/NOT FOR DISTRIBUTION IN THE U.S. OR OVER
U.S. NEWSWIRES/
Strategic disposition of non-core
property in Ontario along with
continued leasing momentum
124,100 sq ft leased/renewed with a
WALT of 3.84 years during Q1-2023
TORONTO, May 9, 2023
/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, 2023.
"Despite a challenging operating environment, positive
leasing momentum continued in the first quarter of 2023" stated
Daniel Drimmer, the REIT's Chief
Executive Officer. Management will remain focused on executing our
previously announced strategic initiatives that will help
strengthen the REIT's financial and liquidity position.
Q1 Highlights
- Completed the sale of 400 Carlingview Drive, Toronto, Ontario on March 10, 2023 for a sale price of $7,250. The proceeds of disposition net of costs
were $7,006.
- Entered into an unconditional agreement of purchase and
sale to dispose of 360 Laurier Avenue, Ottawa, Ontario ("Laurier Property") for a
sale price of $17,500 with closing
expected to be on or about June 15,
2023.
- Contractually leased and renewed approximately 124,100
square feet with a weighted average lease term of 3.84 years and a
2.4% increase over expiring base rents.
- Portfolio occupancy of 93% with an average remaining
lease term of 4.5 years (91% and 4.3 years including investment
properties held for sale).
- Revenue and net operating income ("NOI") decreased 7% and
16%, respectively, compared to Q1-2022 driven by a decrease in Same
property NOI ("Same Property NOI").
- During 2022, the REIT received termination income from
one tenant at 6925 Century Avenue who downsized a portion of their
space effective Q4-2022. Excluding this termination income and the
lost revenue associated with the vacant space, Q4-2022 AFFO basic
and diluted per Unit would have been $0.11 which is consistent with Q1-2023 results.
To date, 60% of this vacancy has been contractually re-leased with
rents commencing in the latter half of 2023.
- Same property NOI decreased by 16.6% and 15.4% excluding
investment properties held for sale due to termination fees
received in Q1-2022 along with tenants downsizing on renewal. The
decrease in NOI generated from investment properties held for sale
was due to the lead tenant vacating the Laurier Property effective
February 2023. Same Property NOI
excluding investment properties held for sale and termination fees
decreased 6.6% in Q1-2023.
- Funds from operations ("FFO") and adjusted funds from
operations ("AFFO") basic and diluted per Unit decreased by
$0.05 to $0.11 as compared to Q1-2022.
- Announced a 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
on April 17, 2023 to Unitholders of
record on March 31, 2023. The
Distribution Reduction is expected to provide an additional
$25 million in cash annually that
will be used to improve our capital profile.
- $58.4 million of Available
Funds at the end of Q1-2023.
Subsequent Events
- On April 12, 2023, the REIT
announced the intention to commence a normal course issuer bid (the
"NCIB") subject to the approval of the TSX. The REIT will have the
ability to purchase for cancellation up to a maximum of 8,239,557
of its Units representing 10% of the REIT's public float of
82,395,573 Units at a price per Unit equal to the market price at
the time of acquisition. The NCIB became effective from
April 18, 2023 and will remain in
place until the earlier of April 17,
2024 or the date on which the REIT has purchased the maximum
number of Units permitted.
- Also on April 12, 2023, the
REIT announced the suspension of the dividend reinvestment plan
("DRIP") until further notice. As a result Unitholders received
distributions in cash effective with the distribution paid on
April 17, 2023 to Unitholders of
record on March 31, 2023.
- On April 26, 2023, the REIT
announced that effective June 30,
2023, Tracy Sherren, the
REIT's President and Chief Financial Officer and President,
Canadian Commercial, Starlight Investments, will be retiring 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 Investments, will be appointed as a Chief
Financial Officer of the REIT in addition to his positions at
Starlight Investments. Chris Bell
will continue to act as the President and Chief Investment Officer
at Starlight Investments as well as serving as the interim
President of the Canadian Commercial division at Starlight
Investments.
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
|
|
2023
|
2022
|
Number of
properties
|
46
|
46
|
Portfolio
GLA
|
4,950,300
sf
|
4,799,700
sf
|
Occupancy
|
91 %
|
96 %
|
Remaining weighted
average lease term
|
4.3 years
|
4.3 years
|
Revenue from
government and credit rated tenants
|
80 %
|
76 %
|
Revenue
|
$
33,858
|
$
36,327
|
NOI
(1)
|
18,638
|
22,194
|
Net income and
comprehensive income
|
6,995
|
14,909
|
Same Property NOI
(1)
|
20,037
|
24,034
|
FFO
(1)
|
$
10,743
|
$
14,776
|
FFO per Unit - basic
(1)
|
0.11
|
0.16
|
FFO per Unit - diluted
(1)
|
0.11
|
0.16
|
AFFO
(1)
|
$
10,581
|
$
14,617
|
AFFO per Unit - basic
(1)
|
0.11
|
0.16
|
AFFO per Unit -
diluted (1)
|
0.11
|
0.16
|
AFFO payout ratio -
diluted (1)
|
111 %
|
94 %
|
Distributions
declared
|
$
11,695
|
$
13,680
|
Operating Results
Q1-2023 revenue and NOI decreased 7% and 16%,
respectively when compared to the same period in 2022. The main
contributor was the decrease in termination income and lower
revenue from a tenant in the REIT's GTA portfolio that downsized a
portion of their space effective Q4-2022 combined with a 101,200
square feet lease expiry in Q1-2023 at the Laurier Property. The
decrease was partially offset by termination income received from
the tenant at the property disposed of in Q1-2023 and NOI from an
acquisition completed in Q3-2022.
The REIT's FFO and AFFO decreased $4,033 and $4,036,
respectively in Q1-2023 over the comparable period. FFO and AFFO
were negatively impacted by a reduction in Same Property NOI due to
a reduction in revenue, combined with higher financing costs as a
result of higher interest rates on mortgage
refinancings(1) and the REIT's Credit Facility. FFO and
AFFO benefited from NOI on the acquisition completed in Q3-2022 and
termination income.
This is a non-IFRS
financial measure. Refer to the Non-IFRS financial measures section
below.
|
Q1-2023 FFO and AFFO basic and diluted per Unit were lower by
$0.05 compared to Q1-2022. Excluding
termination fees earned in 2022, Q1-2023 FFO basic and diluted per
Unit were lower by $0.03 and AFFO
basic and diluted per Unit were lower by $0.03 and $0.02,
respectively compared to Q1-2022.
Same Property NOI(1)
|
As at March 31
|
|
|
|
|
|
|
Occupancy(2)
|
2023
|
2022
|
|
NOI(2)
|
Q1 2023
|
Q1 2022
|
|
Variance
|
Variance %
|
|
|
|
|
|
|
|
|
|
|
Alberta
|
94.4 %
|
96.9 %
|
|
Alberta
|
$
3,518
|
$ 3,486
|
|
$
32
|
0.9 %
|
British
Columbia
|
98.7 %
|
100.0 %
|
|
British
Columbia
|
1,273
|
1,259
|
|
14
|
1.1 %
|
New
Brunswick
|
85.5 %
|
82.4 %
|
|
New
Brunswick
|
791
|
1,075
|
|
(284)
|
(26.4) %
|
Nova Scotia
|
96.2 %
|
98.1 %
|
|
Nova Scotia
|
1,680
|
1,759
|
|
(79)
|
(4.5) %
|
Ontario
|
93.2 %
|
96.4 %
|
|
Ontario
|
11,835
|
15,006
|
|
(3,171)
|
(21.1) %
|
Total
|
93.1 %
|
95.3 %
|
|
|
$ 19,097
|
$
22,585
|
|
$ (3,488)
|
(15.4) %
|
Q1-2023 Same Property NOI decreased 16.6% and 15.4%
excluding investment properties held for sale when compared to
Q1-2022.
Property occupancy in Alberta and British
Columbia decreased due to lease expiries in the second half
of 2022, however NOI was positively impacted by contractual rent
increases. New Brunswick and Nova
Scotia Same Property NOI experienced a decline due to certain
tenants that downsized on renewal, however Same property occupancy
in New Brunswick was positively
impacted by new lease deals and tenant expansions completed in 2022
with rents commencing in the first half of 2023.
Ontario Same Property NOI decreased mainly due to
termination fees received in Q1-2022 relating to a tenant in the
REIT's GTA portfolio that downsized a portion of their space
effective December 2022, 60% has been
contractually re-leased with rents commencing in the latter half of
2023. The decrease in NOI generated from investment properties held
for sale was due to the lead tenant vacating the Laurier Property
on expiry effective February
2023.
Same Property NOI excluding investment properties held for
sale and termination fees decreased 6.6% in Q1-2023.
Debt and Liquidity
|
March 31, 2023
|
December 31,2022
|
Indebtedness to GBV
ratio (1)
|
59.8 %
|
59.3 %
|
Interest coverage
ratio (1)
|
2.80
|
3.00 x
|
Indebtedness -
weighted average fixed interest rate (1)
|
3.63 %
|
3.54 %
|
Indebtedness -
weighted average term to maturity (1)
|
3.14 years
|
3.27 years
|
At the end of Q1-2023, the REIT had access to Available
Funds(1) of $58,393.
As at March 31, 2023, the
REIT's mortgage portfolio carried a weighted average term to
maturity of 3.14 years and a weighted average fixed interest rate
of 3.63%. During the quarter, the REIT refinanced a total of
$31,121 of mortgages, one with a
fixed interest rate of 4.83% (five year term) and one with a
variable interest rate at prime plus 1.5% (one year term),
providing the REIT with additional liquidity of approximately
$5,700.
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 5.0 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.
(1) This is
a non-IFRS financial measure. Refer to the Non-IFRS financial
measures section below.
|
(2) Excludes
investment properties held for sale.
|
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, 2023
("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, 2023 and 2022. 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
|
|
|
2023
|
|
2022
|
Revenue
|
$
|
33,858
|
$
|
36,327
|
Expenses:
|
|
|
|
|
Property operating
costs
|
|
(9,907)
|
|
(9,071)
|
Realty
taxes
|
|
(5,313)
|
|
(5,062)
|
NOI
|
$
|
18,638
|
$
|
22,194
|
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
|
|
|
2023
|
|
2022
|
Number of
properties
|
|
45
|
|
45
|
Revenue
|
$
|
32,289
|
$
|
36,152
|
Expenses:
|
|
|
|
|
Property
operating
|
|
(9,547)
|
|
(9,023)
|
Realty
taxes
|
|
(5,120)
|
|
(5,040)
|
|
$
|
17,622
|
$
|
22,089
|
Add:
|
|
|
|
|
Amortization of
leasing costs and tenant inducements
|
|
2,028
|
|
1,565
|
Straight-line
rent
|
|
387
|
|
380
|
Same Property
NOI
|
$
|
20,037
|
$
|
24,034
|
Less:
|
|
|
|
|
Investment properties
held for sale
|
|
(940)
|
|
(1,449)
|
Same Property NOI
excluding investment properties held for sale
|
$
|
19,097
|
$
|
22,585
|
Reconciliation to
condensed consolidated interim financial statements:
|
|
|
|
|
Acquisitions,
dispositions and investment properties held for sale
|
|
1,345
|
|
1,566
|
Amortization of
leasing costs and tenant inducements
|
|
(2,037)
|
|
(1,578)
|
Straight-line
rent
|
|
233
|
|
(379)
|
NOI
|
$
|
18,638
|
$
|
22,194
|
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, 2023 and 2022:
|
Three months ended
March 31
|
|
|
2023
|
|
2022
|
Net income and comprehensive
income
|
$
|
6,995
|
$
|
14,909
|
Add
(deduct):
|
|
|
|
|
Fair value adjustment
of Unit-based compensation
|
|
(299)
|
|
(124)
|
Fair value adjustment
of investment properties
|
|
6,472
|
|
1,670
|
Fair value adjustment
of Class B LP Units
|
|
(5,861)
|
|
(755)
|
Transaction costs on
sale of investment property
|
|
244
|
|
—
|
Distributions on Class
B LP Units
|
|
313
|
|
449
|
Unrealized loss (gain)
on change in fair value of derivative instruments
|
|
842
|
|
(2,951)
|
Amortization of
leasing costs and tenant inducements
|
|
2,037
|
|
1,578
|
FFO
|
$
|
10,743
|
$
|
14,776
|
Add
(deduct):
|
|
|
|
|
Unit-based
compensation expense
|
|
168
|
|
265
|
Amortization of
financing costs
|
|
380
|
|
376
|
Rent
supplement
|
|
743
|
|
—
|
Amortization of
mortgage discounts
|
|
(9)
|
|
(13)
|
Instalment note
receipts
|
|
14
|
|
17
|
Straight-line
rent
|
|
(233)
|
|
379
|
Capital
reserve
|
|
(1,225)
|
|
(1,183)
|
AFFO
|
$
|
10,581
|
$
|
14,617
|
|
|
|
|
|
FFO per Unit:
|
|
|
|
|
Basic
|
$
|
0.11
|
$
|
0.16
|
Diluted
|
$
|
0.11
|
$
|
0.16
|
AFFO per Unit:
|
|
|
|
|
Basic
|
$
|
0.11
|
$
|
0.16
|
Diluted
|
$
|
0.11
|
$
|
0.16
|
AFFO payout ratio:
|
|
|
|
|
Basic
|
|
110% %
|
|
94 %
|
Diluted
|
|
111% %
|
|
94 %
|
Distributions
declared
|
$
|
11,695
|
$
|
13,680
|
Weighted average Units outstanding
(000s):
|
|
|
|
|
Basic
|
|
94,474
|
|
92,052
|
Add:
|
|
|
|
|
Unit options and
Incentive Units
|
|
23
|
|
548
|
Diluted
|
|
94,497
|
|
92,600
|
Indebtedness to GBV Ratio
The table below calculates the REIT's Indebtedness to GBV
ratio as at March 31, 2023 and
December 31, 2022. The Indebtedness
to GBV ratio is calculated by dividing the indebtedness by
GBV:
|
March 31,
2023
|
December 31,
2022
|
Total assets
|
$
|
1,437,297
|
$
|
1,450,315
|
Deferred financing
costs
|
|
6,805
|
|
7,070
|
GBV
|
$
|
1,444,102
|
$
|
1,457,385
|
Mortgages
payable
|
|
843,136
|
|
846,689
|
Credit
Facility
|
|
17,400
|
|
14,400
|
Unamortized financing
costs and mark to market mortgage adjustments
|
|
3,524
|
|
3,745
|
Indebtedness
|
$
|
864,060
|
$
|
864,834
|
Indebtedness to
GBV
|
|
59.8 %
|
|
59.3 %
|
Adjusted EBITDA
The table below reconciles the REIT's adjusted EBITDA to
net income and comprehensive income for the twelve month period
ended March 31, 2023 and
2022:
|
Twelve months ended March 31
|
|
2023
|
|
2022
|
|
Net income and
comprehensive income
|
$
|
8,618
|
$
|
56,193
|
|
|
|
|
|
|
|
Add
(deduct):
|
|
|
|
|
|
Interest
expense
|
|
29,800
|
|
27,360
|
|
Fair value adjustment
of Unit-based compensation
|
|
(755)
|
|
392
|
|
Transaction costs on
sale of investment property
|
|
244
|
|
623
|
|
Fair value adjustment
of investment properties
|
|
46,727
|
|
(6,897)
|
|
Fair value adjustment
of Class B LP Units
|
|
(9,696)
|
|
951
|
|
Distributions on
Class B LP Units
|
|
1,537
|
|
1,829
|
|
Unrealized loss on
change in fair value of
derivative
instruments
|
|
(1,651)
|
|
(4,333)
|
|
Amortization of leasing
costs, tenant inducements,
mortgage premium and
financing costs
|
|
8,730
|
|
7,685
|
|
Adjusted
EBITDA
|
$
|
83,554
|
$
|
83,803
|
|
Interest Coverage Ratio
The table below calculates the REIT's interest coverage
ratio for the 12 month period ended March
31, 2023 and 2022. The interest coverage ratio is calculated
by dividing Adjusted EBITDA by interest expense.
|
Twelve months ended
March 31
|
|
2022
|
|
2022
|
|
|
|
|
|
Adjusted
EBITDA
|
$
|
83,554
|
$
|
83,803
|
Interest
expense
|
|
29,800
|
|
27,360
|
Interest coverage
ratio
|
|
2.80 x
|
|
3.06 x
|
Available Funds
The table below calculates the REIT's Available Funds as
at March 31, 2023 and December 31, 2022:
|
March 31,
2023
|
December 31,
2022
|
Cash
|
$
|
7,793
|
$
|
9,501
|
Undrawn Credit
Facility
|
|
50,600
|
|
53,600
|
Available
Funds
|
$
|
58,393
|
$
|
63,101
|
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 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 trust units
of the REIT ("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 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 Canada and
the timing and ability of the REIT to acquire or sell certain
properties; (f) Starlight Group Property Holdings Inc., or any of
its affiliates ("Starlight"), continuing as asset manager of the
REIT in accordance with its current asset management agreement; and
(g) 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 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 True North Commercial Real Estate Investment Trust