THIRD CONSECUTIVE QUARTER OF ORGANIC GROWTH
QUÃBEC, Nov. 9, 2018 /CNW Telbec/ – Cominar Real Estate Investment Trust (“Cominar” or the “REIT”) (TSX: CUF.UN) is pleased to announce its results and highlights for the third quarter of 2018.
2018 THIRD QUARTER â RESULTS AND HIGHLIGHTS
- 1.7% growth in same property net operating income
- 0.9% growth in the average net rent on renewed leases
- 110 bps year over year increase in the committed occupancy rate from 92.2% to 93.3%
- Growth in the year-to-date retention rate of expiring leases from 59.2% to 64.6%
- 1.6 million square feet of committed leases commencing in the coming quarters which will contribute approximately $22.4 million in net operating income on an annualized basis
- Decrease in AFFO payout ratio from 104.2% to 78.3%
- Decrease in debt to gross book value to 51.9%
- Appointment of Marie-Andrée Boutin as Executive Vice President, Strategy and Operations, Retail
- Integration of construction activities in Montreal
- Post quarter appointment of Heather C. Kirk as Executive Vice President and Chief Financial Officer
“The third quarter was a busy time for Cominar as we focused on moving our strategic plan forward, improving our operating metrics and adding to our bench strength,” said Sylvain Cossette, President and Chief Executive Officer of Cominar. “I am delighted that Heather Kirk will be joining the Cominar team as CFO and am confident she will make a meaningful contribution to the continued improvement of our financial management, balance sheet, strategic planning and unitholder relations.”
“We have made continued progress operationally, recording our third consecutive quarter of positive same property NOI growth and increasing occupancy to 93.3%, the highest since Q1 2015,” stated Gilles Hamel, Executive Vice President and Chief Financial Officer of Cominar. “We remain focused on debt reduction and enhancing financial flexibility and are pleased to report a decrease in debt to gross book value to below 52%.”
OVERVIEW OF THE THIRD QUARTER OF 2018
During the third quarter, Cominar continued to make progress on its goals of debt reduction, focusing on its core markets and improving governance.
On November 5, 2018, Cominar announced the appointment of Heather C. Kirk as Executive Vice President and Chief Financial Officer effective December 3, 2018. During the third quarter, Cominar announced the appointment of Marie-Andrée Boutin as Executive Vice President, Strategy and Operations, Retail, who will take over from Guy Charron during the fourth quarter of 2018, and Sandra Lécuyer as Vice President, Talent and Organization to promote a more strategic approach to managing our human capital.
Leasing efforts allowed Cominar to report positive growth in same property NOI for a third consecutive quarter with a 1.7% increase, representing increases of 2.1% and 4.4% in the office and the industrial and flex segments respectively, offset by a slight decrease of 0.4% in the retail segment. Excluding the impact of the closing of the Sears stores, the retail segment recorded 1.3% growth in same property net operating income during the quarter.
As at September 30, 2018, the committed occupancy rate was 93.3%, up 110 bps from 92.2% as at September 30, 2017. The spread between the committed occupancy rate and the in-place occupancy rate represents 1.6 million square feet of signed leases that will commence during the next five quarters and which will contribute approximately $22.4 million in net operating income on an annualized basis.
The payout ratio of recurring AFFO for the quarter decreased from 104.2% in 2017 to 78.3% in 2018, and for the nine-month period ended September 30 from 117.7% in 2017 to 89.7% in 2018.
In addition, Cominar improved its retention rate of leases expiring in 2018 of 64.6% as at September 30, 2018, up from 59.2% for the same period of 2017. The retention rate for the leasable area maturing in the first nine months of 2018 was 70.3%. This increase in retention rate comes with 0.9% of growth in the average net rent of renewed leases.
During the third quarter of 2018, Cominar acquired, for $36 million, the land and superficies rights (the equivalent of air rights in Québec) related to a property in which Cominar had been leasing the superficies rights associated with its office building. The other superficies rights are leased by the operator of a hotel that shares the site. This acquisition is the result of a purchase option Cominar acquired as part of a transaction with Ivanhoé Cambridge in 2014. The acquisition of this land contributed to increasing the value of our property for an amount greater than the acquisition cost of the land. This acquisition also allowed us to increase our NOI in two ways; firstly, by the receipt of the rent payable by the hotel operator for the lease of the superficies rights related to the hotel, and secondly, by the cancellation of the rent previously payable by Cominar for the lease of the superficies rights related to the office building.
During the third quarter of 2018, Cominar continued to transition towards the internalization of certain construction activities in Montreal, and the diversification of the independent suppliers that are used. In this respect, on October 14, 2018, Cominar completed the integration of nearly all of the resources from Groupe Dallaire’s platform in Montreal into our new entity, Cominar Construction. The latter is mandated to ensure continuity of certain construction activities to better meet the needs of Cominar and its clients. This transition will essentially be completed in the first quarter of 2019.
The following tables present our current portfolio:
|
Operating segment |
Number of |
Leasable area |
Committed |
In-place |
|
Office |
97 |
11,800,000 |
90.8% |
85.5% |
|
Retail |
136 |
10,714,000 |
93.3% |
84.1% |
|
Industrial and flex |
196 |
15,706,000 |
95.2% |
90.9% |
|
TOTAL |
429 |
38,220,000 |
93.3% |
87.3% |
|
Geographic market |
Number of |
Leasable area |
Committed |
In-place |
|
Montreal |
282 |
25,420,000 |
92.9% |
87.3% |
|
Québec City |
126 |
10,264,000 |
94.6% |
89.6% |
|
Ottawa |
20 |
2,476,000 |
91.5% |
77.8% |
|
Atlantic Provinces |
1 |
60,000 |
100.0% |
â |
|
TOTAL |
429 |
38,220,000 |
93.3% |
87.3% |
We continue to review our property portfolio in order to identify both additional opportunities to sell assets to further stabilize our balance sheet, and to enhance and increase the value of our properties to increase net operating income. Our portfolio includes many well-located urban assets in close proximity to transit lines with significant potential for value creation.
PRESENTATION OF RESULTS
For the quarter ended September 30, 2018, net operating income (NOI) â Cominar’s proportionate share(1) was $93.5 million compared to $112.2 million for the same period of 2017. This $18.7 million decrease is the result of a $1.6 million increase in net operating income in our same property portfolio and a $20.3 million decrease mainly attributable to the portfolio of 95 non-core properties sold on March 27, 2018.
Same property net operating income â Cominar’s proportionate share(1) increased by 1.7% from the corresponding period in 2017. This increase is the result of a 4.4% same property growth in the industrial segment combined with a 2.1% growth in the office segment, partially offset by a slight decrease of 0.4% in the retail segment.
Finance charges decreased by $5.5 million during the third quarter compared with the same period of 2017. This decrease is mainly due to the decrease in mortgages payable and bank borrowings following the sale of a 95 non-core property portfolio on March 27, 2018.
For the quarter ended September 30, 2018, Trust administrative expenses decreased by $0.9 million from the corresponding period in 2017. This decrease is due mainly to the $0.5 million decrease in salaries and other benefits.
Adjusted net income(1) for the third quarter of 2018 amounted to $51.9 million compared to $64.0 million for the same period of 2017. The $12.1 million decrease in adjusted net income(1) is explained mainly by a $20.3 million decrease in net operating income resulting from the sale of a portfolio of 95 non-core properties on March 27, 2018, partially offset by a $5.5 million decrease in finance charges and by the $1.6 million increase in same property net operating income.
Recurring funds from operations (FFO)(1) for the third quarter of 2018 was $52.7 million, compared to $65.3million for the same period of 2017. This $12.6 million decrease is due to the $12.1 million decrease in adjusted net income(1) explained above. Fully diluted recurring funds from operations(1) per unit amounted to $0.29 for the quarter ended September 30, 2018.
Recurring adjusted funds from operations (AFFO)(1) for the third quarter of 2018 was $41.2 million compared to $55.4 million for the same period of 2017. This decrease of $14.2 million results mainly to the $12.1 million decrease in adjusted net income explained above, to the $0.7 million increase of the provision for leasing costs and the $1.9 million increase in the capital expenditures to maintain rental income generating capacity. Fully diluted per unit, recurring AFFO(1) amounted to $0.23 for the quarter ended September 30, 2018.
Payout ratio of recurring adjusted funds from operations (AFFO)(1) for the third quarter of 2018 decreased to 78.3% compared to 104.2% for the corresponding period of 2017.
FINANCIAL POSITION
As at September 30, 2018, only $68.0 million was used on our $700 million unsecured credit facility. In addition, we intend to use this credit facility to repay $54.7 million in mortgages payable maturing by the end of 2018.
As at September 30, 2018, Cominar’s debt ratio stood at 51.9%, compared to 57.4% as at December 31, 2017. This significant improvement in our debt ratio results from the sale of our 95 non-core property portfolio for gross proceeds of $1.14 billion on March 27, 2018. At quarter end, unencumbered income properties totalled $2.8 billion, representing an unencumbered asset ratio of 1.57:1, up from 1.43:1 as at December 31, 2017.
LEASING ACTIVITY
During the first nine months of 2018, our leasing efforts allowed us to renew 64.6% [59.2% in 2017] of the total leasable area expiring in 2018, totalling 4.6 million square feet, and to sign new leases for 2.7 million square feet, overall representing 102.3% [93.5% in 2017] of the total leasable area expiring in 2018.
Committed occupancy stood at 93.3% as at September 30, 2018, compared to 92.2% as at September 30, 2017. In-place occupancy stood at 87.3% as at September 30, 2018, compared to 88.0% as at September 30, 2017. The difference between the committed occupancy rate and the in-place occupancy rate comes from 1.6 million square feet of signed leases beginning in the next five quarters, representing approximately $22.4 million in net operating income on an annualized basis. This difference also includes 781,000 square feet under redevelopment, mostly comprised of space formerly occupied by Sears.
The following table presents the occupancy rates as at September 30, 2018 by operating segment:
|
Montreal |
Québec City |
Ottawa |
Total |
|||||||||
|
Committed |
In-place |
Committed |
In-place |
Committed |
In-place |
Committed |
In-place |
|||||
|
Operating segment |
||||||||||||
|
Office |
88.0% |
83.5% |
96.7% |
93.3% |
92.5% |
82.0% |
90.8% |
85.5% |
||||
|
Retail |
94.1% |
85.4% |
92.8% |
84.9% |
82.9% |
54.5% |
93.3% |
84.1% |
||||
|
Industrial and flex |
95.3% |
90.5% |
95.0% |
92.5% |
N/A |
N/A |
95.2% |
90.9% |
||||
|
Total markets |
92.9% |
87.3% |
94.6% |
89.6% |
91.5% |
77.8% |
93.3% |
87.3% |
||||
The variance between the portfolio’s in-place occupancy rate and committed occupancy rate was 6.0% as at September 30, 2018. For the retail segment, this difference was 9.2% and consisted of several signed leases with a total area of approximately 277,000 square feet, of which 61% will come into force by the end of 2018. This difference also includes 781,000 square feet of spaces under redevelopment mostly comprising spaces formerly occupied by Sears. For the Ottawa office segment, this difference was 10.5% and represents signed leases of which approximately 50% will come into force by the end of the year 2018. As to the industrial and flex segment, the difference was 4.3%, representing 663,000 square feet of signed leases, of which approximately 72% will come into force by the end 2018.
|
(1) |
Non-IFRS financial measure. See the reconciliation to closest IFRS measure. |
SEARS UPDATE
|
Area (square feet) |
||||||
|
Location |
Leasable |
Signed |
Area in |
Area in |
Available |
Common |
|
Quartier Laval, Laval |
43,147 |
43,147 |
â |
â |
â |
â |
|
Carrefour Saint-Georges, Saint-Georges |
54,221 |
21,077 |
18,500 |
â |
10,103 |
4,541 |
|
Galeries de Hull, Gatineau |
128,040 |
â |
39,513 |
27,038 |
45,683 |
15,806 |
|
Mail Champlain, Brossard |
153,600 |
â |
â |
42,500 |
95,086 |
16,014 |
|
Galeries Rive Nord, Repentigny |
125,471 |
â |
57,669 |
26,743 |
29,762 |
11,297 |
|
Les Rivières shopping centre, Trois-Rivières(1) |
144,398(1) |
â |
25,776 |
37,776 |
61,877 |
18,969 |
|
Boulevard Pierre-Bertrand, Québec |
23,947 |
23,947 |
â |
â |
â |
â |
|
Total |
672,824 |
88,171 |
141,458 |
134,057 |
242,511 |
66,627 |
|
100% |
13% |
21% |
20% |
36% |
10% |
|
|
(1) |
Shadow tenant for which Cominar acquired the building during the second quarter of 2018. |
NON-IFRS FINANCIAL MEASURES
Net operating income, funds from operations (FFO), adjusted funds from operations (AFFO) and adjusted net income are not measures recognized by International Financial Reporting Standards (“IFRS”) and do not have standardized meanings prescribed by IFRS. Such measures may differ from similar computations as reported by similar entities and, accordingly, may not be comparable to similar measures reported by such other entities.
RESULTS OF OPERATIONS
|
Quarter |
Year-to-date (nine months) |
|||||||
|
For the periods ended September 30 |
2018(1) |
2017 |
2018(1) |
2017 |
||||
|
($000) |
($000) |
($000) |
($000) |
|||||
|
Operating revenues |
172,665 |
204,160 |
558,577 |
628,071 |
||||
|
Operating expenses |
(81,688) |
(93,980) |
(277,241) |
(302,521) |
||||
|
Net operating income(2) |
90,977 |
110,180 |
281,336 |
325,550 |
||||
|
Finance charges |
(36,373) |
(41,860) |
(115,844) |
(125,913) |
||||
|
Trust administrative expenses |
(4,314) |
(5,160) |
(17,149) |
(14,569) |
||||
|
Change in fair value of investment properties |
13,393 |
â |
9,062 |
â |
||||
|
Share of joint ventures’ net income |
1,560 |
1,064 |
4,093 |
5,168 |
||||
|
Transaction costs |
â |
â |
(19,981) |
â |
||||
|
Derecognition of goodwill |
(594) |
â |
(594) |
â |
||||
|
Income before income taxes |
64,649 |
64,224 |
140,923 |
190,236 |
||||
|
Income taxes |
||||||||
|
Payable |
â |
â |
(6,391) |
â |
||||
|
Deferred |
â |
(243) |
6,539 |
(705) |
||||
|
â |
(243) |
148 |
(705) |
|||||
|
Net income |
64,649 |
63,981 |
141,071 |
189,531 |
||||
|
(1) |
Results for periods ended September 30, 2018 have been impacted by the sale of 95 non-core properties to Slate in the first quarter of 2018. |
|
(2) |
Non-IFRS financial measure. |
SAME PROPERTY NET OPERATING INCOME(1)
|
Quarter |
Year-to-date (nine months) |
|||||||
|
For the periods ended September 30 |
2018 |
2017 |
2018 |
2017 |
||||
|
($000) |
($000) |
% Î |
($000) |
($000) |
% Î |
|||
|
Net operating income â Financial statements |
90,977 |
110,180 |
281,336 |
325,550 |
||||
|
Joint-ventures |
2,571 |
2,067 |
7,095 |
5,382 |
||||
|
Net operating income â Cominar’s proportionate share(1) |
93,548 |
112,247 |
288,431 |
330,932 |
||||
|
Breakdown |
||||||||
|
Same property portfolio |
||||||||
|
Office |
36,008 |
35,280 |
2.1 |
107,557 |
104,057 |
3.4 |
||
|
Retail |
34,905 |
35,052 |
(0.4) |
101,045 |
105,116 |
(3.9) |
||
|
Industrial and flex |
22,242 |
21,299 |
4.4 |
65,309 |
62,187 |
5.0 |
||
|
Same property portfolio |
93,155 |
91,631 |
1.7 |
273,911 |
271,360 |
0.9 |
||
|
Other |
393 |
20,616 |
14,520 |
59,572 |
||||
|
Net operating income â Cominar’s proportionate share(1) |
93,548 |
112,247 |
288,431 |
330,932 |
||||
|
(1) |
Non-IFRS financial measure. See the reconciliation to closest IFRS measure. |
FUNDS FROM OPERATIONS (FFO) AND ADJUSTED FUNDS FROM OPERATIONS (AFFO)
The following table presents a reconciliation of net income, as determined in accordance with IFRS, and recurring funds from operations and recurring adjusted funds from operations:
|
Quarter |
Year-to-date (nine months) |
||||
|
For the periods ended September 30 |
2018(1) |
2017 |
2018(1) |
2017 |
|
|
($000) |
($000) |
($000) |
($000) |
||
|
Net income |
64,649 |
63,981 |
141,071 |
189,531 |
|
|
Taxes on disposition of properties |
â |
â |
6,391 |
â |
|
|
Deferred income taxes |
â |
243 |
(6,539) |
705 |
|
|
Initial and re-leasing salary costs |
729 |
868 |
2,635 |
2,650 |
|
|
Change in fair value of investment properties |
(13,393) |
â |
(9,062) |
(2,284) |
|
|
Capitalizable interest on properties under development â joint ventures |
154 |
195 |
462 |
595 |
|
|
Transaction costs |
â |
â |
19,981 |
â |
|
|
Derecognition of goodwill |
594 |
â |
594 |
â |
|
|
Funds from operations(2)(3) |
52,733 |
65,287 |
155,533 |
191,197 |
|
|
Governance and strategic alternative consulting fees |
â |
â |
3,529 |
â |
|
|
Recurring funds from operations (2)(3) |
52,733 |
65,287 |
159,062 |
191,197 |
|
|
Provision for leasing costs |
(7,306) |
(6,650) |
(21,612) |
(19,237) |
|
|
Recognition of leases on a straight-line basis(2) |
(159) |
(1,098) |
(1,016) |
(2,473) |
|
|
Capital expenditures â maintenance of rental income generating capacity |
(4,019) |
(2,125) |
(11,801) |
(5,288) |
|
|
Recurring adjusted funds from operations(2)(3) |
41,249 |
55,414 |
124,633 |
164,199 |
|
|
Payout ratio of recurring adjusted funds from operations |
78.3% |
104.2% |
89.7% |
117.7% |
|
|
(1) |
FFO and AFFO for periods ended September 30, 2018 have been impacted by the sale of 95 non-core properties to Slate in the first quarter of 2018. |
|
(2) |
Including Cominar’s proportionate share in joint ventures. |
|
(3) |
Non-IFRS financial measure. |
SUBSEQUENT EVENT
The current normal course issuer bid (“NCIB”) of a maximum of 17,596,591 units will expire on November 14, 2018. Cominar’s Board of Trustees authorized the application to renew for an additional year the NCIB for a maximum of 10% of the units held by the public. The renewal of this NCIB is subject to the Toronto Stock Exchange approval.
ADDITIONAL FINANCIAL INFORMATION
Cominar’s condensed interim consolidated financial statements and interim management’s discussion and analysis for the third quarter of 2018 are filed with SEDAR at www.sedar.com and are available on Cominar’s website at www.cominar.com.
CONFERENCE CALL ON NOVEMBER 9, 2018
On Friday, November 9, 2018 at 11 a.m. (ET), Cominar’s management will hold a conference call to present the results for the third quarter of 2018. Interested persons may take part in this call by dialing 1 888 390-0546. A presentation regarding these results will be available before the conference call on the REIT’s website at www.cominar.com, under the Conference Call header. In addition, a taped rebroadcast of the conference call will be available from Friday, November 9, 2018 at 2 p.m. to Friday, November 16, 2018 at 11:59 p.m., by dialing 1 888 390-0541 followed by this code: 471308#.
PROFILE AS AT NOVEMBER 9, 2018
Cominar is the second largest diversified real estate investment trust in Canada and is the largest commercial property owner in the Province of Québec. The REIT owns a real estate portfolio of 429 properties in three different market segments, that is, office properties, retail properties and industrial and flex properties. Cominar’s portfolio totals 38.2 million square feet located in the Montreal, Québec City and Ottawa areas. Cominar’s primary objectives are to maximize unit value through the proactive management of its properties.
FORWARD-LOOKING STATEMENTS
This press release may contain forward-looking statements with respect to Cominar and its operations, strategy, financial performance and financial position. These statements generally can be identified by the use of forward-looking words such as “may”, “will”, “expect”, “estimate”, “anticipate”, “intend”, “believe” or “continue” or the negative thereof or similar variations and the use of conditional and future tenses. The actual results and performance of Cominar discussed herein could differ materially from those expressed or implied by such statements. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Some important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, competition, changes in government regulation and the factors described under “Risk Factors” in Cominar’s Annual Information Form. The cautionary statements qualify all forward-looking statements attributable to Cominar and persons acting on its behalf. Unless otherwise stated, all forward-looking statements speak only as of the date of this press release. Cominar does not assume any obligation to update the aforementioned forward-looking statements, except as required by applicable laws.
SOURCE COMINAR REAL ESTATE INVESTMENT TRUST
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