Q4 2020 RioCan Real Estate Investment Trust Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the real can real estate investment Trust fourth quarter and year end 'twenty and 'twenty conference call at.
At this time all participants are in a listen only mode.
After management's presentation, there will be a question and answer session and instructions will follow at that time.
I would now like to hand, the conference over to Jennifer Stewart Senior Vice President and General Counsel you may begin.
Thank you.
Thank you and good morning, everyone I am Jennifer <unk> Senior Vice President General Counsel and corporate Secretary for reopen and before we begin I would like to draw your attention to the presentation materials that we will refer to you and today's call, which were posted together with the MD&A and financials on real Ken's website earlier this morning before turning the call over to Jonathan.
Required to read the following cautionary statement and talking about our financial and operating performance and and responding to your questions. We may make forward looking statements, including statements concerning real cans objective its strategies to achieve those objectives as well as statements with respect to management's beliefs plans estimates and and pension and similar statements.
Starting anticipated future events results circumstances performance or expectations that are not historical fact these statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions and these forward looking statements and discussing our financial and operating performance and and risk.
Bonding to your questions. We will also be referencing certain financial measures that are not generally accepted accounting principle measures GAAP under Ifr S.
These measures do not have any standardized definition prescribed by ifr at and are therefore unlikely to be comparable to similar measures presented by other reporting issuers and non-GAAP measures should not be considered as alternatives to net earnings were comparable metrics determined in accordance with ifr S. As indicators of real cans performance liquidity cash flow and profitability real cans manner.
Mint uses these measures to aid and assessing the trust underlying core performance and provide for these additional measures. So that investors may do the same additional information on the material risks that could impact our actual results and the estimates and assumptions, we applied and making these forward looking statements together with details on our use of non-GAAP financial measures can be found and the financial statements for the period ended December.
For 31, 2020, and management's discussion and analysis related there too as applicable together with real cans. Most recent annual information form that are all available on our website and at Www Dot SEDAR Dot com.
Thank you Jennifer.
And thanks for joining us today I'm pleased to be here and the surrounding virtually by our great Senior management team and Rio Kim and I'm happy to provide and update on our fourth quarter operational highlights as well as for 2020 and results.
And our focus today on what will continue to drive stronger and control, namely why and operating performance and our increased focus on mixed use development and the strength of our comments for large reclassified and stronger stable.
I'll also focus on how we continue to upgrade our portfolio through dispositions and current mix evolution.
So that we will continue if we reduce our exposure for nonessential businesses for.
Before doing that it's critical to acknowledge the challenges that the real estate industry and our business faced in 2020, I mean, the gearbox for COVID-19, and they tested our team and our portfolio and we consistently demonstrated strength and resiliency and the ability to mitigate the impact.
We're pleased to report the reoccurring and ended the year with record liquidity and we achieved our ethical per unit guidance of $1 60.
We made the responsible decision to reduce our distributions effective in January of this year, which does enhance our financial flexibility and allows us to advance our goals and to absorb the and park. This pandemic has on our business.
While we continue to compete for pandemic and an uneven road to economic recovery I've got total confidence the REO, Kansas team is well positioned to unlock the value that's embedded in our incredible portfolio.
So now let's focus on the fourth quarter operating results.
And the second wave of the pandemic and the fourth quarter resulted in and restrictive measures, including the closure of nonessential businesses and a number of provinces and fact, 75% of our tenants remained open and operating as of December 31, but in spite of this we collected 94, 2% of our total fourth quarter rents.
And just shy of 92% and 91, 7% of our January build growth strength as of February 10, and we're not done yet.
Throughout this crisis, we've been responsible protective and forward looking by balancing our tenants' needs with the wellbeing of our unit holders.
<unk> launched and the second quarter of 2020, we actively participated on behalf of around 100, sorry, 1800 qualifying current locations and another 950 tenant locations and the third quarter.
Over the six months period real can abated, approximately $14 4 million and gross rents and.
We continue to work with tenants, whose businesses have been affected by the pandemic.
The service program replace Becker, and the fourth quarter and <unk> funding, which is provided directly to his comments without the requirement of landlord rent abatement is in effect until June of 'twenty 'twenty, one and now we view serves as a positive initiatives that will provide a lot of short term relief for businesses that are in need.
And to provide further support real Cam has established an ambassador program to assist our tenants with the online for the application process. We continue to use our expertise to ensure that tenants are applying for any available government subsidies.
For Bottomline remains the same as we reported and Q2 and Q3 every dollar matters to us we're using our resources energy and a thoughtful strategic approach to maximize rent collection.
Extent that we need to make some concessions we negotiate lease amendments that will benefit the trust over the long term such as redevelopment rights that will support our ability to unlock so much future value.
As anticipated same property NOI growth continued to be impacted we ended the quarter at minus seven 9% stronger than the previous quarter, but obviously very far from our historic norms, which we intend to return to.
And while we can't predict the length and extent of the mandated closures and the strength of our tenant base Insulates real cans income from temporary disruptions and.
In fact, 79% of our tenants, we classify as strong or stable. These are primarily grocery pharmacy liquor and central services and value retailers that have strong covenants and have demonstrated.
Resilience and volatile economic cycles for stability as highlighted by real cash collection of over 98% of the total gross rent that was built for these comments and the fourth quarter.
The remaining 21% of our tenants are reclassify them as potentially vulnerable and most of these tenants are going to survive and we've collected more than 80% of their rent.
Some of these tenants such as restaurants, and Jim while they're vulnerable in the face of Covid well in our minds. They make up a very important part of the retail landscape and we think they will do just fine and the future.
These are the kinds of uses that are poised to prosper when commercial exuberance rebound after months of suffocation.
And I am not going to downplay the volatility and the industry, but I want to be clear that to date the relative impact on real cans revenue is manageable and we're positioned to see significant improvement is the impact of Covid and start to dissipate and then.
And regards to leasing in spite of the pandemic, our fourth quarter leasing renewal and retention results were strong and very much in line with our historic pre pandemic results. Thanks to the good and very hard work of our team here at <unk>.
Our committed occupancy ended the year at 95, 7% our leasing team completed 359000 square feet of new leasing and renewed one 2 million square feet. During the quarter. We achieved we achieved a blended leasing spreads of three 8% for the quarter and 5% for the year, new leasing spreads for major market prop.
<unk> was eight 3% for the year.
Our renewal and new leasing spreads demonstrates that there is still a healthy upside between our average portfolio and the market rents are.
Our retention was 85, 8% for the quarter and 86, 7% for the year and average net rent per square foot for new leases was just under $44 for the quarter and just over $32 for the year impressively above the trust portfolio average rent of $19 80 per square foot.
And I'm going to turn to residential and we collected over 98% of residential rent and the fourth quarter, which is really a testament to the desirability and strength of Rio can livings offerings.
Our residential rental portfolio continues to grow and currently has more than 200 units and for buildings.
Essential and pivot and Toronto frontier, and Ottawa, and Breo and Calgary.
Total NOI from our residential rental operations was $8 2 million for the year, which was up $5 8 million from 2019.
We will see this number continue to increase as new projects are completed throughout the course of this year.
As of February 10th Frontier, and <unk> Central were 97, 8% and 86, 3% leased respectively.
First occupancy a pivot 361 units took place in December of 2020 and.
And it's understandable that the pandemic has really temporarily affected leasing at <unk> central and pivot.
It's challenging to lease space for virtual tourists and we also can't ignore the short term pressures and the multi res rental space. However, we are confident that all real cam living offerings will thrive and the long term not only because we are well positioned properties, but also because enhanced integration and a resurgence and economic activity should land.
And to stronger market dynamics going forward.
In terms of developments, we have always prudently balancing and adjusted our construction plans and the face of COVID-19 and that set.
And we're pleased to report that the pandemic didn't have a material impact on the pace of our most significant construction projects.
We continue to look ahead to ensure continuous growth through sustainable development pipelines as.
As we complete development, we break ground on nuance, we achieved zoning on others and initiate the zoning approval process on still more this pipeline translates into lucrative opportunities a real it's a virtuous cycle that was well demonstrated throughout 2020, we validated how profitable are reasonable and landed by selling interest and several GT.
And auto our properties at very strong pricing, we have so many of these projects that will take us well into our future. They include layered and Eglinton here in Toronto shoppers World ramping up and Brampton and Rio can haul and downtown Toronto and this is just to name a few of so many that we have and our tremendous pipeline.
We saw value creation through the successful closing of the sale of 50% non managing interest and essential and attractive capitalization rates and a value far above our cost further supporting our long term strategic importance and NAV growth potential of our development pipeline and residential rental business.
We also completed approximately 530000 square feet of new development GLA and concluded developments, such as fifth third and Calgary, and Winfield farm and offshore which continues to see great growth.
In addition to the completed projects I just referenced we've got more than 14500 residential rental units currently under construction and this is between six projects and estimate that we'll have an additional 500 or over 500 residential rental units and different phases of development by 2022.
We've got a 50% interest and three condo or townhouse projects at various phases of presale and construction. This includes 11, yv condos, and Yorkville and UC Uptown and UC tower condominium project that Winfield farm and Ottawa.
I am proud to say that these projects include 242 units and we're 98% pre sold with deposits paid for and what should also be noted is that the proceeds from our condo sales provide an alternative source of revenue and an important bridge for <unk> that will supplement our productive core commercial portfolio going forward.
Moving to the well our iconic mixed use community and Toronto downtown and West The office Tower. If you haven't seen it has reached its final 30 fixed story and is expected to be topped off next month. The project is on track for the initial office tenants to take possession and later on this year and retail leasing is advancing well.
We intend to continuously use our vast pipeline of air rights and we will seek out partners to validate value reduce our overall development exposure and equally important to get paid for our deep and experienced development platform through equitable fee structures, we're going to use the strategy not only and residential rental project, but and condo projects as well.
Subsequent to quarter and REO camera and its final capital contribution to the <unk> joint venture, which brings our ownership interest and this well positioned portfolio of properties for 20%.
And the properties and which we've increased our interest include downtown Vancouver, Montreal, Ottawa, Calgary as well as destination shopping centers, such as York, Dale and square one or.
And our position and these properties is consistent with our strategy towards dominant and well located urban assets and we're going to work with our partner to explore potential uses for these properties be the existing retail uses or dynamic mixed use concepts.
We have also reached an arrangement with HBC that clear up all rental arrears that had accrued over the course of 2020.
It is important to highlight that while our focus is obviously on managing our business and tapping into growth opportunities our commitment to sustainable growth has not in any way diminish throughout the course of this pandemic.
And can continues to lead the real estate industry on ESG with the achievement of a five star rating from <unk> or <unk>, and we know how to pronounce it for our ESG performance and sustainability best practices.
<unk> is also ranked first amongst Canadian peers, and the growth public disclosure assessment and in terms of our culture and maintaining a connected and engaged team has been critical during these challenging times and we're proud to be named one of greater Toronto top employers and we achieved our highest employee engagement score and Rio <unk> history.
2020 employee engagement survey results exceeded the industry benchmark for overall engagement by 10 points.
We're committed to investing and our corporate culture and the development of our expert talent will continue to support excellence and empower our people to drive our collective success.
We okay and history as a story of a successful transition this won't stop as we seek to drive sustainable profitable growth and 2021.
Looking ahead, we will continue to reshape our tenant base to focus more than ever on resilience and sustainable growth and value creation.
Got the team for locations and the balance sheet and we have the drive the expertise and relationships to weather This storm and as always adapt and thrive and we are poised to advance our business as COVID-19 and its impact become less relevant which will mark my words happen soon and.
And before I close out I want to express my gratitude to Ed The <unk> Board of trustees and the team here at Rio can and of course, you our unitholders for your confidence and me as REO cans next Chief Executive Officer effective April one 2021, I'm really excited and really privileged to lead <unk> through this.
Flex period, and their history and into our next phase of remarkable growth and with that I will turn it over to my colleague <unk> for his CFO report.
Thank you Jonathan and.
And good morning, everyone.
As Jonathan noted real Ken reported for full per unit of 39 for the fourth quarter and $1 60 for the year.
In line with our guidance.
Our dollars 60, and first of all per unit for the year was net of.
$42 five meeting pandemic related provision.
Rent abatements and bad debt.
<unk> represented five 2% of our beauty gross rents from Q2 to Q4.
Our net contracts.
For receivables was about 44 million and they'll be.
And which is expected to be collected and deal costs.
Despite the challenging environments under and then.
Including a much less active transaction market.
We continue to surface value of our portfolio and <unk>.
Closed 193 million of dispositions during 2020.
Oh, those 66 million were income producing assets the weighted average capitalization rate of 631% based on in place NOI and <unk>.
<unk> 7 million for development properties, there is no in place NOI.
In addition, and know February 10 2021.
We have closed or entered into firm all conditional agreements.
Both 100% of partial interests and a number of properties for total sales proceeds and about 290 minutes.
This included 161 million for the sale of <unk>.
The person and managing interest in essential and commercial component of E place and three 5% and 12, 5% and capitalization rates respectively.
<unk> stabilized NOI, which was closed in mid January 2021.
Overall since the beginning of 'twenty and 'twenty, we have closed all entered into for them and conditional deals totaling 483 million. This included about 241 million of income producing properties.
Weighted capitalization rate of about five 5% based on in place NOI.
Our ongoing disposition program.
The only realizes the value in sharing and our development pipeline.
But also enables us to fund mixed use development mitigate risks.
And of course.
And additional fee income and net.
Truck New partners, all strengthened relationships with existing partners.
Our reduced distribution payout will provide about 152 million of additional cash flow annually.
Which will also serve to fund development projects as well as other value added.
And is initiating and such.
And Andrew repayments and unit buybacks through our and CIB program.
We remain committed to our development program and unlocking the significant value inherent in our portfolio.
Residential development and accounts for about 83% all about 35 million square feet of hours and 42 million square feet of development pipeline.
Our residential projects will serve to address the growing demand for housing as Canada's population growth, particularly when the government true assumes immigration plants.
And the announced in October 2020 day government of Canada plans to welcome on average 411000, new immigrants for year over the next three years.
Majority of the new Canadians will make their homes and one of Canada's six major cities, where all of our mixed use residential developments are located.
In fact, typically more than 30% new Canadians all over 100000, a year call it tranche of home, where 74% of our projects are located.
And in close proximity to major trends and law.
Looking ahead to 2021, we estimate development spending to be in the 500 million range net wells projected cost recovery and proceeds from <unk> sales.
This spending estimate includes about 400 million for properties under development and proximate to the 100 million for resident.
Residential inventory projects, which are condominium our townhouse projects.
In addition to meeting market demand for home ownership condominiums townhouse projects enable us to accelerate capital recycling to further fund average development program.
2021 development expenditures will allow us to develop and deliver a significant portion of our flagship development well and.
<unk> other mixed use developments, such as Leesville Dupont Street, and strata College Street, both in Toronto.
Well as the second phase of our Gloucester project latitude in Ottawa.
And with these completions in 2021.
Staggered nature of our pipeline and cost sharing with existing and future partners.
Allow us to lower our and new development spending in 'twenty and 'twenty two and beyond.
In general we expect to keep our total <unk> value of properties under development and residential inventory and consolidated balance sheet as of a percentage of consolidated gross book value of assets.
It's about 10% or lower.
Despite the 15% limit for me.
Net debt under our various credit for synergies.
As of the year and this matrix was 10, 3%.
Now, let me turn your attention for our balance sheets matrix.
We closed the year with record liquidity at $1 6 billion in the form of cash and cash equivalents and undrawn committed revolving lines of credit and other credit facilities.
This was partly as a result of the 500 million Green Bond we issued in December 2020.
And this green bond effectively refinanced our 550 million debenture maturities in 2021.
Subsequent to the year and we prepaid our 250 million December 'twenty, 'twenty, one debenture maturity and full.
Total redemption price of 256 million plus accrued interest.
We will repay the 300 million debenture due in April.
2021 in due course.
All of our total 380 million mortgage maturities in 2021 about 229 million have already been repaid refinance all have re financing commitments in place.
As of February 10, and 'twenty 'twenty one.
Overall, we expect to continue to maintain our strong liquidity and 'twenty 'twenty one.
Further we continue to have a large unencumbered asset pool of $8 7 billion and proportionate share basis, which generated about 59% of our annualized NOI and provides up to one five times coverage for our unsecured debt as of the year.
And.
This unencumbered asset pool will offer additional flexibility as we manage our liquidity during the year, while maintaining compliance with various debt covenants.
Our debt to adjusted EBITDA and matrix was $9 four seven times and.
Leverage was 45% as of the year at the.
The increase in the two matrix year over year were driven by the impact of pandemic on property operations and valuations over those three quarters in 2020, and the timing of development spending and completions.
And we wrote down our investment properties by about 527 million all three 7% during the year.
While we expect the two debt matrix to increase marginally in the near term given the impact of the pandemic on a 12 month trailing basis.
We maintain our long term goal of keeping our leverage and debt to adjusted EBITDA within the targeted range of 42% lower and around eight times respectively.
Our cost of debt continues to decline in the weighted average effective interest of three 2% unproportionate and share phases, which compared to almost three 5% as of last year.
Our floating interest exposure decreased to one 9% as well as of the year and.
The six 4% as of last year and <unk>.
Which was partly due to timing of the December 2020, Green bond issue and no utilization on the floating revolver.
Well remain committed to a consistent and disciplined approach to managing our balance sheet and capital structure to maintain strong liquidity and financial flexibility and to position us well to navigate through crises and invest in accretive and initially.
Dave.
Great value for the long term.
And that I'd like to turn the call over to Ed for his closing remarks.
Thank you Chi Thank you Jonathan and thank you Jennifer and they certainly are closing remarks for me.
Because as most of you know this will be and my last conference call as CEO of <unk>.
And it's certainly an unusual one I can't see the rest of the free account executive team.
And when they rolled arise during part of my.
Our remarks.
And Thats probably good.
April 1st I'll be passing the CEO baton to Jonathan Gatlin and moved for a new role as Nonexecutive, Chairman and that's seat as well as working with our board of course, I will be available for Jonathan for any advice he wants.
Or just to bounce around some other dynamic new ideas and strategies that I have no doubt he will bring to the job.
Spanish only enough. This is my 108th quarterly report.
Thank you to everyone for putting up with me for 27 years.
It's certainly a long time and.
And lots of excitement and new initiatives crises and setbacks over those many years.
And I won't reminisce today or at least not much.
I'll have to come to a post COVID-19 party for that but.
But it's remarkable when I look back and recall that the first two or three years of investor meetings and calls and of course, then they were all in person for mostly taken up with explaining what it was and why it was a good investment which it was and today, it's even better quite frankly with the way the market is real.
<unk>.
As a side benefit to everything I did for or we did and <unk>.
Creating this.
Helping to create this industry.
And actually created a lot of job for real estate analysts. So some of you here, Mike keep that in mind when you write your reports.
And I generally don't have regrets, but simply move on to the next decision.
And I do regret however that if we found it appropriate to reduce our distribution as of January one 2021.
And it took a once in a century pandemic, arriving right and the middle of and expansive development program to lead us to this difficult decision.
But it was the correct, one freeing up over $150 million and cash and equity, which together with our other initiatives will enable us to keep our balance sheet extremely strong while continuing to build value and cash flow through our development efforts.
And the stability of our cash flow as indicated by the numbers for 2020, including the metric. They became so important early last year rent collection are clear for.
And <unk> portfolio was created over the last 27 years.
Curated particularly.
Over the last decade, and a strength resilience and future potential or hopefully becoming apparent to all.
And it's a portfolio that was partly acquired and perfectly developed and in my opinion could not be duplicated today.
Besides the stability and has demonstrated and we are one team. We are only at the beginning of surfacing the inherent value and campaigns, maybe and the second inning.
We took a conservative approach to valuations and 2020.
Writing our portfolio down by 527 million or three 7% as Qi mentioned.
But whatever my personal opinion of our being the most conservative amongst our peers is it certainly created more runway for surfing surfacing and increasing value over the ensuing time.
In addition to the portfolio itself for quality and experience of <unk> team also differentiates us and will enable us to achieve the value and cash flow growth that I am confident are coming.
No point and complaining about our unit price, but I will simply point out that not only is it well below our beaten up math.
Huge discount probably the biggest separate been.
But that NAV reflects none of the great things that are being created nor much of the most of the development pipeline and we've already zone, not just thought about or applied for.
And I mentioned earlier that I rarely have regrets.
While it is the right time for me to transition to chair I do regret that I will be and are watching world as opposed to doing one while Jonathan and his team create enormous value and new cash flows for our unitholders over the next few years mind, you as significant unit holder and myself and as Nonexecutive chair.
I will certainly be cheering them on and watching with pleasure.
That's it for my remarks, I'd like to turn it back to Melissa for.
For any questions that anybody has.
Thank you ladies and gentlemen, if you have any questions at this time. Please press. The Star then the one key on your Touchtone phone.
And for your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
One moment for our questions.
Our first question comes from the line of Mark Rothschild from Canaccord. Your line is open.
Thanks, and good morning, and congrats.
Congratulate money with them.
All other good thank you as well.
Jonathan I heard your optimistic comments about the more troubled operators, such as gyms, and restaurants, and maybe give some additional color on.
Right.
So expenses will be able to pay the prior level of ramp as we exit the lockdowns and.
Some of the spaces will ultimately need to be re leased.
Go ahead Jonathan.
Thanks, and thanks Mark.
Yes, I think that those categories and movie theaters and restaurants are going to see some disruption movie theaters.
I think that there will be.
Let's say a reduction and the amount of space required, but I do think the movie exhibition business will continue to be.
Part of the Canadian retail landscape I think it will be just <unk>.
<unk> I think both the number of theaters that are out there will be reduced a little bit and perhaps the size of some of those theaters will be reduced a little bit, but I do think that where there are theaters that are high performing and they will continue to be high performing and the future thankfully a lot of ours are and I think that we will be able to maintain the rents which we've already.
And the decline and a little bit over time. So I think they are not at a high level to start with but I do think some of those theaters will come back to us and what I would say is from reviewing every one of them Mark which we do constantly to ensure that we have contingency plans depending on what happens to those theaters. The majority of them can be utilized for other things.
Our redevelopment entirely or simply redefining the space as something else be it retail or industrial.
But by and large we do think that the majority of our theaters will continue to be in existence, and we don't we don't see significant rental pressure.
Going forward on all of our locations, but some of them, we certainly will.
And then with respect to restaurants, I mean look I think this pandemic has had a serious short term impact on restaurants, but I don't believe that restaurants, particularly some of the ones that we're dealing with and have a larger balance sheet and I would say a fairly sizable infrastructure like recipe foods I really don't believe that their business.
Model is going to be affected.
Significantly and the long term I do think the next year is going to be extremely tough for them and I think there will be some banners that will that will tighten, but I do think that the trend towards eating out at restaurants will reinvigorate itself on the other end of this pandemic and therefore demand will increase again and there will be again I think the.
And particularly and in some of our very well located properties to increase rent over time, but again the next year that wont be the case, because there's simply I mean, there are suffering quite tremendously.
Okay. Thanks, and just one more question over the past and number of years real kind of have been extremely active and divesting assets and obviously that took a pause we saw over the past number of months. Some other retail we sell properties with interest rates, where they are it was understandable interest and well leased assets. So we expect a pickup and asset sales this year.
And maybe related to when you think the stabilized more before and that investors kind of more confidence and what the real cap rates are and how asset values shakeout.
I think you're going to you will see an uptick in and.
And.
Divestments, this year and recycling of capital and we're starting to see the investment market slowly come back to life and.
And it all depends on the on the type of asset that Mark and I think on basically and your question and I'd answer is stay tuned.
Okay. Thank you very much.
Your next question comes from the line of Howard Liang from Baird. Your line is open.
Thanks, Good morning.
And any idea of the.
Tenants are percentage of tenants currently.
On the new <unk> program.
And thats been relatively opaque, but let me turn the detail.
If we have a detailed answer on that.
Jonathan.
Thanks, Ed.
Okay for the right word on this one because the the landlord involvement has been somewhat this intermediate and we.
Don't have a clear sight other than anecdotal as to who is using it as I suggested in my notes. There was we have set up and ambassador program. So we are being utilized as a resource for a lot of these tenants to help them with the application process, but we have not yet got a clear sense as to exactly who or how many of our tenants are utilizing it and my sense.
And is though that as tenants become a little more comfortable with it and they recognize the benefit and there's going to be an uptick until we're and because it is retroactive to October of 2020, we do believe that that is one of the elements that will actually improve still our 2020 and early 2021 rent collection numbers, but I can't answer your question with any.
Definition at this point, but as I said the number of tenants are increasing as months go on and as the process becomes a little less intimidating and a little easier for them to reconcile.
And when we find it we find that a lot of our tenants are little little more wary of dealing with the CRA than they were with the CMA Sea with CMA Sea under the original over and program CRA tends to scare a lot of people.
So I think thats the reason, even with a slow to take up.
Alright, great.
And that.
I want to and also turned to the renewal.
The amount the amount of square feet renewed this quarter was pretty healthy.
Spreads were a little light I think even compared to the past few quarters.
Are you seeing kind of a maybe a tradeoff there at least in and these and these past few months as that the Lockdowns persist that maybe you have to buy and.
Spread debated in order to get more renewables.
I think there is a there is an element of truth and that I think.
We always have.
Two two goals in mind when we.
Our approach and Renault and keep the tenant and increase the rent.
And depending on what's going on and the world.
Two.
Assume a real.
I'll, let of importance right now I think the importance of keeping the pennant and.
And the tenant.
As a bit of a stronger hand, particularly for any of us not being allowed to operate which is the case and some of these things or when you're renewing empty office space, that's not being used.
So to the extent, we've aired and we've aired on the side of keeping the tenant.
And I think you'll see those spreads as this pandemic hopefully comes to and N sooner rather than later.
You'll see those spreads increase back to more normal levels and.
And I can add one thing to that I can add one thing to that that wildfire that answer which is that when we are doing lighter than average renewals. We will keep the term short because and recognition of the fact that this is not a terminal condition right and I think that the conditions will improve so we vary.
We very methodically work for the tenants to really do shorter term renewals and then we'll work with them and.
Better growth and our view once the conditions do improve.
Right right.
Makes sense and.
And then I guess, maybe one final question on <unk> on the <unk>.
Credit ratings and so.
D. Brs has put put you on negative trend and.
How other discussions with them going and should there be.
Downgrade does that really impact your secure and you're paying for it or do you think that you can mitigate that.
I think if you and I'll.
And I'll, let Chad to my comments, if she wishes to we're in constant contact with the two rating agencies, S&P and and deep Prs.
Found S&P is taking a bit of a longer term view.
Of this pandemic and.
So far obviously, there's been no activity from them.
Keep in mind <unk> has had us rated one notch higher.
And then.
We certainly don't want to be downgraded by anybody, but we're very very committed to keeping our investment grade.
Status.
And.
At the end of the day I think if the worst happens with the virus I am not sure it would make that much difference right now.
Okay.
And Ed and.
And answer.
To answer that.
No.
Well no.
Keep in mind, just one thing I mean, we've always run the ship so to speak and I don't want to make light of our credit rating because believe me we are.
And with one eye on that credit rating and wanting to keep our development program going we would not have even considered.
Reducing the distribution because certainly financially we can afford it.
But this is like but we didn't want to sell stock to raise equity and quite frankly, reducing the distribution was the equivalent of doing 150 odd million dollar equity deal, but quite frankly, given where our stock at these prices and my opinion. So this was the lesser evil.
And it was.
<unk> credit ratings top of mind, but we've always run our balance sheet, where unsecured debt is probably well I think it's about 40% right now, but it is certainly less and app.
<unk>.
Total debt and.
The secured debt market is alive, and well and actually in many cases right now cheaper than the unsecured so we always have options lots of options.
And when Youre sitting with $8 billion plus of.
Unencumbered assets for sure.
Sure and the spread I think between Triple B hydro will be or not not that far so that's good to know.
And so thanks, again, and congrats again to add and Jonathan and all of that absolutely.
Thank you for modeling.
Your next question comes from the line of Sam Damiani from TD Securities. Your line is open.
Thanks, and good morning, just firstly on the.
On the office tenant departure, and I'm pretty sure that was a pretty COVID-19 decision could you confirm that and also clarify when the rent on that lease staff, who will stop.
Yeah, I'm going to turn.
And that over to Jonathan I'm pretty sure you are right that this particular, they were talking about consolidation like over a year ago. So it wasn't pre COVID-19 decision.
I think and and I know your last name is <unk>.
Okay.
Hi, Tim.
Right and this was something that has been and the works for a little while.
We had preplanned and started looking for tenants quite some time ago. Obviously the impact of the pandemic has made that that search for new tons, a little more challenging but given the nature of the space. We feel that over time, we will get it leased up or at least the majority of it but we did lose it pursuant to plans that were in place a while ago and I.
Believe the rent has already stopped.
Okay. Thank you and next next question just on to leasing.
The new leasing because it's come back pretty nicely and in the latter part of 2020, what is the pipeline looking like right now for for leasing active leasing discussions both on our new and renewal basis, and how would that compared to pre pandemic levels.
Jonathan Yes.
Yes, sure and so the pipeline is actually looking remarkably good relative to what I think the expectations are out there or the perception I think Jeff and his team have done a remarkable job of pivoting to look at tenants that are a little bit more unconventional and then what we're used to and we because of that we have.
Actually, particularly in our well located major market centers decent demand for space and we're seeing empty boxes that have arisen as a result of apparel tenants, leaving.
<unk> pretty quickly and you know and example of that is we have a welcome centre in Calgary and over 20000 square feet of space that took and old furniture store at a higher rent, which is effectively a government tenant that allows for new.
New residents and Calgary to come and visit this place to get I guess, just get a sense of what's available and Calgary to them and.
It actually creates a great cross shopping opportunity and it's a good co tenant and that's one example of many of their healthcare uses that we're now starting to see more of and then the categories that are growing are the ones that you would expect and this pandemic and we continue to see that kind of growth and we think it will happen. After those are a lot of the value oriented retailers.
Which include grocery stores of course, but also the license dollar AMA and T J Maxx banners.
And we're seeing growth from all these different places.
Not enough to talk about those those elements of the commercial landscape here a lot of people are focusing on those that are shrinking their footprints like apparel, which is understandable because people tend to focus on some of the negative aspect, but we are actually seeing some pretty good movement and pretty good demand out of.
And some other categories.
And finally do you would you have like a specific outlook for in place for occupancy in Q1, and there may be even as far ahead as Q2 based on what Youre seeing today.
And a lot.
It is so unpredictable I mean, you tell me Sam when the Lockdown.
We will finish and when we can actually.
Start showing tenants space live I mean, I think our leasing guys have been remarkable and.
Doing the amount of leasing and so on where.
Pretty tours are just not done and.
And travel to go take a tenant through a property isn't done so I think when.
Thanks for a little bit back to normal.
We will be able to give you a solid answer to that my feeling and I'll. Welcome Jonathan's comments says, it's bottomed out and and.
Over the course of 2021, it's going to get better as.
As far as yes.
And I would concur with that entirely and I think that we did reach a trough in late 2020 and now from based on the momentum we're seeing it will it will start to increase over each quarter. This year.
And people do see an end to this Sam I mean, it's and endless sort of moving around with the rollout of the vaccine being.
To be complimentary week.
And but they know that sometime this year you will you will get people out there and whatever passes for normal and the second half of 'twenty and 'twenty, one we will get there so.
And <unk> restaurants, or signing up new deals for openings and.
Theres lots of deals that are being done and will continue to be done where tenants look to it. Okay. If I can open at the end of 'twenty, one or the beginning of 'twenty, two and that's good and.
And there is starting to be that confidence out there.
Thanks, and I'll turn it back, but congrats again and looking forward to hopefully seeing you on B and then from trumpeter.
Well, you'll see me on and about 40 minutes.
Sure.
Your next question comes from the line of Tal Woolley from National Bank Financial Your line is open.
Hi, good morning, everybody good morning Tycho.
Just on the tenant side I'm wondering you know when you look at sort of the vulnerable slice of your tenant role.
These guys have made it this far.
For those tenants still.
When you're talking to them feel committed.
Continuing and how are they feeling about operating in a post <unk> post <unk> world.
Yeah, and let me take the first shot at that and Jonathan can add as he wishes.
Included in that 22% of what we call potentially vulnerable as opposed to vulnerable.
And some pretty big names.
And at.
At the risk of insulting any of them that include Cineplex that includes all our gems good life La fitness includes big.
Big chain, bookstores, and and talking to those tenants, which we constantly do.
Yeah, they're there they're very committed to the post pandemic.
Future.
Does that not mean as Jonathan mentioned, there may be less theaters.
A year or two from now than there are today.
And it probably will be we're expecting that and in fact, and some cases, where we have redevelopment plans, we're encouraging that.
But.
And certainly gyms.
And I have no doubt that once they are allowed to operate and even a relatively normal way.
They will be.
Back in business and just the way it was before essentially.
Good life I know, they're so committed to their <unk>.
Survival.
And if I'm not mistaken they announced they they had taken a large ah.
Government leaf program loan I think and the neighborhood. If my recollection is correct around and excess of $300 million. So thats how committed they are to getting through this thing because if you remember the details for that that's quite an intrusive program.
Yes, and so I'll, just add a little bit to that that good answer which is that we do speak for our tenants that we consider potentially vulnerable all the time and this ranges from the larger ones like that which are some of the gyms and bookstores and movie theaters, but also some of the midsize and smaller one and the response that we have received is exactly that hey, we've made it this far.
And we want to enjoy the other side of this and I think there's a general sense and I think they have gleaned. This from also whats happening and the U S debt there is going to be commercial exuberance and Canada. Once there is an ability to open up and a safe manner and.
And the thing we are optimistic about the end of 2021 day, two we're optimistic and really don't want to Miss out on this and because they've weathered the storm so margin granted a lot of those storms were.
And we're floated through on the backs of generosity of landlords and the government programs that are out there.
However, it's arisen a lot of these tenants feel that there is a lot of upside coming at the end of 2021 or hopefully in the middle of 2021 and that is certainly the feedback we've received from a number of them.
And if you look at like some of your smaller tenants.
A lot of them have gotten.
Sort of pushed into offering some sort of online E commerce click and collect kind of service that maybe they probably werent operating before because their tone changed about how.
They're thinking about the business.
And there are businesses too.
And I think they all know that they have to have more online capabilities.
Using myself for example, I can tell you at the beginning of the pandemic last spring.
And some books for medical.
And that the time they were using the Canada post effectively for the delivery and it took almost I think about 10 days to get here and.
And I ordered some books about debt well at the beginning of this this week and they took two days to get here, so clearly and their logistics.
Indigo has adapted.
And because a 10 day and deliver a delivery time is unacceptable to anybody.
So, but does that mean, they're giving up stores no.
And the people, who love books Love browsing and a bookstore.
I'm one of them and.
And while our online when I have to I far prefer to go to the store and I think youll see a lot of the particularly smaller retailers.
Continue to build their online presence, but the I think the model is the target.
Stores down in the United States, even though I hate using their name because of what they did to Canada.
Where they make the store.
The center of their online business and I think you'll find a lot of the smaller tenants.
We will be and exactly the same position and the ones that are going to succeed they must have an online presence.
But they also.
I have to have that bricks and mortar store.
Take up and our curbside collect program that we started really pretty.
Yeah.
Early in the pandemic I think is increasing by the week.
Anyway, Jonathan and anything you want to add yes, I think that I mean, there is a reason and shopify is doing so while a lot of the tenants bigger smaller figuring out how to establish online presence, but as Ed said I mean, what we're trying to do is help our tenants.
And are adapt because this buy online pickup and store or click and collect model is taking on a lot of prominence and its really much more efficient for these retailers to do it that way rather than delivering for one front door and delivering for one front doors also not ideal for consumer either and this is the feedback we're getting from a host of our tenants.
We really do believe in the economic virtues of having these what are really just fulfillment centers that have penetrated deep into neighborhoods and so we do believe that.
There's absolutely a need for these tenants to pick up their game when it comes to online, but they also recognize the need to make their stores more valuable and useful and further and sort of getting consumer goods to consumers' homes.
Okay.
On the balance sheet side.
The debt to EBITDA ratio, it's obviously.
Above your longer term target of eight eight times.
You have got a fairly hefty.
And development spending commitment this year.
How should we expect to see that ratio kind of evolve over the course of 'twenty, one and 22, obviously it'll be.
Better by.
Further we go but I'm just wondering it and near term quarters like should we be anticipating that ratio will probably rise through the first half of the year and then maybe start to come down after that I think you may see a gentle rise of it and.
And it will be gentle and the first quarter or two.
It's going to depend and again, we're always juggling a few balls as I say on.
And how.
Quickly, we're able to move on some of our disposition plans.
And as we responded to mark and that right at the beginning of the.
And time and.
But we're getting and and we're going to have one eye on that I don't think youll see it move much and the first six months, but I definitely think that after we get past mid year youll start to see the debt ratio improve.
Okay, and then just lastly on the Hudson's Bay.
J D.
And 2000, and I can't remember 2014 or 15, when its still got struck I remember that you guys had a committed our cash.
Capital commitment that they could get the JV could call overtime, you put some more money into that have you committed the full amount now yes.
Yes.
3rd% invested.
There is no further call.
Okay, and when do you anticipate.
Losses are starting to rethink some of those urban flagships will begin.
Well I think.
And it has begun and some ways I know Hudson's Bay, which is taking the lead of it has.
And has been exploring the market.
For example, specifically with the Vancouver and Montreal.
They've got to figure out, which I know they are and the process of doing and what they want their own footprint to look like and those properties on a go forward basis, but the.
And they want the pandemic could be finished so yeah.
And quite frankly.
I don't think Youll see anything happen until 2022.
Or even a little later, but I know there are constant discussions I mean the.
The property and Vancouver.
Which is an incredible property, whether you look at it for I mean, it's attached to the specific mall from a retail perspective underground and us and the heart of the city and.
And so whether you look at it from an office perspective of residential perspective, or a retail perspective, it's got an incredible value and you could say the exact same about the one and Montreal, Calgary and May take a little longer just because its in Calgary.
Ottawa I think may move forward for.
Really quickly too.
So, but we're sort of in the hands of HBC keep in mind, we get paid a pretty good rent and they're totally current on that I might add on the joint venture rents.
While we're waiting.
And that pretty good rent would you do you feel that that's like.
Market at market levels.
And maybe you shouldn't have but yes, it's true.
And given how the environment changes probably above market.
But keeping in mind that Hudson's Bay is paying 80% of that rent to itself.
It's certainly not a problem.
Like I say it.
It gets paid and we are confident and it will get paid and it gives us.
I think Jonathan pretty close to a 6% or about a 6% return right now on invested capital.
While while were waiting for some transactions to happen and which I have no doubt they will Mr. Baker is a very clever creative man.
Okay. That's great. Thanks, very much congratulations.
Thank you.
So.
Any further questions Melissa Yes. Your next question comes from the line of Palm EBITDA from RBC capital markets. Your line is open.
Hey, Paul and me.
Hi, everyone and Jonathan Chi.
I'll try and be quick and then.
And hit the 60 minutes.
So last year was obviously more pronounced in terms of bankruptcies and closures maybe.
And maybe just based on your discussions and.
And extension of some of the comments you made on the call.
And what are your thoughts and how this year may shape up.
Jonathan Yes.
Last year, we had about <unk>, 9% or under 1% of our income was affected by bankruptcies and stores that actually closed because of bankruptcy because remember a lot of these are <unk> restructurings, where in fact for leases are restructured and they subsist beyond the <unk>.
<unk> filing.
And truthfully, usually and the normal course, we see a lot of fallout in January.
And quite honestly, we didn't see really any this january and hopefully thats a sign of the fact that there is generally a little more health out there than the than perception with dictate.
But we're not and we're not hearing any rumblings of additional filings and if you think about it and most of the weaker apparel tenants already did this right and then some of the other tenants that are in a parallel situation again, they are getting help substantially by the government to Briggs and through this.
And.
And I think their users are actually quite relevant and in a post Covid society. So.
See a huge number of bankruptcies coming but again, it's always unpredictable you never know how tenants are looking at the world. So I mean, it's a bit of a vague answer because of the benefit of a vague concept, but that's a sense for getting and as I said, usually it's January where these things happen.
And I notice that's good color, thank you and.
Just maybe lastly, coming back to the theater exposure and you mentioned youre anticipating or planning for I guess less exposure over time, but how much of your exposure do you think they actually did.
Client over the next call it 12 months and 24 months.
Well declines and has declined recently through dispositions and we fully expect that over time, just through normal course, redevelopments dispositions et cetera. It will decline a little more and were certainly it's going to also be.
And we're not doing any more I mean, I can't imagine there'll be any more growth and that and that.
Part of our portfolio so.
So I do think overtime and we will continue to decline, but it's going to be incremental.
Okay.
That's it for me, thanks, very much and congratulations again on return.
Thank you.
Thanks, Mike.
Your last question comes from the line of Dean Wilkinson from CIBC. Your line is open.
Thank you good morning, everybody good morning, Ed.
At a time this to be your very last question.
Okay. Thank you.
And if Tom Brady doesn't have to retire I don't think you do but thats entirely yeah, a couple of years old and him, but just as good looking I think yeah exactly.
As you saw on the 27 years and thank you for the education.
And.
What do you think the biggest change and the business has been and what does that mean for the next 27 years for Jonathan and and.
And kind of what can we take from what you've seen and how the industry has kind of evolved.
Evolved over that time.
Well I think the.
Biggest evolution over the years has been the concentration.
On the major markets I think we were first to figure that out and but everybody else has figured that out and.
And.
The second.
Whereas it used to be back and the first I'll call. It 567 years of this industry a dollar of loblaw as income and.
And Susan Murray was probably worth a dollar.
It was the same kind of income is a dollar of <unk> income and Toronto.
Over time, everybody started to figure out that.
That wasn't really the case.
You were able to get better growth for me or ancillary tenants.
<unk> was doing more sales per square foot and our major markets and all of that related back to population growth. So you saw a movement over the years to the major markets.
I think.
Starting about seven eight years ago, certainly in our case, maybe even longer.
Everybody also started to realize that the biggest asset and.
And these major markets that.
The.
<unk> had was these large land holdings at critical.
Locations by definition, you built a shopping center at the intersection of two major streets. So people can get in and that would easily and.
And.
Guess, what that's where the cities are growing and because trains and lines are being put on and those major streets and.
And everybody realized that too as the Internet grew in popularity you really needed to create.
Create value from the assets you held means everybody has to go into development.
We first started doing development and waste probably close to the beginning of this century, we are the only guys doing it.
And now I think everybody's doing that right from us too crumby, maybe not <unk>, but.
And as captive reach are a little bit different but the.
I think those are the biggest changes that.
Growth.
<unk> is important.
2020 years ago was Hey, you actually sent me a check this month. Thank you very much.
Yeah.
Well, that's great that's a and I can say I think we're all looking forward to the post Covid retirement party so for them.
[laughter]. Thanks, Thanks, Thanks for everything and.
Stay well.
Thank you.
So I think that marks the end of this conference call I'd like to thank everybody, who is still on that called in.
And.
I won't say I look forward to speaking to you next quarter because you'll get.
Get to hear from younger and smarter people than me.
Yes.
[laughter] exclusively anyway. Thank.
Thank you guys. Thank you Jonathan and thank you Chi Thank you Jennifer and.
And I wanted to I guess, that's it and I am sure Chi we'll be talking to many of you and one on one later in the day and for those who have any interest I'll be on CNN and about 23 minutes.
BNS and CNN and they only got time for the Senate.
Okay, everyone and Goodbye Bye bye.
Hi, gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.
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