly during the three months ended December 31, 2020, representing distributions of $0.45 per unit on an annual basis. Equivalent distributions are paid on the Class B limited partnership units of PRO REIT Limited Partnership ("Class B LP Units"), a subsidiary of the REIT.
As announced on April 22, 2020, monthly distributions, which were previously of $0.0525 per unit, were revised to $0.0375 per unit, allowing for a reduction of PROREIT'S debt and for flexibility in allocating capital to the benefit of unitholders. Concurrently, in response to stock market volatility flowing from the COVID-19 pandemic, PROREIT suspended its distribution reinvestment plan ("DRIP") effective April 22, 2020, with distributions only being paid in cash. The DRIP will remain suspended until further notice and distributions of PROREIT will be paid only in cash.
STRATEGY AND OUTLOOK
PROREIT remains committed to driving growth and creating value for its unitholders, while maintaining a strong balance sheet and managing capital on a long-term basis.
With the ongoing economic recovery and debt financing available at historically low interest rates benefiting the real estate market, business outlook is positive. PROREIT is well positioned to resume its growth strategy, including the acquisition of high-quality, low-risk real estate in favourable secondary markets.
Investor Conference Call and Webcast Details
PROREIT will hold a conference call to discuss its 2020 fiscal year and fourth quarter 2020 results on March 25, 2021, at 10:30 a.m. EDT. There will be a question period reserved for financial analysts. To access the conference call, please dial 888-664-6383 or 416-764-8650 or 514-225-6995. A recording of the call will be available until April 1, 2021 by dialing 888-390-0541 or 416-764-8677 Access code: 739382#
The conference call will also be accessible via live webcast on PROREIT's website at www.proreit.com or at https://produceredition.webcasts.com/starthere.jsp?ei=1436883&tp_key=70c86e67c5
Annual Meeting of Unitholders
Due to the COVID-19 pandemic and to prioritize the well-being of its unitholders and employees, PROREIT will host its annual meeting virtually, accessible via webcast on June 8, 2021 at 2 p.m. EDT. Additional information regarding the meeting will be contained in the REIT's information circular to be prepared in connection with the meeting.
About PROREIT
PROREIT (TSX:PRV.UN) is an unincorporated open-ended real estate investment trust owning a diversified portfolio of diversified commercial properties across Canada. Established in March 2013, PROREIT is mainly focused on strong primary and secondary markets in Québec, Atlantic Canada and Ontario, with selective exposure in Western Canada. For more information, go to: www.proreit.com
Non-IFRS and Operational Key Performance Indicators
PROREIT's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, PROREIT discloses and discusses certain non-IFRS financial measures, including net operating income ("NOI"), adjusted funds from operations ("AFFO"), debt to gross book value, interest coverage ratio, debt service coverage ratio, funds from operations ("FFO"), AFFO payout ratio and same property net operating income ("same property NOI"). These non-IFRS measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. PROREIT has presented such non-IFRS measures as management of the REIT believes they are relevant measures of PROREIT's underlying operating performance and debt management. Non-IFRS measures should not be considered as alternatives to net income, cash generated from (utilized in) operating activities or comparable metrics determined in accordance with IFRS as indicators of PROREIT's performance, liquidity, cash flow, and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non-IFRS and Operational Key Performance Indicators" section in PROREIT's management's discussion and analysis for the three months and year ended December 31, 2020, available under PROREIT's profile on SEDAR at www.sedar.com.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond PROREIT's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements.
Forward-looking statements contained in this press release include, without limitation, statements pertaining to the execution by PROREIT of its growth strategy, the intended use of proceeds of the private placement, the anticipated closing of the private placement and each of the announced acquisitions, the future economic activity and the future performance of PROREIT. PROREIT's objectives and forward-looking statements are based on certain assumptions, including that (i) PROREIT will receive financing on favourable terms; (ii) the future level of indebtedness of PROREIT and its future growth potential will remain consistent with the REIT's current expectations; (iii) there will be no changes to tax laws adversely affecting PROREIT's financing capacity or operations; (iv) the impact of the current economic climate and the current global financial conditions on PROREIT's operations, including its financing capacity and asset value, will remain consistent with PROREIT's current expectations; (v) the performance of PROREIT's investments in Canada will proceed on a basis consistent with PROREIT's current expectations; and (vi) capital markets will provide PROREIT with readily available access to equity and/or debt. Without limitation, there can be no assurance that any discussions PROREIT may have concerning future acquisitions, or that the proposed acquisitions for which PROREIT has entered into letters of intent, will result in definitive agreements and, if they do, what the terms or timing of any such acquisitions would be.
The forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement. All forward-looking statements in this press release are made as of the date of this press release. PROREIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law.
Additional information about these assumptions and risks and uncertainties is contained under "Risk Factors" in PROREIT's latest annual information form and "Risk and Uncertainties" in PROREIT's management's discussion and analysis for the year ended December 31, 2020, which are available under PROREIT's profile on SEDAR at www.sedar.com.
SOURCE PROREIT
Investor Relations: PRO Real Estate Investment Trust, James W. Beckerleg, President and Chief Executive Officer, 514-933-9552; PRO Real Estate Investment Trust, Gordon G. Lawlor, CPA, CA, Executive Vice President, Chief Financial Officer and Secretary, 514-933-9552
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