Q3 2020 Choice Properties Real Estate Investment Trust Earnings Call

Probably wouldn't produce any cash flow for more than five years and in some cases even longer.

Do you do you view that as an opportunity.

Opportunity to generate more cash in.

The near term.

Yeah. So so.

Mark we have a we have a wonderful position because we don't have the density on our balance sheet. That's the first thing. So we what we really focused on is getting the entitlements and trying to create as much value through that entitlement process ourselves and then as it comes closer to execution, we will likely bring in.

A partner for a phase of some of the projects and.

The partner will help bring obviously is not any capital, but they'll bring expertise because we don't have the full house in house capabilities to to go through the full development or construction process ourselves but.

That's something we're going to look at but but when we closer to construction not not very far out.

Okay, great. Thanks.

Thank you. Our next question comes from Matthew Scotiabank. Your line is open.

Thank you and good morning.

Good morning.

Portfolio acquisition 0.6 to one dollar how competitive was the acquisition process.

Well you know anybody is what is the going in cap rates.

Especially if the markets and just help is on the table.

Yes.

Yes.

So you are referring to the industrial.

We purchased.

That is great for properties that you purchase.

Well, you just $6 million what was the cap rate.

You know it under the markets, Arkansas, what kind of growth opportunity then good opportunity you have on that yeah.

Yeah. So it matches it was actually off market. It actually was an existing tenants about that that the individual who runs our office and industrial group is is very close with the tenant and the tenant actually had spoken to him about the opportunity said it was purely off market.

We love the investment because we really view it as a long term land.

Land playful for redevelopment.

The markets are all primarily as primarily GCA is the bulk of the portfolio is in the JV told that Tim.

And the cap rate was just sub five and there is above market rent steps in the lease term.

Okay and do.

Do you think you know this will be the focus going forward as well in terms of you know.

Writing more investment properties, and perhaps monetize on some of the non core assets.

Yeah, we always every every year or every quarter, we look to to recycle assets and we'll continue to look for good opportunities to do so.

And we'll do it across all asset classes.

Got it.

And then with respect to the dispositions that 50% interest for.

$151 million, just wondering did the prior approach you guys or is.

That was a marketed process as well and what are the prospects for asset management property management team here.

I expect to further grow this season.

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Yes, yes. It came through again it came through I am actually came through a broker and grid approached us and.

And you know we view it as we like this potential partner because we think there's an opportunity to further grow this relationship and it's initially 150 million. They have an option for another 50 million and hopefully they we can keep expanding that to grow that fee platform as you spoke about.

Gotcha and does the buyers have.

Like you said that many times.

Okay, and then you kind of time.

No no no we like the portfolio, we view it as a long term ownership portfolio with them.

Got it okay. It would be normal liquidity, sorry, there would be normal liquidity rocks in the partnership but the intention is to own that on a long term basis 50 50.

Got it.

And then just turning on to vacate portfolio I do you disclose the restaurants.

Yes, Dan you.

Yeah account for 10% of your bidding portfolio.

So the question is are any of these tenants coming up for renewal next year do you expect any pressure on market trends. This back to the table tennis, which might have been impacted difficult.

So you're referring to the restaurants, and then fitness so.

Yeah look restaurants, so that I think let me find the exact number I think it's 5% to about 5% of our re.

Retail portfolio and half of it is quick service and half of its set down and.

I don't think any major.

Expirees over the next.

12 months, but but remember they lost solved.

There are lots of very small locations and in fitness is about 1%.

So in the in the disclosure we had groups the categories that fitness is about 1%.

So I also want to say that our average restaurant tenants are usually.

5000 square feet 7000 square feet at NASS and not to beat this accounts for the majority of QSR considerably smaller and there is no material role in that sector and entering the fitness as well, we actually don't have any material role.

We renewed jacket life in several locations this year and as part of our negotiations with them.

As we provided them small rent abatements through Twentytwenty, we've extended the leases with them in many locations absolutely that the.

Term with intent.

And I just want to clarify in the disclosure it was fitness and other personal services, the fitness would represent 1% of that but including that would be medical health wellness and other tenant.

Sure. Thanks, Thanks, or stratify that I, maybe just final question from me what kind of same property NOI growth.

Expecting 2021 in the aggregate portfolio.

Especially in the context that not much new design.

Let me pause and was next year.

Yes, Hey, I'm asked you.

You know right now I mean, this year were kind of we were looking at before bad debt expense hitting about 1.5% last.

Last year, we were over 2%, but you know with some of the rollover that it's not corporate related just naturally tenants kind of moving in expanding their spaces are shrinking their spaces.

I think for next year.

Even potentially.

No.

The continued effect of whats happened kind of enough the power centers in our portfolio.

I think we're probably looking at the lower end, maybe closer to 1% say method in Hawaii.

Just a.

Again.

No that doesn't and then if there's going to be any tenant solvency issues I mean, that's a.

That will have to deal with that when it comes but right now I think we are targeting but just low 1%.

Got it.

I'll tell you one just final follow for me on the dispositions.

And then you mentioned in your remarks that they were down about I.

This value.

Just wondering what any of these assets buttoned down in Q2 led you to be a unit portfolio wide some.

Some write downs.

No I don't believe they were.

Okay. Thank you. Thank you guys.

Thank you and your next question comes from a lot of Tolerability of National Bank Financial Your line is open.

Hi, good morning, everybody.

Morning.

You know you're sort of major ways through the stress it depends on like.

With a fairly easily it's obviously been a lot of work, but your results held up nicely.

As you sort of think back over the last six to nine months is there anything you sort of found on the portfolio or the strategy that you guys are pursuing.

That you are sort of looking to change in light of the kinetic I'm thinking maybe something like.

The target asset class mix in the portfolio things like that.

So.

These truthfully tell US you know, we don't think there any major strategic changes based on the pandemic. We think things we were very comfortable with the types of assets, we own we love the the diversified nature of the portfolio, we really like you know.

Very bullish on necessity based retail industrial is performing very well and the top of office we are.

Even even though you know a lot of tenants are working from home, they're still had higher occupancy and through the pandemic and we continue to see high occupancy we continue to see more and more people back in the building. So so overall we are.

There's nothing major that we would change in fact, it's probably reinforced our strategy and ownership of that mix of assets.

Okay.

And then you sort of mentioned you know in terms of your balance sheet, you certainly be open to cover.

Continue to work on the leverage and before you know you sort of more aggressively accelerate the development is there like the bill rate number we should be thinking about in terms of.

Where you'd like to see that.

Leverage trial.

Hey, Todd.

We don't have a number we had a number of 7.5.

When we first started this about a year and a half ago and so really right now we're more focused rationally, we don't want to see it.

Have a run rate higher than 7.5, but but ideally I mean pretty directly to the low sevens I think where we'd like to go our focus was really to to get the liquidity balance of the debt maturity profile.

And de risk the portfolio. So now that we're there.

If we have the ability to to to de lever, we will but there is no priority in the near term.

Okay.

And then just lastly on the a willing to asset acquisitions or are you going to provide a like a pro forma our cap rate on those deals.

It was just it was between five and a half and sex.

Okay.

Perfect. Thanks, very much gentlemen.

Okay. Thank you.

And your next question comes the line of paper of RBC capital markets. Your line is open.

Thanks, and good morning.

Just maybe coming back coming back to the dispositions.

I'm curious are you seeing more inbound inquiries, perhaps from new partners or has there really nothing much change there.

And we have seen some increase in inbound inquiries.

And any of that be perhaps for you I guess, then on modeling anchored or traditional power centers in the portfolio.

[noise] Pam as Pam.

I think the inbounds are more focused on where it's truly a necessity based you know assets.

It doesn't necessarily have to be a lot blanka it could be could be.

The other major retailers.

People like the stability.

Right.

Okay. Thanks for that and then just on just maybe coming back to the comments on the office portfolio I guess.

You made some comments on the sublet side can you talk about what you're seeing in your portfolio from a sublet standpoint, and maybe just some of the conversations that you're having with respect to tenants in the office portfolio for for upcoming renewals.

Yeah, Hi, Tommy and we have.

Seeing an up tick in the availability of at least space in our buildings as well.

Similar.

To the market I mean, our vacancy rate or availability rate. It is quite low in our in our in our trial portfolio, our anchor portfolio, even our might trail portfolio I think Ken gas.

California is an outlier and we actually have an assembly space Ironically in Calgary in our portfolio and.

Our availability is pretty much in line with the market. So that's that's that's less coated issue.

But you know to our availability and trying to really scale like sub 4%.

And the majority of this type leases that we have are for longer term. You know typically you know five plus years is the length of term on these spaces. So they do compete to some extent with our direct space, but.

You know, it's it's not a huge concern relatively speaking to us.

The portfolio and then in terms of discussions with tenants.

You know.

Interestingly enough, we had a recent scenario, where we had a large tenant who had an option to terminate our.

Our surrender a portion of their space and this would be a you know tenants over 100000 square feet and through our conversations with them and and you know they they decided not to exercise that option and that was because you know they saw you know that their culture as an organization was really linked very closely to.

How they could bring their teams together in the collaboration that comes with being in an office space and we're seeing that in some cases, but.

You know that you know it varies but you know what I I don't know I do think people are bringing more and more of their employees back we're seeing it in our buildings across the country.

That's great color I guess, maybe just one last one for me from an office standpoint.

What sort of I guess trends are you seeing from.

Renewal rates.

I'm actually renewal rents are holding very firmly if anything retention has increased because you know can enter our earn less.

Anxious to make a big change in a very uncertain environment. So so that's where there really hasn't been any downward pressure on regular rats.

Calgary being the exception, we always have to you know.

It's a little tougher out there.

Right got it thanks, very much I will turn it back.

Thank you and your next question comes the line of Janney <unk> of BMO capital markets. Your line is open.

Thank you good morning, everyone.

Let me now.

Back to the other disposition.

It sounds like just based on the different structure versus the deal you did last year. This is a new JV partner correct.

Correct.

Can you speak to whether or not this investor is a domestic or foreign entity.

That's a domestic life insurance company.

Okay great.

And then there was a question about the option for them to to buy the other 50%, but I'm wondering if there is an option. The other way for you to buy back the 50% and if there is any timeframe on this investment relationship.

There's no timeframe.

We view this as a long term partnership and then as I said earlier, there just be normal liquidity rights.

Okay, great turning to the provision this quarter odd it's improved materially from what you guys took in Q2 I'm just wondering what the Q3 number below 5 million did that include any truing up of Q2 numbers or is that a clean two three figure.

That would be a clean Q3 number so I think just over half with sempra, making related the rest for just a norm.

Normal course provisions.

Okay, Great and then on onsite crop did toy offerings to your tenants for the full three month.

Yes, six months actually it was.

I don't think month in Q3, yes.

Whole six months the program.

Yeah.

Okay Perfect and then my last question is with October collections, just given that the third program is sort of still in progress what has a red collection been like for some of your formerly secret tenants.

Oh I.

I don't know specifically kept those tenants, but where we're at we're at the same levels consistent with Q3 were in the high Ninetys.

Okay. Okay, great. Thank you very much.

Okay.

And just a reminder, if you'd like to ask a question. Its star one on your telephone keypad. Your next question comes Monistat Damiani of TD Securities. Your line is open.

Thanks, and just kind of follow up on the IRS fair values.

Given that the dispositions were were at a premium and you know where the commentary around the gain recognized in Q3 sounds like that that pick up might not have been as insignificant I'm just wondering.

If you think you.

The longer interest rates stay at these levels.

The cap rates are going to have to reflect that and and we'll see some fair value gains and.

Long term leased assets like the ones that youre.

You know that's a great question Sam.

I think so I didn't I haven't had anybody agree with me, but I do think that you know where you have long term leases with investment grade tenants and their long term you have the bond rate where it is at some point there has to be a value shift, but so maybe over time I think that as it becomes more valuable.

So I think that on the long term leases and a lot from Tennessee, that's kind of where I think you'll see it I think everything else the market still has to play out.

And so we're just waiting for kind of objective data and there's not a lot of data points right now.

On the remaining portfolio.

Could you comment specifically on the dispositions.

This quarter as to where the silver prices were relatively diverse.

I don't have specifics I mean its.

Be healthy single digits.

That's helpful. Thank you very much.

And there are no further questions in the queue at this time I turn the call back to the presenters for any closing remarks, you may have.

So well I, thank everyone for joining us on todays call. Please do all you can't stay healthy and be safe. Thank you.

And this concludes today's conference call you may now disconnect.

Yeah.