True North Commercial REIT Reports Q4-2023 and Year End Results
/NOT FOR DISTRIBUTION IN THE
340,000 square feet of leasing transactions with a weighted average lease term of 5.1 years including 92% government and credit rated tenants during Q4-2023
The REIT announces its intention to continue the immediately accretive repurchase of Units under the NCIB program until the end of Q2-2024
This news release constitutes a "designated news release" for the purposes of the REIT's prospectus supplement dated
"We are pleased the REIT continued its strong leasing momentum from the third quarter and entered into new and renewal leases totalling approximately 340,000 square feet during the fourth quarter which demonstrated the strong relationships the REIT has built with existing tenants and its ability to establish strong relationships with new tenants," stated
On
Update on Nomal Course Issuer Bid ("NCIB") and Distribution Reallocation
- A 50% reduction to the monthly cash distribution from
$0.2846 per Unit to$0.1423 per Unit or$1.70775 per Unit on an annualized basis commenced onApril 17, 2023 and effectiveDecember 15, 2023 , the REIT redirected and reallocated substantially all distributions paid to unitholders to purchase the maximum number of Units available under the normal course issuer bid ("NCIB") ("Distribution Reallocation"). - From the commencement of the NCIB Program in
April 2023 up to the date of this filing, the REIT had repurchased 946,272 Units for$8.7 million at a weighted average price of$9.12 per Unit under the NCIB which represented an inferred distribution yield of approximately 18.7%(1). The REIT had repurchased 66% of the maximum Units able to be repurchased under the existing NCIB program and has utilized substantially all of the capital previously used to fund distributions to REIT Unitholders. The REIT intends to renew the NCIB program for a one year period, subject to TSX approval, and believes the NCIB continues to be a very attractive use of capital.
Q4 Highlights
- Portfolio occupancy as at
December 31, 2023 remained above average occupancy for the markets in which the REIT operates at 89% with an average remaining lease term of 4.6 years excluding investments properties held for sale.
(1)
Estimated using the |
- Contractually leased and renewed approximately 338,900 square feet with a weighted average lease term of 5.1 years and a positive rent spread of 4.2% excluding the government renewal in
Alberta which renewed at a lower rate in line with the respective markets. - Excluding termination income and investment properties held for sale, revenue and net operating income ("NOI")(1) decreased 1% and 6%, respectively, compared to Q4-2022. Including termination income and investment properties held for sale, revenue and NOI decreased 7% and 16%, respectively, compared to Q4-2022 driven by lower NOI from properties owned for the entire reporting period in both the current and comparative period ("Same Property NOI")(1).
- Q4-2023 Same Property NOI decreased 2.3% excluding termination fees and investment properties held for sale (9.3% decrease excluding investment properties held for sale only).
- During 2022, the REIT received termination income from one tenant at
6925 Century Avenue ,Mississauga, Ontario that downsized a portion of its space effective Q4-2022. To date, 82% of the vacated space has been contractually re-leased with rents commencing in the latter half of 2023 and first half of 2024. - Q4-2023 funds from operations ("FFO")(1) and adjusted funds from operations ("AFFO")(1) basic and diluted per Unit decreased
$0.18 and$0.20 , respectively, to$0.59 and$0.58 . Excluding termination fees, Q4-2023 FFO and AFFO basic and diluted per Unit(1) were lower by$0.09 and$0.10 respectively compared to Q4-2022 due to the loss of rental revenue from the vacancy at6925 Century Avenue ,Mississauga, Ontario . - FFO and AFFO per Unit decreased
$0.04 and$0.03 , respectively, to$0.59 and$0.58 when compared to Q3-2023 due to due to termination income received in Q3-2023 from a tenant that downsized combined with an increase in vacancy in theNova Scotia portfolio as a result of certain tenants vacating at the end of their lease term in the second half of 2023. -
$45.3 million of cash and available funds from the REIT's undrawn floating rate revolving credit facility ("Credit Facility") at the end of Q4-2023 ("Available Funds")(1).
YTD Highlights
- Contractually leased and renewed approximately 851,700 square feet with a weighted average lease term of 5.1 years and a 5.7% increase over expiring base rents.
- Completed the sale of
400 Carlingview Drive ,Toronto, Ontario (the "Carlingview Property") onMarch 10, 2023 for a sale price of$7.25 million . - Completed the sale of
360 Laurier Avenue West ,Ottawa, Ontario (the "Laurier Property") totaling 107,100 square feet onJuly 10, 2023 for a sale price of$17.5 million . - Completed the sale of
32071 South Fraser Way ,Abbotsford, BC totaling 52,300 square feet onJuly 31, 2023 for a sale price of$24.0 million .
Subsequent Events
- Subsequent to
December 31, 2023 , the REIT entered into an unconditional agreement of purchase and sale to dispose of251 Arvin Avenue located inHamilton, Ontario for a sale price of$2,700 ,6865 Century Avenue located inMississauga, Ontario for a sale a price of$15,300 and 135 Hunter Street East located inHamilton, Ontario for a sale price of$6,375 . Closing is expected on or aboutApril 8, 2024 ,April 10, 2024 andApril 21, 2024 , respectively. - Subsequent to
December 31, 2023 , the REIT refinanced a$12,962 mortgage for a one year term which represents approximately 16% of mortgages maturing in 2024 with the majority of the remaining 2024 debt maturities occurring towards the end of 2024 on loans with large Canadian financial institutions with whom the REIT and their asset manager have strong relationships.
(1) This is a non-IFRS financial measure. Refer to the Non-IFRS financial measures section below. |
Key Performance Indicators
|
Three months ended |
Years ended |
||
|
|
|
||
|
2023 |
2022 |
2023 |
2022 |
Number of properties |
|
|
44 |
47 |
Portfolio gross leasable area |
|
|
4,792,200 sf |
4,975,200 sf |
Occupancy (1) |
|
|
89 % |
93 % |
Remaining weighted average lease term (1) |
|
|
4.6 years |
4.4 years |
Revenue from government and credit rated tenants |
|
77 % |
80 % |
|
Revenue |
$ 32,867 |
$ 35,451 |
$ 132,204 |
$ 143,575 |
NOI |
17,346 |
20,629 |
72,548 |
86,484 |
Net (loss) income and comprehensive (loss) income |
(5,937) |
(21,905) |
(40,621) |
16,532 |
Same Property NOI |
19,716 |
22,570 |
79,734 |
91,081 |
FFO |
$ 9,642 |
$ 12,665 |
$ 41,412 |
$ 56,300 |
FFO per Unit - basic |
0.59 |
0.77 |
2.52 |
3.48 |
FFO per Unit - diluted |
0.59 |
0.77 |
2.52 |
3.48 |
AFFO |
$ 9,471 |
$ 12,734 |
$ 40,619 |
$ 55,982 |
AFFO per Unit - basic |
0.58 |
0.78 |
2.47 |
3.46 |
AFFO per Unit - diluted |
0.58 |
0.78 |
2.47 |
3.46 |
AFFO payout ratio - diluted (2)(3) |
25 % |
110 % |
69 % |
99 % |
Distributions declared |
$ 2,337 |
$ 13,996 |
$ 28,068 |
$ 55,296 |
(1)
Excludes investment properties held for sale. |
Operating Results
Revenue and NOI decreased 1% and 6%, respectively, excluding termination income and investment properties held for sale. Revenue and NOI decreased 2% and 7% respectively for YTD-2023 compared to YTD-2022. Revenue and NOI decreased 7% (8% YTD-2023) and 16% (16% YTD-2023) in Q4-2023 when compared to Q4-2022 including termination income and investment properties held for sale. The main contributor was termination income received in 2022 relating to a tenant in the REIT's greater
Q4-2023 FFO and AFFO decreased
Q4-2023 FFO and AFFO basic and diluted per Unit decreased
Same Property NOI(1)
|
As at |
|
|
||||||
Occupancy (2) |
2023 |
2022 |
|
NOI |
Q4 2023 |
Q4 2022 |
|
Variance |
Variance % |
|
|
|
|
|
|
|
|
|
|
|
70.3 % |
94.4 % |
|
|
$ 3,655 |
$ 3,568 |
|
$ 87 |
2.4 % |
|
100.0 % |
98.7 % |
|
|
1,298 |
1,229 |
|
69 |
5.6 % |
|
86.7 % |
85.1 % |
|
|
1,342 |
862 |
|
480 |
55.7 % |
|
76.5 % |
97.9 % |
|
|
1,331 |
1,648 |
|
(317) |
(19.2) % |
|
94.7 % |
92.6 % |
|
|
11,867 |
14,181 |
|
(2,314) |
(16.3) % |
Total |
89.2 % |
92.9 % |
|
|
$ 19,493 |
$ 21,488 |
|
$ (1,995) |
(9.3) % |
Q4-2023 Same Property NOI decreased by 2.3% (YTD-2023 - 2.6%) excluding termination fees and investment properties held for sale. Excluding investment properties held for sale only, Q4-2023 Same Property NOI decreased by 9.3% (YTD-2023 - 10.8%) as a result of the significant termination fee income recorded in the prior year periods.
Same Property NOI in
Same Property NOI for
Same Property NOI for
Debt and Liquidity
|
|
|
Indebtedness to GBV ratio (1) |
61.9 % |
59.3 % |
Interest coverage ratio (1) |
2.30 x |
3.00 x |
Indebtedness (1) - weighted average fixed interest rate |
3.90 % |
3.54 % |
Indebtedness - weighted average term to maturity |
3.01 years |
3.27 years |
At the end of Q4-2023, the REIT had access to Available Funds of approximately
During Q4-2023, the REIT refinanced
Subsequent to
(1)
This is a non-IFRS financial measure. Refer to the Non-IFRS financial measures section below. |
About the REIT
The REIT is an unincorporated, open-ended real estate investment trust established under the laws of the Province of
The REIT is focused on growing its portfolio principally through acquisitions across
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, net asset value ("NAV") per Unit and Available Funds are not measures defined by International Financial Reporting Standards ("IFRS") as prescribed by the
(1) This is a non-IFRS financial measure. Refer to the Non-IFRS financial measures section below. |
Reconciliation of Non-IFRS financial measures
The following tables reconcile the non-IFRS financial measures to the comparable IFRS measures for the three months and year ended
NOI
The following table calculates the REIT's net operating income, a non-IFRS financial measure:
|
Three months ended
|
|
Years ended
|
|||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue |
$ |
32,867 |
$ |
35,451 |
$ |
132,204 |
$ |
143,575 |
Expenses: |
|
|
|
|
|
|
|
|
Property operating costs |
|
(10,692) |
|
(9,834) |
|
(39,492) |
|
(36,882) |
Realty taxes |
|
(4,829) |
|
(4,988) |
|
(20,164) |
|
(20,209) |
NOI |
$ |
17,346 |
$ |
20,629 |
$ |
72,548 |
$ |
86,484 |
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
|
|
Years ended December 31 |
|||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Number of properties |
|
44 |
|
44 |
|
43 |
|
43 |
Revenue |
$ |
32,867 |
$ |
34,146 |
$ |
125,576 |
$ |
136,687 |
Expenses: |
|
|
|
|
|
|
|
|
Property operating |
|
(10,692) |
|
(9,600) |
|
(37,685) |
|
(35,566) |
Realty taxes |
|
(4,829) |
|
(4,771) |
|
(19,007) |
|
(19,091) |
|
$ |
17,346 |
$ |
19,775 |
$ |
68,884 |
$ |
82,030 |
Add: |
|
|
|
|
|
|
|
|
Amortization of leasing costs and tenant inducements |
|
2,526 |
|
1,998 |
|
9,252 |
|
6,729 |
Straight-line rent |
|
(156) |
|
797 |
|
1,598 |
|
2,322 |
Same Property NOI |
$ |
19,716 |
$ |
22,570 |
$ |
79,734 |
$ |
91,081 |
|
|
|
|
|
|
|
|
|
Less: investment properties held for sale |
|
223 |
|
1,082 |
|
2,430 |
|
4,420 |
Same Property NOI excluding investment properties held for sale |
|
19,493 |
|
21,488 |
|
77,304 |
|
86,661 |
|
|
|
|
|
|
|
|
|
Reconciliation to financial statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and dispositions |
|
223 |
|
1,955 |
|
3,639 |
|
8,946 |
Amortization of leasing costs and tenant inducements |
|
(2,526) |
|
(2,012) |
|
(9,261) |
|
(6,784) |
Straight-line rent |
|
156 |
|
(802) |
|
866 |
|
(2,339) |
NOI |
$ |
17,346 |
$ |
20,629 |
|
72,548 |
$ |
86,484 |
FFO and AFFO
The following table reconciles the REIT's FFO and AFFO to net (loss) income and comprehensive (loss) income, for the three and year ended
|
Three months ended |
Years ended |
||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Net (loss) income and comprehensive (loss) income |
$ |
(5,937) |
$ |
(21,905) |
$ |
(40,621) |
$ |
16,532 |
Add (deduct): |
|
|
|
|
|
|
|
|
Fair value adjustment of Unit-based compensation |
|
(85) |
|
7 |
|
(571) |
|
(580) |
Fair value adjustment of investment properties and investment |
|
11,814 |
|
31,803 |
|
80,205 |
|
41,925 |
Fair value adjustment of Class B LP Units |
|
(956) |
|
455 |
|
(10,135) |
|
(4,590) |
Transaction costs on sale of investment property |
|
1 |
|
— |
|
1,376 |
|
— |
Distributions on Class B LP Units |
|
60 |
|
375 |
|
739 |
|
1,673 |
Unrealized loss (gain) on change in fair value of derivative |
|
2,219 |
|
(82) |
|
1,158 |
|
(5,444) |
Amortization of leasing costs and tenant inducements |
|
2,526 |
|
2,012 |
|
9,261 |
|
6,784 |
FFO |
$ |
9,642 |
$ |
12,665 |
$ |
41,412 |
$ |
56,300 |
Add (deduct): |
|
|
|
|
|
|
|
|
Unit-based compensation expense |
|
117 |
|
124 |
|
563 |
|
665 |
Amortization of financing costs |
|
328 |
|
391 |
|
1,399 |
|
1,524 |
Rent supplement |
|
742 |
|
— |
|
2,970 |
|
— |
Amortization of mortgage discounts |
|
(9) |
|
(9) |
|
(34) |
|
(45) |
Instalment note receipts |
|
13 |
|
15 |
|
54 |
|
62 |
Straight-line rent |
|
(156) |
|
802 |
|
(866) |
|
2,339 |
Capital reserve |
|
(1,206) |
|
(1,254) |
|
(4,879) |
|
(4,863) |
AFFO |
$ |
9,471 |
$ |
12,734 |
$ |
40,619 |
$ |
55,982 |
FFO per Unit: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.59 |
$ |
0.77 |
$ |
2.52 |
$ |
3.48 |
Diluted |
$ |
0.59 |
$ |
0.77 |
$ |
2.52 |
$ |
3.48 |
AFFO per Unit: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.58 |
$ |
0.78 |
$ |
2.47 |
$ |
3.46 |
Diluted |
$ |
0.58 |
$ |
0.78 |
$ |
2.47 |
$ |
3.46 |
AFFO payout ratio: |
|
|
|
|
|
|
|
|
Basic |
|
25 % |
|
110 % |
|
69 % |
|
99 % |
Diluted |
|
25 % |
|
110 % |
|
69 % |
|
99 % |
Distributions declared |
$ |
2,337 |
$ |
13,996 |
$ |
28,068 |
$ |
55,296 |
Weighted average Units outstanding (000s): |
|
|
|
|
|
|
|
|
Basic |
|
16,378 |
|
16,383 |
|
16,424 |
|
16,175 |
Add: |
|
|
|
|
|
|
|
|
Unit options and Incentive Units |
|
8 |
|
3 |
|
5 |
|
13 |
Diluted |
|
16,386 |
|
16,386 |
|
16,429 |
|
16,188 |
Indebtedness to GBV Ratio
The table below calculates the REIT's Indebtedness to GBV(1) ratio as at
|
|
|
||
Total assets |
$ |
1,323,672 |
$ |
1,450,315 |
Deferred financing costs |
|
6,976 |
|
7,070 |
GBV |
$ |
1,330,648 |
$ |
1,457,385 |
Mortgages payable |
|
797,393 |
|
846,689 |
Credit Facility |
|
23,600 |
|
14,400 |
Unamortized financing costs and mark to market mortgage adjustments |
|
3,289 |
|
3,745 |
Indebtedness |
$ |
824,282 |
$ |
864,834 |
Indebtedness to GBV |
|
61.9 % |
|
59.3 % |
(1) This is a non-IFRS financial measure. Refer to the Non-IFRS financial measures section below. |
Adjusted EBITDA
The table below reconciles the REIT's adjusted EBITDA to net (loss) income and comprehensive (loss) income for the twelve month period ended
|
Years ended
|
||||
|
2023 |
|
2022 |
|
|
Net (loss) income and comprehensive (loss) income |
$ |
(40,621) |
$ |
16,532 |
|
|
|
|
|
|
|
Add (deduct): |
|
|
|
|
|
Interest expense |
|
32,821 |
|
28,855 |
|
Fair value adjustment of Unit-based compensation |
|
(571) |
|
(580) |
|
Transaction costs on sale of investment property |
|
1,376 |
|
— |
|
Fair value adjustment of investment properties and investment properties held for sale |
|
80,205 |
|
41,925 |
|
Fair value adjustment of Class B LP Units |
|
(10,135) |
|
(4,590) |
|
Distributions on Class B LP Units |
|
739 |
|
1,673 |
|
Unrealized loss (gain) on change in fair value of derivative instruments |
|
1,158 |
|
(5,444) |
|
Amortization of leasing costs, tenant inducements, mortgage premium and financing costs |
|
10,626 |
|
8,263 |
|
Adjusted EBITDA |
$ |
75,598 |
$ |
86,634 |
|
Interest Coverage Ratio
The table below calculates the REIT's interest coverage ratio(1) for the twelve month period ended
|
Years ended
|
|||
|
2023 |
|
2022 |
|
|
|
|
|
|
Adjusted EBITDA |
$ |
75,598 |
$ |
86,634 |
Interest expense |
|
32,821 |
|
28,855 |
Interest coverage ratio |
|
2.30 x |
|
3.00 x |
Available Funds
The table below calculates Available Funds as at
|
|
|
||
Cash |
$ |
8,946 |
$ |
9,501 |
Undrawn Credit Facility |
|
36,400 |
|
53,600 |
Available Funds |
$ |
45,346 |
$ |
63,101 |
NAV per Unit
The table below calculates the REIT's NAV per Unit as at
|
|
|
||
|
Units |
Amount |
Units |
Amount |
Unitholders' Equity |
15,676,644 |
$ 452,804 |
15,967,482 |
$ 522,138 |
Add: Class B LP Units |
420,887 |
4,231 |
439,365 |
14,628 |
Total Equity (including Class B LP Units) |
16,097,531 |
$ 457,035 |
16,406,847 |
$ 536,766 |
NAV per Unit |
|
$ 28.39 |
|
$ 32.72 |
(1) This is a non-IFRS financial measure. Refer to the Non-IFRS financial measures section below. |
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 Units and trading value of the Units; risks related to the REIT and its business; fluctuating interest rates and general economic conditions, including fluctuating 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 secure new tenants for vacant space; the timing and ability of the REIT to acquire or sell certain properties; 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; the ability to enforce leases, perform capital expenditure work, increase rents or raise capital through the issuance of Units or other securities of the REIT; the benefits of reallocating the distribution amounts to the NCIB and continuation of such program, or through other capital programs; the impact of the Unit consolidation; the ability of the REIT to resume distributions in future periods; and obtain mortgage financing on the REIT's properties and for potential acquisitions or to refinance debt at maturity on similar terms. 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) 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 shift to hybrid working; (c) the factors, risks and uncertainties expressed above in regards to the hybrid work 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
The forward-looking statements made relate only to events or information as of the date on which the statements are made. 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.
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