CT Real Estate Investment Trust
TSX:CRT.UN
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
12.8048
16.23
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
CT Real Estate Investment Trust
You don't have any saved screeners yet
Good morning. My name is Valerie, and I will be your conference operator today. At this time, I would like to welcome everyone to CT REIT's Q4 and Full Year 2019 Earnings Results Conference Call. [Operator Instructions] The speakers on the call today are Ken Silver, Chief Executive Officer of CT REIT; Lesley Gibson, Chief Financial Officer of CT REIT; and Kevin Salsberg, Chief Operator -- Operating Officer of CT REIT. Today's discussion may include forward-looking statements. Such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see CT REIT's public filings for a discussion of these risk factors, which are included in their 2019 MD&A and II -- AIF, which can be found on CT REIT's website and on SEDAR. I will now turn the call over to Ken Silver, Chief Executive Officer of CT REIT. Ken?
Thank you, operator, and good morning, everyone. We're very pleased to welcome you to CT REIT's Fourth Quarter 2019 Investor Conference Call. We are, of course, very pleased with our strong operating performance in Q4 and for the full year 2019. We continue to deliver attractive growth in AFFO and NAV per unit, driven by our strong organic growth profile and ongoing investing activities, complemented by value-add developments, operational improvements and effective expense control. This continued ability to deliver on the top and bottom line has given us the flexibility to strengthen our balance sheet and financial metrics, while increasing distributions and positions us well for the future. In addition to delivering great operating results, we were also able to celebrate a number of milestones in 2019. In Q2, we implemented the first phase of our ERP system, delivered on time and on budget, allowing for the internalization of most of our property management activities with almost immediate financial benefit. Also in Q2, we entered into a conditional ground lease agreement with the Toronto Transit Commission, and a conditional office lease agreement with CTC, which were important footsteps in the redevelopment of the Canada Square mixed-use property in Toronto. In Q3, we announced our commitment to increase our ownership interest in Canada Square to 50%, which closed in January of this year. In Q3, we completed together with CTC, a combined treasury and secondary equity issuance increasing our float and leading to the REIT's inclusion in Q4 in the S&P/TSX composite and Capped REIT indices and a number of subindices. In Q4, we also announced the sixth annual increase in our distribution in 6 years, which took effect in January of this year. And by year-end, we had completed or had committed to investments that amount to a 10 million square foot increase in the GLA of our portfolio since our IPO, of which 1 million square feet is currently under development. In achieving these milestones, we can look back on 2019 with some pride, but in many ways, 2019 was just another year of strong performance, adding to an enviable track record since our IPO. No doubt, we look forward to creating new milestones in the future. With that, I'll turn things over to Kevin.
Thanks, Ken, and good morning. As highlighted in our press release yesterday, we are pleased to announce 2 new investments this quarter totaling $19 million. These new projects include the expansion of an existing Canadian Tire store in Brampton, Ontario, and the redevelopment of a redundant Canadian Tire store in Courtenay, BC. The 2 investments represent approximately 76,000 square feet of incremental gross leasable area and are expected to earn a weighted average cap rate of 6.6% once completed. In the fourth quarter, we completed our sale-leaseback transaction with BMO to acquire a portfolio of 11 freestanding retail bank branches across Canada, the vend-in of 2 existing Canadian Tire stores in Thetford Mines, Québec and North Battleford, Saskatchewan; the redevelopment of an enclosed mall in Antigonish, Nova Scotia; the intensification of 2 Canadian Tire stores in Atholville, New Brunswick and Val-d’Or, Québec; the vend-in of land adjacent to an existing CT REIT-owned property in Welland, Ontario; and the development of third-party pad buildings at 5 existing REIT properties. We invested approximately $78 million in these previously announced projects, which added approximately 230,000 square feet of incremental GLA in the quarter. Highlighting the full year activity, we invested approximately $209 million and grew our portfolio by over 800,000 square feet. At the end of the fourth quarter, CT REIT had 22 properties under development. These projects represent a total committed investment of approximately $220 million upon completion and a total incremental gross leasable area of just over 1 million square feet, nearly 95% of which has been preleased. As at December 31, 2019, CT REIT's occupancy rate was 99.1%, which was slightly above the occupancy levels in Q3 and the prior year, primarily owing to the lease-up of approximately 100,000 square feet of space at the 11 Dufferin Place Southeast property in Calgary, Alberta. With that, I will turn it over to Lesley for a review of our financial results.
Thanks, Kevin, and good morning, everyone. As Kevin -- as Ken mentioned, we are pleased with the strong Q4 and full year results that CT REIT has delivered. In the quarter, we reported diluted AFFO per unit of $0.252, an increase of 5.4% compared to $0.239 per unit in Q4 of 2018. This brings the full year reported diluted AFFO per unit to $1.007, representing growth of 5.6% versus 2018. Diluted FFO per unit increased 2.4% to $0.293 versus $0.286 in Q4 of 2018. On a full year basis, 2019 diluted FFO increased by 2.7% to $1.175. Reported net operating income was $93.4 million for the quarter compared to $88.9 million in Q4 of 2018. The primary contributor to -- for NOI growth of 5.1% was the acquisition of income-producing properties and properties under development completed in 2019 and 2018, totaling approximately $1.7 million. Full year reported NOI increased by $19.5 million or 5.6% from a combination of annual rent escalations as well as completed acquisitions and developments. Same-store NOI increased by $2.2 million or 2.4% in Q4 versus Q4 2018. Same-property NOI increased by $2.9 million or 3.2% compared to Q4 2018 and was driven by several factors, including the contractual rent escalations of 1.5% on average contained within the Canadian Tire store leases, which contributed just under $1 million to NOI growth. Intensifications completed in 2019 and 2018 contributed roughly $700,000. Recovery of capital expenditures and interest earned on the unrecovered balance added $600,000 to NOI. And lastly, a decrease in property management expenses. Looking at the full year, same-store NOI increased by $10.7 million or 3.1%, and same-property NOI increased by $12.7 million or 3.7% versus 2018, driven by the factors mentioned earlier as well as the funds received from the assignment of the claim against Sears Canada under the CCAA filing. AFFO payout ratio as of year-end 2019 decreased to 75% versus 76% in 2018 due to the increase in AFFO per unit. For Q4 2019, G&A expenses amounted to 2.9% of property revenue, consistent with their level from Q4 2018. Excluding the fair market value changes, G&A expenses as a percentage of property revenue improved to 2.4% for the quarter versus 3.5% for Q4 2019. This is due to both the successful implementation of the ERP system earlier this year as well as lower personnel costs due to the CFO transition costs recognized in Q4 of the prior year. I'm very pleased with the positive impact that the 2019 joint equity offering has had on our float as well as trading volumes. Both key ingredients for improved liquidity for all unitholders. The increase in our float resulted in our inclusion in the S&P/TSX Composite Index as well as the Capped REIT, capped real estate, income trust indices and the Composite High Dividend Index. And most recently, in January of this year, we were also included in the Canadian Dividend Aristocrats Index. Our balance sheet was very liquid at year-end. We have $294 million available on our bank credit facility as well as $10 million in cash as a result of the 29 (sic) [ 2019 ] equity offering that took place in the third quarter. The interest coverage ratio increased to 3.40x as of year-end compared to 3.35x for the full year in 2018. This continues to be driven by growth in EBITDA FV exceeding the growth in interest and other financing charges and despite a 0.1x impact, the inclusion of interest on the lease liabilities from the adoption of IFRS 16 in 2019. With respect to the balance sheet, the financial position continues to be strong and liquid. As of December 31, 2019, CT REIT's indebtedness ratio was 42.7%, a decrease compared to the 45.1% as of December 31, 2018. The decrease in the ratio is primarily due to our 2019 equity offering, investment activities, the fair value adjustments made to our investment property portfolio and a decrease in total indebtedness. 355 of the REIT's assets are not encumbered, representing approximately $5.9 billion of assets, or said another way, approximately 98% of our asset base. Indebtedness to EBITFV ratio was a solid 6.94x at year-end, lower than the 7.34x reported in 2018, primarily related to EBITDA FV growth, exceeding the growth in CT REIT's total debt. Before I pass it back to Ken, I also want to first remark on the trending book value per unit. As at December 31, 2019, the book value per unit was $14.61, representing a 4.3% growth over the book value of $14.01 reported at the end of 2018. A number of factors contributed to growth in book value, including a higher value for the existing properties due to the ongoing growth in cash flow resulting from the annual rent increases, retain cash flow, ongoing recoverable CapEx spend and accretive investment activity. Ken, back to you.
Thank you, Lesley. In closing, we will continue to build on our strong foundation as Canada's premier net lease REIT. Equipped with a strong understanding of the Canadian market from coast to coast, we are well positioned in terms of our scale, high-quality real estate, balance sheet, key relationships and strategic focus to continue to deliver to Canadian investors what we have become known for: reliability, durability and growth. Bless as we are by high-quality locations in urban markets and always with an eye to the future, we will also seek to complement our core net lease portfolio with value-add opportunities in the years to come. We think CT REIT offers a compelling combination of growth and reliability, and we look forward to looking -- we look forward to adding to our track record and cementing this position in the years ahead. With that, I'll turn the call back to the operator and for any questions from our listeners.
[Operator Instructions] Our first question is from Sam Damiani with TD Securities.
Just wanted to start off actually on 2111 Steeles Avenue East in Brampton there. Is there any update on that? And I noticed there is some rezoning potential happening with the city of Brampton for some sort of transitionary approval, and I'm just wondering what would that contemplate for redevelopment on that site.
Sam, it's Ken. And thanks for the question. We are working with CTC on planning for that site. And I would expect that there will be a combination of ongoing employment uses and redevelopment of the distribution facility on the site as well as a mixed-use component, primarily commercial and retail.
And is that something that could come into the REIT's in the next year or 2? Or is this still sort of longer term and unpredictable?
I would say it's a longer-term opportunity for both the REIT and CTC and something that we'll keep you updated on over the next while.
Okay. Look forward to that. And just over to Dufferin Place in Calgary. It's great to see some lease-up of that vacancy, a little bit more to go. Just wondering with the lease completed, how would you say that the metrics on that lease are indicative of the current market versus what you were looking at maybe a year or 2 ago?
Sam, it's Kevin. As you know, the Alberta market has obviously slowed down a little bit. In terms of face rate, I think we're not too far away from where we expect it to be maybe 1 year, 1.5 years back. It's used for the property that's a 3PL with a long-established track record in Alberta. So we are happy with the covenant and the tenant. But overall, I think we leased it on market terms, and we're happy with the deal.
Okay. And just finally, I noticed you did sell one of the CIBC branches. Just wondering what the rationale over there was. How that property may be different from some of the other ones that you're keeping? And would you see pruning some of the BMO branch portfolio as well?
It's Kevin, again, Sam. I think it is exactly the same as most of the other bank branches we acquired, which is that it's very well located. It's a good piece of real estate. We just happen to be approached by the neighbor there who is interested in doing a land assembly, and we felt the pricing was such that it was hard for us not to sell it based on the offer we received. So still core to our holdings. We'd like the investments very much, just obviously, we'll be opportunistic when the chance arises.
So it sounds like a bit of one-off.
Yes.
Congrats on that.
Our next question is from Jenny Ma with BMO Capital Markets.
Congratulations on a strong year.
Thanks, Jenny.
My question is about the weighted average lease term, it's sort of ticking down a little bit as time passes, and I'm wondering if you could provide some color on the length and the terms of the leases that you're signing with CTC for the incremental intensifications and expansions that you're doing. Just looking for a way to inform our outlook and whether just given the lease maturity schedule, if we see sort of a recovery after the weighted average term grinds down for the next few years?
Jenny, it's Ken. There are no material changes in the leases that we've entered into with Canadian Tire on the incremental deals that we're doing going forward. So I think there's a -- obviously, with the passage of time, you're going to see weighted average lease term going down a little bit, which will be offset by the incremental deals we do with Canadian Tire and others.
Are you still getting the 1.5% annual rent kickers with the new leases?
I would tell you, on average, yes.
Okay, great. Going back to the industrial lease-up at 11 Dufferin, could you comment on sort of when in the quarter that took place to help us modeling that income back?
We entered into the lease agreement right at the end of the year. It commences on Jan 1. There is a bit of a free rent period. So I think you'll see mid-Q1, the impact starting to come in with full impact to be realized at the beginning of Q2.
Okay, great. And any color on the lease-up of the rest of the space and timing on that piece?
Similar to sort of the commentary we provided in previous quarters, we've had some interest. We're working with a couple of groups. So we don't have anything material to report at this time. So stay tuned.
Okay. And then my final question is with regards to the Class C units. We're inside that 120-day notice period for redemption, has there been any talk on either side about that?
Jenny, it's Lesley. We're -- obviously, we're in constant dialogue with the CTC team. We haven't -- and we're not anticipating any redemption of -- I would say of those to sort of exchange them into Bs or anything. I think for modeling purposes, I would assume that there'll be 5-year debt renewing at the end of May on market terms.
Our next question is from Himanshu Gupta with Scotiabank.
On Canada Square, any update there in terms of municipal application? And also, how much did you spend for the incremental ownership in the project?
Himanshu, it's Ken speaking. So as you know, the acquisition closed subsequent to the quarter end. So it's not yet reflected in our financial statements. So there's really nothing I can add in terms of the financials of the transaction. In terms of what happens next, development planning is underway, and we expect to be engaging in a public consultation process and submitting an application later in the year. And frankly, I think that will be the more exciting news, I think, as we look ahead.
Sure. And maybe just to get a sense of time line, is it fair to say that there will be like no shovel on the ground before 2022?
I think that's about right. I mean our ability to put a shovel on the ground will be dictated by the timing of the municipal approval process as well as the completion of the LRT.
Sure. And on the same lines, are you looking to add any new mixed-use projects like Canada Square? I mean what's your appetite in terms of adding such densification projects?
I don't think we would be seeking out new mixed-use projects that we don't already have in our portfolio. In other words, I think like others, we would be looking to our portfolio for potential value-add opportunities. Although I wouldn't say that is a short-term priority for us.
Got it. And maybe just generally speaking, your cost of capital has improved, say, compared to 12 months back. Does that change the pace of investments going forward? And just overall, what are your priorities or goals for 2020?
Well, I would say, apart from the investment in development activities that we've already disclosed, there's always a certain number of investments with Canadian Tire, we would expect to make, probably not materially dissimilar to other years. We're always hopeful that there will be new third-party transactions, and we'll be looking for those. And of course, as you know, we've already closed on the Canada Square transaction this quarter.
Okay, fair enough. And maybe just one last housekeeping question. What should be the annual G&A run rate we should model for 2020?
Himanshu, I think if you look at Q4, that would be reflective of what we'd be thinking for 2020, so it has the sort of characteristics of the sort of improved post internalization run rate reflecting in our Q4 numbers.
Our next question is from Sumayya Syed with CIBC.
Just firstly, on the new lease at Dufferin Place, what is the rent growth profile look like there?
Sumayya, it's Kevin. The rent is flat for the term. So...
Okay. And how long was the term there?
3 years.
And can you just shed some light on the credit facility entered into with Canadian Tire and just what's the intention there?
Sumayya, it's Lesley. We did enter into a facility with the Canadian Tire. Of note, it's a uncommitted facility. So it is on same terms -- same commercial terms as our existing facilities. So if there is an opportunity where we can borrow from one person versus the other at the exact same rate for us, then we have the opportunity to borrow from Canadian Tire or from the banks equally. So it was really just another avenue of potential liquidity for us, but it's really on exact same terms as anything we could borrow from a third party from.
Our next question is from Tal Woolley with National Bank.
Just in your conversations and planning with the Tire, what do you see as their sort of expectations for square footage growth? And when was the last time you did, like, sort of a big review of the footprint you currently have with them? And have you had any discussions around concerns for relocation or closure or anything like that on the current portfolio in the retail properties?
Tal, it's Ken. I think it's fair to say that our conversations and dialogue with Canadian Tire around their facility requirements is virtually ongoing. We meet with them almost on a weekly basis to review their retail and supply chain requirements and plan. So in terms of their square footage growth, I would say that -- I would point you to their disclosure as a company in terms of how they've been managing the portfolio, what we've seen and what's been reflected in the transactions we've done with them is the stores are tending to be larger, both from a new build perspective, from the impetus to replace existing stores, some of which they retain for that purpose that they had planned to have larger stores and the number of expansions that we've done together with them.
And so no real concerns about relocation risk or closure concerns within the current portfolio right now, nothing above average than you would have had in the past?
Certainly, nothing above average, nothing out of the ordinary, nothing out of the normal course of business. And I would say where we see there is a risk of them relocating from a property standpoint, it also represents an opportunity for us to the extent that we could own the new store as well as redevelop the existing one.
Okay. And then this year, you've got about 2% of your space to renew, but it's mostly in the other category, the other GLA category. Do you have -- can you give us some sense on like where that space is and what it is and what your outlook is for renewals on that space?
Sure. Tal, it's Kevin. Most of that space is related to the third-party acquisitions that we've completed over the last couple of years, for example, from the RioCan portfolio. I would say, we're optimistic about not only renewal probabilities, but renewal spreads as well. We've had some good traction there, although, albeit in smaller increments over the last year or 2 so yes, the properties overall are fairly strong, and we're pretty bullish on that.
Okay. And then just lastly, or last -- Lesley, maybe you can help me out here. Is there any decent rule of thumb on like between the move in the stock price and the accrual in G&A for the expense? Is there some sort of quick rule of thumb that we can use, just to kind of gauge that?
For the -- I don't have it off the top of me like the mark-to-market on the company comps. No, not off the top, Tal. It's -- we try to give you, obviously, the numbers in the add-backs, you can take out that mark-to-market. But no, there's not a sort of rule of thumb we have.
Our next question is from Pammi Bir with RBC Capital Markets.
Just on Canada Square, I guess, when -- the transaction is already closed, but can you maybe comment on whether you expect to see perhaps a markup in terms of value on your existing 1/3 interest as a result of that transaction?
Pammi, it's Ken. I'd say probably it's premature for me to comment on that.
Any possible range you can provide in terms of the size of the investment?
No. I think at this point, it's probably best just for me to defer to our financial disclosure in the next quarter.
Okay. Just one last one then. Just on the -- on 11 Dufferin Place or the Calgary assets as a whole, how much vacancy is left to lease there?
There's about 100,000 square feet left in the 11 Dufferin Street building.
And is the expectation, I guess, that, that should get done this year?
I mean as of right now, we don't have any deals in hand, so ideally, yes, but there's no specific guidance I can provide at this time.
Our next question is from Kyle Stanley with Desjardins Capital.
So just going back to third-party acquisitions. So it's a bit of a high-level question, but would you have an estimate of the size of the investable universe of kind of net lease assets similar to the bank branches that you've already done in Canada?
Kyle, it's Ken. It's a great question. I don't think I could actually put a number to it, other than to say, given our approach to our net lease strategy, it does really open the door to thinking about the universe of possibilities in a different way, including different asset classes. As we've noted before, there's a sizable component of our portfolio that's made up of distribution facilities. Those are the kind of things lend themselves to net lease-type investing. It's obviously a very competitive market out there for those kind of facilities. But I would suggest that we see no shortage of investment opportunities out there that would fit our strategy.
Okay. Great. And I guess just maybe adding to that, are you seeing any portfolio similar to the BMO and CIBC portfolios as being actively marketed?
I would say that certainly, we are on the radar screen for those who are looking to market those kind of investments.
Okay. So they'll come across your desk if they're out there?
That's right.
[Operator Instructions] Our next question is from Sam Damiani with TD Securities.
My question has been asked. Thank you.
Okay. Thanks, Sam.
Thank you. As there are no further questions at this time, I would like to turn the call over to Ken Silver, CEO, for closing remarks.
Thank you, operator, and thank you all for joining us today. We expect our first quarter results will be released in the first week of May. We look forward to speaking with you then. Thank you.
Thank you. This concludes today's call. You may now disconnect.