Investors are getting a much clearer picture this week of the impact, so far, of the COVID-19 pandemic on some of Canada’s largest retail-based commercial real estate firms.
REITs such as RioCan (REI-UN-T) and SmartCentres (SRU-UN-T) have released business updates, while Choice Properties REIT (CHP-UN-T) will report its Q1 earnings tonight (April 22) and hosts its investor conference call Thursday.
As unit prices take a hit from the general market downturn and measures to control COVID-19 — RioCan was off more than 40 per cent year-to-date (as of close April 21), SmartCentres down over 30 per cent, Choice down about nine per cent — the companies are focusing efforts to assist tenants and prepare their business to ride out the turmoil.
RioCan says it collected 66 per cent of expected rents (as of April 20) from its business tenants. It approved two-month rent deferrals for an additional 17 per cent (about $15 million in monthly revenues).
“The majority of our properties are considered beacons of the surrounding neighbourhoods where they are located and provide necessity-based essential goods and services during this health crisis,” said CEO Ed Sonshine in a release.
“We are committed to a high level of responsibility, access and support for our stakeholders so that these critical and essential services can be maintained.”
The numbers are similar for SmartCentres, which reported 70 per cent of expected rents collected, after deferrals which were granted to some tenants.
Update from RioCan
RioCan’s portfolio has undergone a significant repositioning during the past two years, with the divestment of most holdings in secondary or tertiary markets to focus on Canada’s six largest urban markets. It is diversifying the portfolio through new developments and redevelopment at existing retail properties.
“More than 90 per cent of RioCan’s portfolio is comprised of grocery-anchored centres, mixed-use / urban centres and open-air centres,” the release states. “Grocery-anchored centres alone accounted for 40.9 per cent of annualized rental revenue as of year-end 2019.”
Many of these anchor retailers are deemed essential services, so they remain open.
On the diversification front, RioCan received 96 per cent of expected rent from its two new multiresidential properties, eCentral in Toronto and Frontier in Ottawa.
The REIT’s support and rent deferral program has been focused on small business, independent tenants and smaller national tenants on a “case-by-case basis.”
As impacts from the pandemic continue, it is also willing to work with any national tenants “while protecting the trust’s rights and financial positions.”
$1B in liquidity
RioCan reports about $1 billion in liquidity as of the end of Q1 2020 consisting of cash, undrawn portions of its revolving unsecured line of credit and construction lines of credit. The trust also has $9.2 billion of unencumbered assets.
During the remainder of 2020, RioCan has about $126 million of mortgage maturities remaining, but it expects these to be refinanced “in due course.”
Its $400 million in debenture maturities in June and August 2020, RioCan says, have been effectively refinanced with a $350-million, seven-year inaugural Green Bond issue completed in March.
“RioCan’s solid foundation is its resilient, major markets-focused portfolio, which was built to withstand challenges and adversity,” Sonshine said in the release. “We are in good financial health with a strong balance sheet and ample liquidity.”
To preserve cash, RioCan’s crisis management team has reduced spending, including: municipal tax and HST/QST deferrals, energy reductions, maintenance and revenue-enhancing capital expenditure reductions, staffing level adjustments, and streamlining procurement and operating costs management.
Construction at most of RioCan’s current projects continues, albeit at a slower pace, but the trust is stopping “new or early-stage projects.” This will reduce planned spending on development by $100-to-$150 million during 2020, to the $350-to-$400 million range.
Finally, RioCan has withdrawn its growth guidance, and plans to provide a further update during its Q1 2020 investor conference call on Tuesday, May 5.
RioCan’s 2020 AGM is subsequently scheduled for Tuesday, June 2. It will be conducted as a “virtual” meeting.
RioCan’s portfolio includes 220 properties with a net leasable area of approximately 38.4 million square feet (at RioCan’s interest) including office, residential rental and 14 development properties.
Like RioCan, SmartCentres is also engaged in a major overhaul and repositioning of its portfolio, including an extended $12-billion development program.
Sixty per cent of its current tenant base is deemed essential, including its largest single tenant WalMart which accounts for 25 per cent of SmartCentres’ rental income.
For businesses which are heavily impacted, the REIT has been “proactively reaching out” with support through a rent deferral program.
“The majority of our tenants are healthy and paid their rent. While we are disappointed by the non-payment of rent by some strong capable companies, we still believe that we will collect April’s rent in due course,” said president and CEO Peter Forde in a release. “We expect strong retailers to pay their rent obligations.
“This also enables us and our peers to support the smaller more vulnerable retailers through this difficult time.”
To provide additional liquidity if needed, SmartCentres has nearly $6 billion in unencumbered assets, a $500-million operating line of credit and project specific-financing for its ongoing developments.
While construction of several self-storage developments is on hold due too the pandemic, development at the Vaughan Metropolitan Centre continues within government restrictions. The first two condo towers remain on pace for unit closings in late 2020.
“SmartCentres was built for heavy weather,” said executive chairman Mitchell Goldhar in the release. “We have ample liquidity to weather the storm, for an extended period of time, if necessary . . .”
SmartCentres REIT has a portfolio of 157 Canadian properties valued at $9.9 billion. They comprise 34 million square feet of income-producing retail space with over 98% occupancy at December 31, 2019, on 3,500 acres of land.
Despite the challenges, Edmonton area real estate values 'have held up extraordinarily well' – Edmonton Journal
I have to say the Edmonton area real estate market has surprised me.
When you consider the onslaught we have had in the past five years — oil price crash, more than 100,000 job losses, fires, floods, domestic and international trade disputes and then COVID-19, I would say the Edmonton and area real estate values have held up extraordinarily well.
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Since 2014, we’ve only seen modest declines in prices, with single family homes declining the least. Edmonton remains Canada’s most affordable major city with one of the highest average incomes.
Other Canadian cities have seen significant price gains in the same time period creating a bigger difference in real estate values between regions. We have had clients who can work anywhere and chose Edmonton as they can afford much nicer living quarters here for the same money.
Given the lower prices and interest rates combined with rising rental demand, it is easier for investors to get positive cash flows. We are seeing investors looking at condos for their positive cash flow. This fact will help to support our real estate values.
Toronto and Vancouver Real Estate Inventory May Get A Boost From AirBNB Slowdown – Better Dwelling
Canadian real estate markets may be getting another inventory headwind soon. National Bank of Canada (NBC) research estimates AirBNB hosts may contribute to oversupply later this year. As the slowdown impacts hosts, many may be incentivized to sell. By their estimates, just a quarter of hosts selling would cause inventory in cities like Toronto and Vancouver to swell.
AirBNB and Housing Inventory
AirBNB helps homeowners take existing housing stock and convert it to short-term rentals. Rather than staying in hotels, travelers can now stay in existing non-hotel stock. At first, it wasn’t a big issue when just a few people were doing it. As the platform expanded, people began buying additional housing just to operate short-term rentals. By repurposing housing that would otherwise be long-term units, cities now need additional housing. Basically, short-term rentals lead to an inventory squeeze, pushing rents and prices higher. Temporarily at least, for as long as the squeeze persists. That squeeze could end as quickly as travel did.
The Travel Industry Expects A Big Slowdown
The travel industry doesn’t expect travel to recover quickly from the pandemic. The US has approved some routes cutting plane traffic up to 90% until September. The IATA, the trade association for international airlines, also doesn’t see traffic returning to 2019 levels until at least 2023 – at the earliest. What does this mean? Fewer users of short-term rentals, and more competition from hotels for those travelers. All of this can have a big impact on real estate inventory, according to NBC numbers.
Canada’s Biggest Real Estate Markets May See Inventory Spike
If just a quarter of AirBNB inventory is sold off, NBC sees a lot more real estate listings on the market. In Vancouver, the bank estimates real estate listings would rise 12%. Montreal would see an increase of 27% in resale listings. Toronto is another story though, with inventory forecasted to rise a whopping 34%. That’s with just 25% of AirBNB exiting as hosts.
AirBNB Boost To Canadian Real Estate Inventory
The potential increase in real estate listings if 25% of AirBNB properties were listed for sale.
Source: National Bank of Canada, Better Dwelling.
The boost is another headwind for inventory rising later in the year. Inventory was already expected to rise in the coming few months. NBC economists believe this would be “exacerbating oversupply in the coming months.”
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How Is The Real Estate Market In Muskoka Post COVID19 – Hunters Bay Radio
In a brand new video podcast series, Gerry Lantaigne with Sutton Group – Muskoka Realty discuses the world of real estate in Muskoka during the Coronavirus pandemic.
Join Gerry every month as he updates you on The State of Real Estate
Watch the inaugural episode here:
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