Positive leasing activity and strong rent
collections of 99.5%
153,300 sq ft leased/renewed with a WALT of
5.5 years
/NOT FOR DISTRIBUTION IN THE U.S. OR OVER U.S.
NEWSWIRES/
TORONTO, May 5, 2022
/CNW/ - True North Commercial Real Estate Investment Trust (TSX:
TNT.UN) (the "REIT") today announced its financial results for the
three months ended March 31, 2022.
"We were encouraged by the increased leasing momentum in the
quarter" stated Tracy Sherren, the
REIT's President and Chief Financial Officer. "The further lifting
of almost all COVID-19 restrictions contributed to this trend and
we expect the positive impact to continue as tenants implement
their return to office plans".
Q1 Highlights
- Collected approximately 99.5% of contractual rent in Q1
2022.
- Contractually leased and renewed approximately 153,300 square
feet with a weighted average lease term of 5.5 years and a 3.8%
increase over expiring base rents.
- Portfolio occupancy of 96% with an average remaining lease term
of 4.3 years.
- Revenue and net operating income ("NOI") have increased 4% and
5%, respectively, compared to Q1 2021 driven by higher same
property NOI ("Same Property NOI") and the Q4 2021 acquisition
partially offset by disposition activity in Q2 2021 and higher
amortization of leasing costs and straight line rent
adjustments.
- Same Property NOI experienced an overall increase of 8.1%,
which can be attributed to termination fees relating to a tenant in
the REIT's GTA portfolio that is downsizing a portion of their
space effective December, 2022. Excluding termination fees, Same
Property NOI decreased 1.3%.
- Funds from operations ("FFO") and adjusted funds from
operations ("AFFO") per Unit on both a basic and diluted basis
increased to $0.16, an increase of
$0.01 and $0.02 respectively compared to Q1 2021.
- Access to $63.7 million of
Available Funds at the end of Q1 2022.
Subsequent Events
- On April 11, 2022, the REIT
entered into an agreement of purchase and sale to dispose 32071
South Fraser, Abbotsford, British
Columbia totaling 52,300 square feet for a price of
approximately $24 million. Closing is
expected to be on or about June 30,
2023.
- On April 21, 2022 the REIT filed
a prospectus supplement to establish an at-the-market equity
program (the "ATM Program") that allows the REIT to issue and sell
up to $50 million of Units to the
public, from time to time, at the REIT's discretion. Units sold
under the ATM Program will be sold through the Toronto Stock
Exchange or on other marketplaces to the extent permitted at
prevailing market prices at the time of sale. The REIT intends to
use the net proceeds from the ATM Program, if any, to fund
potential future acquisitions and for general trust purposes.
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 March 31
|
|
2022
|
2021
|
Number of
properties
|
46
|
47
|
Portfolio
GLA
|
4,799,700
sf
|
4,800,200
sf
|
Occupancy
|
96%
|
97%
|
Remaining weighted
average lease term
|
4.3 years
|
4.7 years
|
Revenue from government
and credit rated tenants
|
76%
|
75%
|
Revenue
|
$
36,327
|
$
34,944
|
NOI
(1)
|
22,194
|
21,090
|
Net income and
comprehensive income
|
14,909
|
9,720
|
Same Property NOI
(1)
|
23,862
|
22,082
|
FFO
(1)
|
$
14,776
|
$
13,511
|
FFO per Unit - basic
(1)
|
0.16
|
0.15
|
FFO per Unit - diluted
(1)
|
0.16
|
0.15
|
AFFO
(1)
|
$
14,617
|
$
12,786
|
AFFO per Unit - basic
(1)
|
0.16
|
0.14
|
AFFO per Unit - diluted
(1)
|
0.16
|
0.14
|
AFFO payout ratio -
diluted (1)
|
94%
|
106%
|
Distributions
declared
|
$
13,680
|
$
13,421
|
Operating Results
Revenue and NOI increased compared to Q1 2021 as a result of
Same Property NOI growth of 8.1% and additional NOI from the
Q4-2021 acquisition partially offset by the disposition activity in
Q2 2021 and higher amortization of leasing costs and straight line
rent adjustments.
The REIT's FFO and AFFO increased $1.3
million, or 9% and $1.8
million, or 14%, respectively compared to Q1 2021. FFO and
AFFO benefited from higher NOI from an acquisition completed in Q4
2021 as well as a positive contribution from Same Property NOI,
partially offset by property dispositions in Q2 2021. FFO
basic and diluted per Unit increased $0.01 to $0.16. AFFO basic and diluted per Unit
increased $0.02 to $0.16
Excluding termination fees, FFO basic and diluted per Unit would
be $0.14 and AFFO basic and diluted
per Unit would be $0.14 and
$0.13, respectively. AFFO basic
and diluted payout ratio would be 110%.
Same Property NOI(1)
|
As at March 31
|
|
|
Occupancy
|
2022
|
2021
|
|
NOI
|
Q1 2022
|
Q1 2021
|
|
Variance
|
Variance %
|
|
|
|
|
|
|
|
|
|
|
Alberta
|
96.9%
|
96.6%
|
|
Alberta
|
$ 3,486
|
$ 3,456
|
|
$
30
|
0.9%
|
British
Columbia
|
100.0%
|
100.0%
|
|
British
Columbia
|
1,294
|
1,266
|
|
28
|
2.2%
|
New
Brunswick
|
82.4%
|
91.3%
|
|
New
Brunswick
|
1,075
|
1,258
|
|
(183)
|
(14.5)%
|
Nova Scotia
|
98.2%
|
91.6%
|
|
Nova Scotia
|
1,759
|
1,666
|
|
93
|
5.6%
|
Ontario
|
96.5%
|
98.7%
|
|
Ontario
|
16,248
|
14,436
|
|
1,812
|
12.6%
|
Total
|
95.5%
|
97.1%
|
|
|
$
23,862
|
$
22,082
|
|
$
1,780
|
8.1%
|
(1) This is
a non-IFRS financial measure. Refer to the Non-IFRS financial
measures section below.
|
Same Property NOI increased 8.1% compared to the same period in
2021.
Same Property NOI in Alberta
increased by 0.9% when compared to the same period in 2021 which is
the result of a new lease that commenced in Q4 2021 at the REIT's
suburban Calgary property.
British Columbia was positively
impacted by contractual rent increases. New Brunswick decreased mainly due to lower
occupancy as a result of certain tenants downsizing which was
partially offset by termination fees. Management is confident that
occupancy in New Brunswick will
return to historical levels in early 2023. Nova Scotia continues to benefit from a 22,000
square foot short-term lease.
Same Property NOI in Ontario
increased by 12.6% mostly due to termination fees. Termination fees
primarily relate to a tenant in the REIT's GTA portfolio that is
downsizing a portion of their space effective December, 2022. This
increase was offset by higher vacancy in the GTA portfolio, of
which approximately 40% has been contractually re-leased with
revenue commencing in the second half of 2022 and at various dates
throughout 2023.
Excluding termination fees, Same Property NOI decreased
1.3%.
Debt and Liquidity
|
March 31, 2022
|
December 31,
2021
|
|
|
|
Indebtedness to GBV
ratio (1)
|
57.7%
|
57.7%
|
Interest coverage ratio
(1)
|
3.06 x
|
3.02 x
|
Indebtedness - weighted
average fixed interest rate
|
3.32%
|
3.31%
|
Indebtedness - weighted
average term to maturity
|
3.64 years
|
3.70 years
|
As at March 31, 2022, Indebtedness
to GBV ratio was 57.7%, a level well within the 75% limit set out
in the REIT's amended and restated declaration of trust. The
weighted average interest rate on the REIT's mortgage portfolio was
3.32%, with a weighted average term to maturity of 3.64 years.
During the quarter, the REIT refinanced a total of $31.6 million of mortgages with a weighted
average fixed interest rate of 3.32% and terms ranging from three
to seven years, providing the REIT with additional liquidity of
approximately $5.7 million.
COVID-19 Update
- Collections remain strong with approximately 99.5% of
contractual rents collected for the three months ended March 31, 2022.
- The Canadian Emergency Rent Subsidy program ended during
Q4-2021 and new programs have been introduced including the
Hardest-Hit Business Recovery Program. These programs assist
businesses experiencing a significant drop in revenue as a result
of the COVID-19 pandemic. The REIT recognized $.043 million expense relating to bad debt
provisions for the three months ended March
31, 2022.
Although new subvariants of COVID-19 continue to emerge, almost
all COVID-19 restrictions were lifted across the country by the end
of the first quarter of 2022. With over 80% of the population
having received two doses of the COVID-19 vaccine and over 47% of
the population having received their third dose as of March 31, 2022, many employers have initiated or
re-started return-to-office plans. Most employers have established
health and safety protocols to help reduce the spread of COVID-19
such as mandating masks (in common areas), vaccination requirements
(based on employer), COVID-19 screening before entering the office
and other tools to keep the workplace environment safe for
employees.
While management remains optimistic regarding a broader scale
return-to-office towards the end of the year, the movement and
timing will ultimately depend on the course of the pandemic.
It continues to be difficult to predict the duration and extent of
the impact of COVID-19 on the REIT's business and operations, both
in the short and long-term. Certain aspects of the REIT's business
and operations that could potentially be impacted include, without
limitation, rental income, occupancy, future demand for office
space and market rents, all of which ultimately impact the
underlying valuation of the REIT's investment properties and its
ability to maintain its distributions.
(1) This is
a non-IFRS financial measure. Refer to the Non-IFRS financial
measures section below.
|
Re-Appointment of Daniel
Drimmer as Chief Executive Officer
Effective immediately, the REIT is pleased to announce that Mr.
Daniel Drimmer has been re-appointed
as Chief Executive Officer on a full-time basis, replacing
Leslie Veiner who will continue at
Starlight Investments in a senior executive capacity.
About the REIT
The REIT is an unincorporated, open-ended real estate investment
trust established under the laws of the Province of Ontario. The REIT currently owns and operates
a portfolio of 46 commercial properties consisting of approximately
4.8 million square feet in urban and select strategic secondary
markets across Canada focusing on
long term leases with government and credit rated tenants.
The REIT is focused on growing its portfolio principally through
acquisitions across Canada and
such other jurisdictions where opportunities exist. Additional
information concerning the REIT is available at www.sedar.com or
the REIT's website at www.truenorthreit.com.
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 and Available Funds are not measures defined by International
Financial Reporting Standards ("IFRS") as prescribed by the
International Accounting Standards Board, do not have standardized
meanings prescribed by IFRS and should not be compared to or
construed as alternatives to profit/loss, cash flow from operating
activities or other measures of financial performance calculated in
accordance with IFRS. FFO, AFFO, FFO and AFFO payout ratios,
NOI, Same Property NOI, Indebtedness, GBV, Indebtedness to GBV
ratio, Adjusted EBITDA, interest coverage ratio, adjusted cash
provided by operating activities and Available Funds as computed by
the REIT may not be comparable to similar measures presented by
other issuers. The REIT uses these measures to better assess the
REIT's underlying performance and provides these additional
measures so that investors may do the same. Details on
non-IFRS measures are set out in the REIT's Management's Discussion
and Analysis for the three months ended March 31, 2022
("MD&A") and the Annual Information Form ("AIF") are available
on the REIT's profile at www.sedar.com.
Reconciliation of Non-IFRS financial measures
The following tables reconcile the non-IFRS financial measures
to the comparable IFRS measures for the three months ended
March 31, 2022 and 2021. These
non-IFRS financial measures do not have any standardized meanings
prescribed by IFRS and may not be comparable to similar measures
presented by other issuers.
NOI
The following table calculates the REIT's net operating income,
a non-IFRS financial measure:
|
Three months
ended
March 31
|
|
|
2022
|
|
2021
|
Revenue
|
$
|
36,327
|
$
|
34,944
|
Expenses:
|
|
|
|
|
Property
operating costs
|
|
(9,071)
|
|
(8,525)
|
Realty
taxes
|
|
(5,062)
|
|
(5,329)
|
NOI
|
$
|
22,194
|
$
|
21,090
|
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
March 31
|
|
|
2022
|
|
2021
|
Number of
properties
|
|
45
|
|
45
|
Revenue
|
$
|
35,838
|
$
|
34,570
|
Expenses:
|
|
|
|
|
Property
operating
|
|
(8,949)
|
|
(8,455)
|
Realty
taxes
|
|
(4,988)
|
|
(5,262)
|
|
$
|
21,901
|
$
|
20,853
|
Add:
|
|
|
|
|
Amortization of leasing costs and tenant inducements
|
|
1,579
|
|
1,200
|
Straight-line rent
|
|
382
|
|
29
|
Same Property
NOI
|
$
|
23,862
|
$
|
22,082
|
Reconciliation to
condensed consolidated interim financial statements:
|
|
|
|
|
Acquisitions and dispositions
|
|
290
|
|
251
|
Amortization of leasing costs and tenant inducements
|
|
(1,579)
|
|
(1,214)
|
Straight-line rent
|
|
(379)
|
|
(29)
|
NOI
|
$
|
22,194
|
$
|
21,090
|
FFO and AFFO
The following table reconciles the REIT's FFO and AFFO to net
income and comprehensive income, for the three months ended
March 31, 2022 and 2021:
|
Three months
ended
March 31
|
|
|
2022
|
|
2021
|
Net income and
comprehensive income
|
$
|
14,909
|
$
|
9,720
|
Add
(deduct):
|
|
|
|
|
Fair value adjustment of Unit-based compensation
|
|
(124)
|
|
285
|
Fair value adjustment of investment properties
|
|
1,670
|
|
2,348
|
Fair value adjustment of Class B LP Units
|
|
(755)
|
|
1,895
|
Distributions on Class B LP Units
|
|
449
|
|
504
|
Unrealized (gain) on change in fair value of derivative
instruments
|
|
(2,951)
|
|
(2,455)
|
Amortization of leasing costs and tenant
inducements
|
|
1,578
|
|
1,214
|
FFO
|
$
|
14,776
|
$
|
13,511
|
Add
(deduct):
|
|
|
|
|
Unit-based compensation expense
|
|
265
|
|
96
|
Amortization of financing costs
|
|
376
|
|
319
|
Amortization of mortgage discounts
|
|
(13)
|
|
(13)
|
Instalment note receipts
|
|
17
|
|
27
|
Straight-line rent
|
|
379
|
|
29
|
Capital reserve
|
|
(1,183)
|
|
(1,183)
|
AFFO
|
$
|
14,617
|
$
|
12,786
|
|
|
|
|
|
FFO per
Unit:
|
|
|
|
|
Basic
|
$
|
0.16
|
$
|
0.15
|
Diluted
|
$
|
0.16
|
$
|
0.15
|
AFFO per
Unit:
|
|
|
|
|
Basic
|
$
|
0.16
|
$
|
0.14
|
Diluted
|
$
|
0.16
|
$
|
0.14
|
AFFO payout
ratio:
|
|
|
|
|
Basic
|
|
94 %
|
|
105%
|
Diluted
|
|
94 %
|
|
106%
|
Distributions declared
|
$
|
13,680
|
$
|
13,421
|
Weighted average
Units outstanding (000s):
|
|
|
|
|
Basic
|
|
92,052
|
|
90,360
|
Add:
|
|
|
|
|
Unit options and Incentive
Units
|
|
548
|
|
986
|
Diluted
|
|
92,600
|
|
91,346
|
Indebtedness to GBV Ratio
The table below calculates the REIT's Indebtedness to GBV ratio
as at March 31, 2022 and December 31, 2021. The Indebtedness to GBV ratio
is calculated by dividing the indebtedness by GBV:
|
March 31,
2022
|
December 31,
2021
|
Total assets
|
$
|
1,427,438
|
$
|
1,421,177
|
Deferred financing
costs
|
|
7,074
|
|
7,171
|
GBV
|
$
|
1,434,512
|
$
|
1,428,348
|
Mortgages
payable
|
|
820,348
|
|
820,402
|
Credit
Facility
|
|
3,000
|
|
—
|
Unamortized financing
costs and mark to market mortgage adjustments
|
|
3,839
|
|
3,977
|
Indebtedness
|
$
|
827,187
|
$
|
824,379
|
Indebtedness to
GBV
|
|
57.7%
|
|
57.7%
|
Adjusted EBITDA
The table below reconciles the REIT's adjusted EBITDA to net
income and comprehensive income for twelve months period ended
March 31, 2022 and 2021:
|
Twelve months
ended
March 31
|
|
2022
|
|
2021
|
|
Net income and
comprehensive income
|
$
|
56,193
|
$
|
31,862
|
|
|
|
|
|
|
|
Add
(deduct):
|
|
|
|
|
|
Interest
expense
|
|
27,360
|
|
27,702
|
|
Fair value adjustment
of Unit-based compensation
|
|
392
|
|
630
|
|
Transaction costs on
sale of investment property
|
|
623
|
|
233
|
|
Fair value adjustment
of investment properties
|
|
(6,897)
|
|
9,236
|
|
Fair value adjustment
of Class B LP Units
|
|
951
|
|
7,487
|
|
Distributions on Class
B LP Units
|
|
1,829
|
|
2,222
|
|
Unrealized loss on
change in fair value of
derivative
instruments
|
|
(4,333)
|
|
(2,658)
|
|
Amortization of leasing
costs, tenant inducements,
mortgage premium
(discounts) and financing costs
|
|
7,685
|
|
5,699
|
|
Adjusted
EBITDA
|
$
|
83,803
|
$
|
82,413
|
|
Interest Coverage Ratio
The table below calculates the REIT's interest coverage ratio
for the 12 month period ended March 31,
2022 and 2021. The interest coverage ratio is calculated by
dividing Adjusted EBITDA by interest expense.
|
Twelve months ended
March 31
|
|
2022
|
|
2021
|
|
|
|
|
|
Adjusted
EBITDA
|
$
|
83,803
|
$
|
82,413
|
Interest
expense
|
|
27,360
|
|
27,702
|
Interest coverage ratio
|
|
3.06
x
|
|
2.97 x
|
Available Funds
The table below calculates the REIT's Available Funds as at
March 31, 2022 and December 31, 2021:
|
March 31,
2022
|
December 31,
2021
|
Cash
|
$
|
6,697
|
$
|
5,476
|
Undrawn Credit Facility
|
|
57,000
|
|
60,000
|
Available
Funds
|
$
|
63,697
|
$
|
65,476
|
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, plans and 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 a number of risks and
uncertainties, including statements regarding the outlook for the
REIT's business and results of operations and the effect of the
coronavirus (SARS- CoV-2) ("COVID-19") pandemic on the REIT's
business and operations. 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,
and any risks related to the uncertainties surrounding the duration
and the direct and indirect impact of the COVID-19 pandemic 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 and obtain
mortgage financing on the REIT's 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 breadth of impact of COVID-19 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 COVID-19; (c) credit, market, operational, and liquidity risks
generally; (d) Starlight Group Property Holdings Inc., or any of
its affiliates, continuing as asset manager of the REIT in
accordance with its current asset management agreement; and (e)
other risks inherent to the REIT's business and/or factors beyond
its control which could have a material adverse effect on the
REIT.
The forward-looking statements made relate only to events or
information as of the date on which the statements are made in this
press release. 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 True North Commercial Real Estate Investment Trust