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What you need to know about COVID-19: August 10, 2020
RioCan Real Estate Investment Trust saw its losses pile up in the second quarter of 2019, as the impact of the COVID-19 pandemic played out on the balance sheets of one of Canada’s biggest retail landlords.
With approximately two-thirds of its tenants having to shut down their stores when the pandemic first hit, the real estate giant saw a net loss of $350.3 million for the quarter ending June 30, 2020, or $1.10 per diluted unit, down from a net income gain of $253 million or 83 cents this time last year.
“This has been the most unusual quarter in my 26 years of being CEO,” said Ed Sonshine, the company’s chief executive officer, on a conference call on Wednesday. “But what we are going through now is temporary. Human nature will need gathering places and social interaction and RioCan owns properties where this will occur,” he added.
RioCan stock was relatively stable despite the news, gaining a seventh of a per cent by noon Wednesday, to roughly $15. The company’s share price took a pummelling when the pandemic first hit, plunging almost 50 per cent in the last two weeks of March. It has climbed 20 per cent since its lowest point in the 2020 calendar year.
For the months of April, May and June, RioCan collected 73.3 per cent of its rent on average — 7.7 per cent of rent was deferred with a definitive payment schedule, and 6.4 per cent of total rent remains to be collected. The company wrote off 6.8 per cent of rent, or $9.2 million, as bad debt and is expecting to receive $9.9 million (or 5.8 per cent of total rent) from the federal government’s Canada Emergency Commercial Rent Assistance (CECRA) program.
This has been the most unusual quarter in my 26 years of being CEO
On the call, Sonshine criticized the CECRA program, calling it a “painful, painful application process.” He added that very few of RioCan’s tenants actually qualified for the program because the qualification criteria, at least in the months of May and June, were that the business had to lose 70 per cent of sales.
Rent collection, however, improved significantly in July to 85 per cent, according to RioCan’s financials.
Sonshine said he suspects that number will increase as RioCan’s government tenants usually pay rent only at the end of the month. He provided some guidance to analysts on the call, estimating rent collection of more than 90 per cent on average, if the country does not go back into full lockdown mode.
“The types of tenants that did not pay rent were largely fashion tenants. But we are confident in the collectability of most or all of that rent because for many of them, their only choice is to go into creditor protection,” Sonshine said.
Bank of Montreal real estate analyst Jenny Ma noted in a note that the bad debt expense provisioned by RioCan was in fact lower than her estimate. “In our view this seems light given a relatively high exposure to retailers which are facing operating challenges,” she wrote.
RioCan’s real estate portfolio has morphed over the past few years, with a movement away from departmental stores and apparel retailers towards more “essential service” tenants such as grocery stores, pharmacies and banks. The company says 75 per cent of its rent is now from “necessity-based” and “service-oriented” retailers, although 12.5 per cent of that composition are restaurant chains that have borne the brunt of the pandemic-induced shutdown.
Just 1.7 per cent of RioCan’s rent comes from residential property but the company emphasized on Wednesday’s call that it had plans to further expand into the high-end residential market in large urban centres over the next few years. In Calgary however, the company is struggling to lease units in a 12-storey residential building with only 31.5 per cent of units leased as of July 28.
The company also took a fair value write-down of $452 million that reflected changes in cash flow assumptions due to COVID-19 and the impact on its Alberta assets.
Copyright Postmedia Network Inc., 2020