Choice Properties Real Estate Investment Trust Reports Results for the Three and Six Months Ended June 30, 2021 – Business Wire

TORONTO–(BUSINESS WIRE)–Choice Properties Real Estate Investment Trust (“Choice Properties” or the “Trust”) (TSX: CHP.UN) today announced its consolidated financial results for the three and six months ended June 30, 2021. The 2021 Second Quarter Report to Unitholders is available in the Investors section of the Trust’s website at www.choicereit.ca, and has been filed on SEDAR at www.sedar.com.

We are pleased to report another strong quarter, with stable financial and operating results for Q2. Our high-quality portfolio continues to produce solid earnings and high levels of rent collections, despite an operating environment that was impacted by regional lockdowns across Canada,” said Rael Diamond, President and Chief Executive Officer of the Trust. “In addition to our solid results, we continued to advance our development initiatives and drive meaningful net asset value appreciation through our existing portfolio and improve our balance sheet. In the quarter we recognized a 3.6% increase in our net asset value per unit driven primarily by gains in our industrial portfolio, transferred 149,000 square feet of new GLA to income producing assets, and lowered our leverage ratio through the early repayment of $200 million of debentures.”

Summary of GAAP Basis Financial Results

($ thousands except where otherwise indicated)

(unaudited)

 

Three Months

 

Six Months

 

June 30, 2021

 

June 30, 2020

 

Change

 

June 30, 2021

 

June 30, 2020

 

Change

Net income (loss)

 

$

84,621

 

 

$

(95,813

)

 

$

180,434

 

 

$

22,423

 

 

$

236,929

 

 

$

(214,506

)

Net income (loss) per unit diluted

 

0.117

 

 

(0.137

)

 

0.254

 

 

0.031

 

 

0.338

 

 

(0.307

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

323,936

 

 

314,885

 

 

9,051

 

 

650,475

 

 

639,796

 

 

10,679

 

Fair value gain (loss) on Exchangeable Units(1)

 

(288,924

)

 

70,193

 

 

(359,117

)

 

(506,607

)

 

456,255

 

 

(962,862

)

Fair value gains (losses) excluding Exchangeable Units(2)

 

265,973

 

 

(216,603

)

 

482,576

 

 

325,193

 

 

(352,268

)

 

677,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

122,655

 

 

205,289

 

 

(82,634

)

 

271,287

 

 

309,436

 

 

(38,149

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Units outstanding – diluted

 

723,265,565

 

 

700,600,087

 

 

22,665,478

 

 

723,120,099

 

 

700,604,088

 

 

22,516,011

 

  1. Exchangeable Units are recorded at their fair value based on the market trading price of the Trust Units, which results in a negative impact to the financial results when the Trust Unit price rises and a positive impact when the Trust Unit price declines.
  2. Fair value gains (losses) excluding Exchangeable Units includes adjustments to fair value of investment properties and unit-based compensation.

Quarterly Results

Choice Properties recorded net income of $84.6 million for the second quarter of 2021 as compared to a net loss of $95.8 million in the second quarter of 2020. The quarterly increase compared to prior year was mainly due to a $511.7 million increase in the fair value of investment properties, including those held within equity accounted joint ventures, a decline in bad debt expense, and an increase in rental revenue mainly due to the net contribution from acquisitions and development transfers completed in the past 12 months. These increases were partially offset by a $359.1 million unfavourable change in the adjustment to fair value of the Trust’s Exchangeable Units. For the quarter, bad debt expense was $1.5 million on a GAAP basis ($1.8 million on a proportionate share basis) compared to bad debt expense of $14.1 million on a GAAP basis ($14.6 million on a proportionate share basis) in the second quarter of 2020.

The results in the second quarter of 2020 were impacted by a non-recurring $7.8 million allowance for expected credit losses on a specific mortgage receivable and $6.8 million in early redemption premiums paid in June 2020 for two senior unsecured debentures that would have matured in 2021.

Year-to-Date Results

Choice Properties reported net income for the six months ended June 30, 2021 of $22.4 million compared to net income of $236.9 million for the six months ended June 30, 2020. The year-to-date decrease compared to the prior year was mainly due to a $962.9 million unfavourable change in the adjustment to fair value of the Exchangeable Units, partially offset by a $720.8 million favourable change in the fair value of investment properties, including those held within equity accounted joint ventures, a decline in bad debt expense and an increase in rental revenue mainly due to the net contribution from acquisitions and development transfers completed in the past 12 months.

The year-to-date bad debt expense was $3.2 million on a GAAP basis ($3.7 million on a proportionate share basis) compared to bad debt expense of $15.0 million on a GAAP basis ($15.5 million on a proportionate share basis) for the six months ended June 30, 2020.

Summary of Proportionate Share(1) Financial Results

As at or for the period ended

($ thousands except where otherwise indicated)

(unaudited)

 

Three Months

 

Six Months

 

June 30, 2021

 

June 30, 2020

 

Change

 

June 30, 2021

 

June 30, 2020

 

Change

Rental revenue(1)

 

$

338,857

 

 

$

330,203

 

 

$

8,654

 

 

$

680,465

 

 

$

670,620

 

 

$

9,845

 

Net Operating Income (“NOI”), cash basis(1)(3)

 

233,188

 

 

216,431

 

 

16,757

 

 

462,821

 

 

447,962

 

 

14,859

 

Same-Asset NOI, cash basis(1)(3)

 

214,937

 

 

202,656

 

 

12,281

 

 

429,331

 

 

418,613

 

 

10,718

 

Adjustment to fair value of investment properties(1)

 

280,801

 

 

(230,867

)

 

511,668

 

 

341,696

 

 

(379,073

)

 

720,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupancy (% of GLA)

 

96.9

%

 

96.8

%

 

0.1

%

 

96.9

%

 

96.8

%

 

0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds from operations (“FFO”)(2)

 

171,842

 

 

140,645

 

 

31,197

 

 

342,450

 

 

311,315

 

 

31,135

 

FFO(2) per unit diluted

 

0.238

 

 

0.201

 

 

0.037

 

 

0.474

 

 

0.444

 

 

0.030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted funds from operations (“AFFO”)(2)

 

158,700

 

 

131,173

 

 

27,527

 

 

314,016

 

 

282,946

 

 

31,070

 

AFFO(2) per unit diluted

 

0.219

 

 

0.187

 

 

0.032

 

 

0.434

 

 

0.404

 

 

0.030

 

AFFO(2) payout ratio – diluted

 

84.3

%

 

98.8

%

 

(14.5

)%

 

85.2

%

 

91.6

%

 

(6.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash distributions declared

 

133,767

 

 

129,557

 

 

4,210

 

 

267,473

 

 

259,118

 

 

8,355

 

Weighted average number of Units outstanding – diluted

 

723,265,565

 

 

700,600,087

 

 

22,665,478

 

 

723,120,099

 

 

700,604,088

 

 

22,516,011

 

  1. A non-GAAP measurement which includes amounts from directly held properties and equity accounted joint ventures.
  2. A non-GAAP measurement.
  3. Includes a provision for bad debts and rent abatements.

Quarterly and Year-to-Date Results

For the three months ended June 30, 2021, Funds from Operations (“FFO”, a non-GAAP measure) were $171.8 million or $0.238 per unit diluted compared to $140.6 million or $0.201 per unit diluted for the three months ended June 30, 2020. For the six months ended June 30, 2021, FFO were $342.5 million or $0.474 per unit diluted compared to $311.3 million or $0.444 per unit diluted for the six months ended June 30, 2020.

For the three months ended June 30, 2021, FFO increased by $31.2 million primarily due to a $12.7 million decline in bad debt expense and a $14.6 million decline attributable to non-recurring expense items. For the six months ended June 30, 2021, FFO increased by $31.0 million primarily due to a $11.7 million decline in bad debt expense and a $14.6 million decline attributable to non-recurring expense items. Non-recurring expense items in the three months ended June 30, 2020, included (i) a $7.8 million allowance for expected credit losses on a specific mortgage receivable, and (ii) $6.8 million in early redemption premiums paid for two senior unsecured debentures that would have matured in 2021.

On a per unit basis, the Trust had a higher weighted average number of units outstanding as at June 30, 2021, as a result of: (i) the Trust units issued as consideration for the acquisition of two assets from Wittington Properties Limited in July 2020 and (ii) the Exchangeable Units issued as consideration for the acquisition of six assets from Weston Foods (Canada) Inc., a wholly-owned subsidiary of George Weston Limited, in December 2020.

Transaction Activity

On June 21, 2021, Choice Properties Limited Partnership redeemed in full, at par, plus accrued and unpaid interest thereon, the $200.0 million aggregate principal amount of series 9 senior unsecured debentures bearing interest at 3.60% with an original maturity date of September 20, 2021.

On June 24, 2021, the Trust successfully extended the maturity of its $1.5 billion unsecured committed revolving credit facility by three years to June 24, 2026.

The Trust has also made ongoing investments in its development program, with $39.0 million of spending during the quarter on a proportionate share basis(1). During the quarter, the Trust also transferred $63.1 million of properties under development to income producing status, delivering 149,000 square feet of new GLA, on a proportionate share basis(1).

Outlook

Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and development of high-quality commercial and residential properties. Our goal is to provide net asset value appreciation, stable net operating income growth and capital preservation, all with a long-term focus. Although there remains uncertainty on the longer-term impacts of the COVID-19 pandemic, Choice Properties remains confident that its business model and disciplined approach to financial management will continue to position it well.

Our diversified portfolio of retail, industrial and office properties is 96.9% occupied and leased to high-quality tenants across Canada. Our portfolio is primarily leased to grocery stores, pharmacies or other necessity-based tenants, and logistics providers, who continue to perform well in this environment and provide stability to our overall portfolio. This stability is evident by our rent collections over the last 12 months.

We continue to advance our development program, which provides us with the best opportunity to add high-quality real estate to our portfolio at a reasonable cost and drive net asset value appreciation over time. We have a mix of active development projects ranging in size, scale and complexity, including retail intensification projects, industrial greenfield development, and rental residential projects located in urban markets with a focus on transit accessibility. Our active development pipeline is focused on growing our rental residential portfolio. We have two residential projects underway in Toronto that we expect to complete later this year and have commenced construction on two additional high-rise residential projects. One project is in Brampton located next to the Mount Pleasant GO Station and the other is in the Westboro neighbourhood in Ottawa. We are also advancing a new greenfield industrial project with plans to construct a modern logistics facility with over 350,000 square feet, located in a prime industrial node in Surrey, British Columbia.

Beyond our active projects, we have a substantial pipeline of larger, more complex mixed-use developments, such as our Golden Mile Shopping Centre in Toronto, which collectively will drive meaningful net asset value growth in the future.

Underpinning all aspects of our business model is a strong balance sheet and a disciplined approach to financial management. We take a conservative approach to leverage and financing risk by maintaining strong leverage ratios and a staggered debt maturity profile. With the early redemption of our $200 million series 9 senior unsecured debentures this quarter, we have approximately $250 million of debt obligations coming due over the remainder of the year. We intend to refinance this debt with longer term debt or repay with excess cash on hand. From a liquidity perspective, the Trust has approximately $1.5 billion of available cash, comprised of $1.4 billion from the unused portion of the Trust’s revolving credit facility and $28.7 million in cash and cash equivalents, in addition to approximately $12.6 billion in unencumbered assets.

Update on Rent Collection

Rent collection for the second quarter remained high, reflecting the stability of the Trust’s necessity-based portfolio.

For the three months ended June 30, 2021, the Trust collected or expects to collect approximately 98% of contractual rents:

% Collected

 

Second Quarter 2021

Retail

 

98

%

Industrial

 

99

%

Office

 

98

%

Total

 

98

%

In determining the expected credit losses on rent receivables, the Trust takes into account the payment history and future expectations of likely default events (i.e. asking for rental concessions, applications for rental relief through government programs, or stating they will not be making rental payments on the due date) based on actual or expected insolvency filings or company voluntary arrangements and likely deferrals of payments due, and potential abatements to be granted by the landlord. These assessments are made on a tenant-by-tenant basis.

The Trust’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the assessments. As a result, the value of the expected credit loss is subject to a degree of uncertainty and is made on the basis of assumptions which may not prove to be accurate given the uncertainty caused by COVID-19. Based on its review, the Trust recorded bad debt expense of $1.8 million in property operating costs, on a proportionate share basis(1), during the six months ended June 30, 2021, with a corresponding amount recorded as an expected credit loss against its rent receivables.

($ thousands)

Six months ended

June 30, 2021

 

As a %

Total recurring tenant billings

$

748,541

 

 

100.0

%

Less: Amounts received and deferrals repaid to date

(735,432

)

 

98.2

%

Balance outstanding

13,109

 

 

1.8

%

Total rents expected to be collected pursuant to deferral arrangements

(749

)

 

(0.1

)%

Total rents to be collected excluding collectible deferrals

12,360

 

 

1.7

%

Less: Provision recorded related to recurring tenant billings

(3,745

)

 

(0.5

)%

Balance expected to be recovered in time

$

8,615

 

 

1.2

%

 

 

 

The Trust’s provision for recurring tenant billings for the six months ended June 30, 2021, is comprised of the following:

($ thousands)

Six months ended

June 30, 2021

Provisions for tenants with negotiated rent abatements

$

(696

)

Provisions for additional expected credit losses

(3,049

)

Total provision recorded related to recurring tenant billings

$

(3,745

)

 

 

Due to continued uncertainty surrounding the pandemic, it is not possible to reliably estimate the length and severity of COVID-19 related impacts on the financial results and operations of the Trust and its tenants, as well as on consumer behaviours and the economy in general. For more information on the risks presented to the Trust by the COVID-19 pandemic, please see Section 12, “Enterprise Risks and Risk Management” of the Trust’s MD&A for the year ended December 31, 2020 and its Annual Information Form for the year ended December 31, 2020.

Non-GAAP Financial Measures and Additional Financial Information

In addition to using performance measures determined in accordance with International Financial Reporting Standards (“IFRS” or “GAAP”), Choice Properties also measures its performance using certain non-GAAP measures, and provides these measures in this news release so that investors may do the same. Such measures and related per-unit amounts are not defined by IFRS and therefore should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Furthermore, the supplemental measures used by management may not be comparable to similar measures presented by other real estate investment trusts or enterprises. These terms, which include the proportionate share basis of accounting as it relates to “equity accounted joint ventures”, net operating income (“NOI”), funds from operations (“FFO”) and adjusted funds from operations (“AFFO”), are defined in Section 13, “Non-GAAP Financial Measures”, of the Choice Properties MD&A for the three and six months ended June 30, 2021, and are reconciled to the most comparable GAAP measure.

Choice Properties’ unaudited interim period condensed consolidated financial statements and MD&A for the three and six months ended June 30, 2021 are available on Choice Properties’ website at www.choicereit.ca and on SEDAR at www.sedar.com. Readers are directed to these documents for financial details and a fulsome discussion on Choice Properties’ results.

Management’s Discussion and Analysis and Consolidated Financial Statements and Notes

Information appearing in this news release is a select summary of results. This news release should be read in conjunction with the Choice Properties 2021 Second Quarter Report to Unitholders, which includes the unaudited interim period condensed consolidated financial statements and MD&A for the Trust, and is available at www.choicereit.ca and on SEDAR at www.sedar.com.

Conference Call and Webcast

Management will host a conference call on Thursday, July 22, 2021 at 9:00AM (ET) with a simultaneous audio webcast. To access via teleconference, please dial (236) 389-2653 or (833) 921-1643. A playback will be made available two hours after the event at (236) 389-2653 or (833) 921-1643, access code: 1276758. The link to the audio webcast will be available on www.choicereit.ca in the “Investors” section under “Events & Webcasts”.

About Choice Properties Real Estate Investment Trust

Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and development of high-quality commercial and residential properties.

We believe that value comes from creating spaces that improve how our tenants and communities come together to live, work, and connect. We strive to understand the needs of our tenants and manage our properties to the highest standard. We aspire to develop healthy, resilient communities through our dedication to social, economic, and environmental sustainability. In everything we do, we are guided by a shared set of values grounded in Care, Ownership, Respect and Excellence. For more information, visit Choice Properties’ website at www.choicereit.ca and Choice Properties’ issuer profile at www.sedar.com.

Cautionary Statements Regarding Forward-looking Statements

This news release contains forward-looking statements relating to Choice Properties’ operations and the environment in which the Trust operates, which are based on management’s expectations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. Management undertakes no obligation to publicly update any such statement, to reflect new information or the occurrence of future events or circumstances, except as required by law.

Numerous risks and uncertainties could cause the Trust’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in Section 12, “Enterprise Risks and Risk Management” of the Trust’s MD&A for the year ended December 31, 2020, which includes detailed risks and disclosure regarding COVID-19 and its impact on the Trust, and those described in the Trust’s Annual Information Form for the year ended December 31, 2020.

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