Lazar Cartu States SmartCentres Real Estate Investment Trust Releases Second... - Jonathan Cartu Residential & Industrial Construction Services
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Lazar Cartu States SmartCentres Real Estate Investment Trust Releases Second…

Lazar Cartu States SmartCentres Real Estate Investment Trust Releases Second…

TORONTO, Aug. 05, 2020 (GLOBE NEWSWIRE) — SmartCentres Real Estate Investment Trust (“SmartCentres” or the “Trust”) (TSX: SRU.UN) is pleased to report its financial and operating results for the second quarter ended June 30, 2020.

“Notwithstanding short-term data points, our locations have not changed, the highways and transit to them have not changed, the visibility of our properties has not changed, the populations around them and their needs have not changed; our greatest assets remain unchanged: our real estate. And as past financial downturns have substantiated time and time again, real estate is resilient and prime real estate in economic downturns represents opportunity. SmartCentres is best described as a real estate Jonathan Cartu and with substantial and reliable recurring income as a starting point on the path to development of higher and better uses on these exceptional locations. However, our current unit price does not reflect the value of any of this development potential,” said Mitchell Goldhar, Executive Chairman of SmartCentres.

“While COVID-19 has added some challenges in the short term, it has not altered our long-term strategy as we remain intently focused on our initiatives to grow the business through mixed-use development. We have more than 256 projects in our mixed-use development pipeline, more than 196 of which will provide recurring income, and the first income from these initiatives is expected to substantively impact our FFO in the second half of 2020 as we close 100% of the 1,100 units in the first two phases of our Transit City condominium development at SmartVMC in Vaughan. These two towers are estimated to generate $50.0 million of profit for the Trust in 2020,” said Peter Forde, President and CEO of SmartCentres.

On March 23, 2020, SmartCentres officially offered free use of 1.0 million square feet of the Trust’s built space, as well as its land, parking lots and signage to Canadian government and health care authorities, to help support their COVID-19 relief efforts. To date, Trillium Health Network and Hamilton Health Sciences, which include 13 hospital and medical facilities in Southern Ontario, have accepted the Trust’s offer to help in their front-line patient care efforts. Most recently, the Trust was able to provide over 100,000 square feet of space in one of its Oakville, Ontario locations to assist Trillium Health Network with its COVID-19 related needs. The Trust is continuing discussions with all levels of governments and health care leaders across the country to activate the use of additional space in its shopping centres to assist in any way it can and it is hoped that this collaborative initiative will help to further protect Canadians. Notwithstanding all other COVID-19 related efforts, it is of this initiative that we are most proud.

The Trust is also intensely focused on helping its tenants safely serve the communities in which they operate during these challenging times. Approximately 60% of the Trust’s rental revenues are derived from retail tenants that are ‘essential businesses’ that, during this pandemic, remained fully or partially open under various emergency orders in the places where SmartCentres shopping centres are located. These retailers supply local communities with everyday groceries, pharmaceuticals, general merchandise, medical assistance, banking, telecom and other essential needs. Given the value-focused origins of the Trust’s portfolio, these ‘essential businesses’ include strong and stable creditworthy retailers such as Walmart, Loblaws, Shoppers Drug Mart, Canadian Tire, Sobeys, Metro, Dollarama, Rexall, Home Depot, McDonald’s, the LCBO, Rogers, Telus, Lowe’s, Dollar Tree, BMO, CIBC, RBC, Scotiabank and TD.

Walmart is the anchor in 73% of the Trust’s properties, representing over 25% of its rental income. The Walmart relationship is testament to the Trust’s strong belief that a long-term view of tenant relationships is most beneficial. In this regard, as many tenants that were required to close their businesses over the last several months and now begin the process of “opening their doors” and slowly and safely recovering, the Trust believes that it is critical to assist these tenants in the recovery process, thus ensuring their viability on a long-term basis. To this end, the Trust continues to have in-depth collaborative conversations with various tenants to advance reconciliation and optimize rent collection efforts. The Trust believes that these rents will be collected over a period of time, and in addition to the federal government’s CECRA program, the Trust continues to assist these retailers through proactive offerings including rent deferral and similar programs.

These collaborative efforts have resulted in the following improving collection experience over the last 4 months:

Month % of Gross Billings Collected   % of Gross Monthly Billings Collected
Excluding Premium Outlets
 
April 74.0  % 76.5  %
May 71.8  % 74.6  %
June 76.8  % 79.0  %
July 84.8  % 86.5  %

During Q2, in an effort to assist those small to medium sized businesses that have been most effected across the country, the federal government announced the CECRA program. This program provides for federal rent subsidies to qualifying tenants of 50% of their rents for the period April – August 2020 and requires respective landlords to ‘forgive’ 25% of the rent otherwise payable for the subject months. Qualifying tenants are therefore required to fund only 25% of their rents for this period, with the expectation that those tenants that have been significantly impacted by the pandemic are permitted the opportunity to stabilize their respective businesses. Since the inception of the program, the Trust has been working with its tenants that qualify for this program and on their behalf, the Trust will file applications for the federal subsidies later in August.

In addition, principally because of their size, there are many other tenants, that were required to close their retail operations, and in some cases, have been required until only recently, to remain closed, that do not qualify for CECRA based assistance. However, their businesses have been severely impacted by the pandemic and they too have not had the resources to fund their rental obligations. These tenants include restaurants, fitness clubs, cinemas and other large retailers. The Trust continues to work with each of these organizations to customize payments of rent around the realities of each retail tenants’ situation – giving them as much as is appropriate, while taking into account the reality of the Trust’s own situation. This includes establishing mutually satisfactory arrangements that will allow for some relief of their rental obligations that is expected to permit these organizations to re-establish their operations as Canadians begin to ‘get back to work’.

The table below provides some additional details on the Trust’s tenant billings, amounts received, expected recovery and related provisions for the three months ended June 30, 2020.

Description Amount
(in thousands of dollars)
As a %
Total tenant billings for the 3 months ended June 30, 2020 202,100 100.0  
Less: Amounts received to date 149,700 74.1   
Balance outstanding 52,400 25.9   
Less: Expected recovery from governments and tenants for CECRA 10,575 5.2   
Total rents to be collected excluding CECRA 41,825 20.7   
Less: Expected recovery from other tenants with whom we are currently working on rent relief and similar deferral arrangements 17,958 8.9   
Total rents to be collected excluding CECRA and collectible deferrals 23,867 11.8   
Less: Provision in Q2 2020 15,046 7.4   
Balance to be recovered in time 8,821 4.4   

Our Q2 results reflect expected credit loss provisions of $7.0 million to allow for CECRA eligible and non-CECRA eligible tenants to put themselves on a strong footing to once again begin the work of serving Canadians. This pandemic has also resulted in several of the Trust’s tenants being forced to seek creditor protection and restructure or reorganize their businesses. Companies including Reitman’s, Sail and various Comark brands have recently sought protection through CCAA filings and are expected to have stronger and much healthier balance sheets and liquidity positions after their respective restructuring efforts have been completed. Based on discussions with these companies, the Trust expects that once they have completed their restructuring efforts that many of their locations will remain open, principally in the Trust’s centres where Walmart is the anchor tenant. These restructuring initiatives have resulted in the Trust taking additional provisions for collections of $8.0 million during the quarter.

The table below represents a summary of the nature of special COVID-19 related provisions taken by the Trust during the quarter.

(in thousands of dollars) Amount
Provisions for CECRA-Eligible Tenants 5,606   
Provisions for Tenants Not Eligible for CECRA 1,407   
  7,013   
Provisions for Tenants Filing Under CCAA and similar bankruptcy restructurings 2,265   
Provisions for additional expected credit losses 5,768   
  8,033   
Total 15,046   

Highlights

Mixed-Use Development and Intensification at SmartVMC

  • Occupancy of the 55-storey Transit City 1 and 2 condo towers representing 1,100 residential units will commence on August 5th, and it is projected that approximately 75% of the units will be closed by the end of September and 100% closed by year end. In addition, the 1,098 unit multi-level parking facility providing parking for these buildings and the neighbouring PWC/YMCA mixed-use facility is also expected to be functional in August. These closings are expected to contribute approximately $50 million in FFO for the second half of 2020.
     
  • Construction of the 55-storey Transit City 3 condo tower representing 631 residential units continues to be on schedule and ahead of budget, with concrete…

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