Choice Properties Real Estate Investment Trust Reports Results for the Three and Nine Months Ended September 30, 2021

TORONTO--()--Choice Properties Real Estate Investment Trust (“Choice Properties” or the “Trust”) (TSX: CHP.UN) today announced its consolidated financial results for the three and nine months ended September 30, 2021. The 2021 Third 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 with the strong financial and operating results we delivered this quarter. Our necessity-based portfolio has been resilient over the course of the pandemic, and we expect it will continue to drive stable results going forward,” said Rael Diamond, President and Chief Executive Officer of the Trust. “We also continued to advance our long-term pipeline of mixed-use developments in the quarter. We submitted zoning applications for two additional projects, and to date we have over 10 million square feet of potential density submitted for zoning approval. With the strength of our balance sheet, we are positioned well to execute on this pipeline of compelling development opportunities.”

Summary of GAAP Basis Financial Results

($ thousands except where otherwise indicated)

(unaudited)

 

Three Months

 

Nine Months

 

September 30,

2021

 

September 30,

2020

 

Change

 

September 30,

2021

 

September 30,

2020

 

Change

Net income (loss)

 

$

163,672

 

 

$

97,186

 

 

$

66,486

 

 

$

186,095

 

 

$

334,115

 

 

$

(148,020

)

Net income (loss) per unit diluted

 

0.226

 

 

0.137

 

 

0.089

 

 

0.257

 

 

0.472

 

 

(0.215

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

316,083

 

 

308,956

 

 

7,127

 

 

966,558

 

 

948,752

 

 

17,806

 

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

 

15,831

 

 

(15,599

)

 

31,430

 

 

(490,776

)

 

440,656

 

 

(931,432

)

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

 

35,103

 

 

29,512

 

 

5,591

 

 

360,296

 

 

(322,756

)

 

683,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

153,939

 

 

79,837

 

 

74,102

 

 

425,226

 

 

389,273

 

 

35,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Units outstanding - diluted

 

723,346,150

 

 

711,582,778

 

 

11,763,372

 

 

723,038,843

 

 

707,537,645

 

 

15,501,198

 

  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 $163.7 million for the third quarter of 2021 as compared to $97.2 million in the third quarter of 2020. The quarterly increase compared to the prior year was mainly due to a $31.4 million favourable change in the adjustment to the fair value of the Trust’s Exchangeable Units and a $33.1 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.

For the three months ended September 30, 2021, bad debt expense was $0.4 million on a GAAP basis ($1.0 million on a proportionate share basis) compared to $4.0 million on a GAAP basis ($4.7 million on a proportionate share basis) for the three months ended September 30, 2020.

Year-to-Date Results

Choice Properties reported net income for the nine months ended September 30, 2021 of $186.1 million compared to $334.1 million for the nine months ended September 30, 2020. The decrease compared to the prior year was mainly due to a $931.4 million unfavourable change in the adjustment to the fair value of the Trust’s Exchangeable Units, partially offset by a $753.8 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.

For the nine months ended September 30, 2021, the year-to-date bad debt expense was $3.6 million on a GAAP basis ($4.7 million on a proportionate share basis) compared to $19.0 million on a GAAP basis ($20.2 million on a proportionate share basis) for the nine months ended September 30, 2020.

The results for the nine months ended September 30, 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.

Summary of Proportionate Share(1) Financial Results

As at or for the period ended

($ thousands except where otherwise indicated)

(unaudited)

 

Three Months

 

Nine Months

 

September 30,

2021

 

September 30,

2020

 

Change

 

September 30,

2021

 

September 30,

2020

 

Change

Rental revenue(1)

 

$

331,285

 

 

$

324,130

 

 

$

7,155

 

 

 

$

1,011,750

 

 

$

994,750

 

 

 

$

17,000

 

 

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

 

236,004

 

 

229,891

 

 

6,113

 

 

 

698,825

 

 

677,853

 

 

 

20,972

 

 

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

 

217,599

 

 

213,327

 

 

4,272

 

 

 

646,930

 

 

631,940

 

 

 

14,990

 

 

Adjustment to fair value of investment properties(1)

 

51,372

 

 

18,305

 

 

33,067

 

 

 

393,068

 

 

(360,768

)

 

 

753,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupancy (% of GLA)

 

97.0

%

 

97.0

%

 

 

%

 

97.0

%

 

97.0

 

%

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds from operations (“FFO”)(2)

 

172,651

 

 

169,173

 

 

3,478

 

 

 

515,101

 

 

480,488

 

 

 

34,613

 

 

FFO(2) per unit diluted

 

0.239

 

 

0.238

 

 

0.001

 

 

 

0.712

 

 

0.679

 

 

 

0.033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

153,566

 

 

147,594

 

 

5,972

 

 

 

467,582

 

 

430,540

 

 

 

37,042

 

 

AFFO(2) per unit diluted

 

0.212

 

 

0.207

 

 

0.005

 

 

 

0.647

 

 

0.609

 

 

 

0.038

 

 

AFFO(2) payout ratio - diluted

 

87.1

%

 

89.9

%

 

(2.8

)

%

 

85.8

%

 

91.0

 

%

 

(5.2

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash distributions declared

 

133,811

 

 

132,628

 

 

1,183

 

 

 

401,284

 

 

391,746

 

 

 

9,538

 

 

Weighted average number of Units outstanding - diluted

 

723,346,150

 

 

711,582,778

 

 

11,763,372

 

 

 

723,038,843

 

 

707,537,645

 

 

 

15,501,198

 

 

  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 September 30, 2021, Funds from Operations (“FFO”, a non-GAAP measure) was $172.7 million or $0.239 per unit diluted compared to $169.2 million or $0.238 per unit diluted for the three months ended September 30, 2020. For the nine months ended September 30, 2021, FFO was $515.1 million or $0.712 per unit diluted compared to $480.5 million or $0.679 per unit diluted for the nine months ended September 30, 2020.

FFO increased by $3.5 million compared to the prior year primarily due to a $3.8 million decline in bad debt expense and contributions from development transfers and transaction activity, partially offset by a decline in straight line rental revenue.

On a year-to-date basis, FFO increased by $34.6 million mainly due to a $15.5 million decrease in bad debt expense, savings from lower borrowing costs and contributions from development transfers and transaction activity. The prior year results were impacted by non-recurring expense items, including a $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.

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

Transaction Activity

During the quarter the Trust completed a strategic acquisition of a retail property in Toronto, Ontario, from a third party for $31.6 million. The property is adjacent to an existing Loblaw-anchored site owned by the Trust.

The Trust advanced a $41.6 million mezzanine loan to a development partner. The mezzanine loan is primarily secured by, and has an equity conversion right for a 75% ownership interest in, 154 acres of future industrial development land in East Gwillimbury, Ontario.

The Trust invested in its development program, with $32.9 million of spending during the quarter on a proportionate share basis(1). During the quarter, the Trust transferred a 16,800 square foot pad at a retail site in Guelph, Ontario, and a 93 unit residential building at The Brixton in Toronto, Ontario, from properties under development to income producing properties, at a cost of $51.9 million 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, stable tenant base, and disciplined approach to financial management will continue to position it well.

Our diversified portfolio of retail, industrial and office properties is 97.0% 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 in our financial results and by our rent collections, which exceeded 99% for the third quarter. As restrictions from the COVID-19 pandemic continue to ease across the country, we are encouraged by the positive leasing momentum we are seeing in our portfolio.

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 and transfer to income producing properties by the end of this year and we are progressing with construction on two additional high-rise residential projects, one of which 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, which collectively are expected to drive meaningful net asset value growth in the future. We continue to advance the rezoning process for several of these projects. In the quarter, we submitted two additional zoning applications for projects in Toronto, Ontario and we now have over 10 million square feet of mixed-use GLA submitted for zoning.

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. We have approximately $130 million of debt obligations coming due over the remainder of the year which we intend to refinance with longer term debt. From a liquidity perspective, the Trust has approximately $1.4 billion of available cash, comprised of $1.3 billion from the unused portion of the Trust’s revolving credit facility and $52.9 million in cash and cash equivalents, in addition to approximately $12.8 billion in unencumbered assets.

Update on Rent Collection

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

For three months ended September 30, 2021, the Trust collected or expects to collect approximately 99% of contractual rents:

 

% Collected

Third Quarter 2021

 

Retail

98%

 

Industrial

100%

 

Office

99%

 

Total

99%

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 $4.7 million in property operating costs, on a proportionate share basis(1), during the nine months ended September 30, 2021, with a corresponding amount recorded as an expected credit loss against its rent receivables.

($ thousands)

Nine months ended

September 30, 2021

As a %

Total recurring tenant billings

$

1,115,982

 

100.0

 

%

Less: Amounts received and deferrals repaid to date

(1,100,597

)

98.6

 

%

Balance outstanding

15,385

 

1.4

 

%

Total rents expected to be collected pursuant to deferral arrangements

(2,177

)

(0.2

)

%

Total rents to be collected excluding collectible deferrals

13,208

 

1.2

 

%

Less: Provision recorded related to recurring tenant billings

(4,699

)

(0.4

)

%

Balance expected to be recovered in time

$

8,509

 

0.8

 

%

 

 

 

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

($ thousands)

 

Nine months ended

September 30, 2021

Provisions for tenants with negotiated rent abatements

 

$

(1,199

)

Provisions for additional expected credit losses

 

(3,500

)

Total provision recorded related to recurring tenant billings

 

$

(4,699

)

 

 

 

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 nine months ended September 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 nine months ended September 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 Third 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, November 4, 2021 at 10:00AM (ET) with a simultaneous audio webcast. To access via teleconference, please dial (236) 389-2653 or (833) 921-1643 and enter the event passcode: 7159847. The link to the audio webcast will be available on www.choicereit.ca/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.

Contacts

For further information, please contact investor@choicereit.ca

Mario Barrafato
Chief Financial Officer
t: (416) 628-7872 e: Mario.Barrafato@choicereit.ca

Release Summary

Choice Properties Real Estate Investment Trust Reports Results for the Three And Nine Months Ended September 30, 2021

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Contacts

For further information, please contact investor@choicereit.ca

Mario Barrafato
Chief Financial Officer
t: (416) 628-7872 e: Mario.Barrafato@choicereit.ca