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ROGER TAYLOR: Nova Scotia's REITs remain solid amid uncertainty

Killam Apartment REIT's The Alexander at 5121 Bishop St. in downtown Halifax.
Killam Apartment REIT's The Alexander at 5121 Bishop St. in downtown Halifax.

Two of Canada’s largest landlords, both based in Nova Scotia, reported second-quarter financial results this week. Despite the effects of the pandemic, the unrelated real estate investment trusts appear to be operating from stable foundations.

Killam Apartment REIT and Crombie REIT both held conference calls Thursday during which management outlined how their operations performed in the three months ending June 30, during unusual circumstances.


Crombie, which is closely aligned with the Sobey family-controlled Empire Co. Ltd., has been benefiting from its relationship with the Sobeys grocery chain, which was deemed essential.

The New Glasgow-based operation reported second-quarter operating income of $9.93 million on property revenue of $96.5 million.

Management indicated a same-asset property cash net operating income decline of 4.6 per cent in the quarter, and Crombie’s debt to gross book value is 49.2 per cent with an “unencumbered asset pool” of $1.46 billion.

Although many businesses found it difficult to continue operating, Crombie pointed out during the call that only a small percentage of its tenants are in the small-business category. As a result, its committed occupancy at the end of the quarter was a respectable 95.6 per cent.

Some tenants qualified for the Canada Emergency Commercial Rent Assistance program for small businesses, which offers landlords a forgivable loan worth 50 per cent of the value of rent each month. The landlord must agree to reduce the rent by 25 per cent, with the tenant responsible for the remaining 25 per cent. For some tenants who didn’t qualify, Crombie said, it developed its own program by deferring a portion of rent. The REIT’s management is working with others on an individual basis.

Even at that, the deferred rents are less than one per cent of Crombie’s gross rents.

Crombie president and CEO Don Clow said the REIT is moving forward with investments in six mixed-use developments across the country. The projects total 759,000 square feet of commercial space and 961,000 square feet of residential space.


Meanwhile, Halifax-based Killam Apartment REIT is one of Canada’s largest residential landlords, owning, managing and developing a $3.5-billion portfolio mainly of residential assets.

Killam president and CEO Philip Fraser said during the call that he was pleased with “solid operating and financial results” for the quarter, despite COVID-19.

He acknowledged that strong apartment markets in Halifax and New Brunswick have benefitted Killam.

Net income for the quarter came in around $21.5 million, which was $61.3 million less than the $82.8 million Killam reported for the second quarter of 2019. But last year’s numbers were boosted by gains in fair value on investment properties, which were recognized in that quarter.

Killam had net operating income in the second quarter of $41.5 million, a 10.7 per cent increase when compared to $37.5 million in the same quarter last year.

Fraser stated that last July Killam closed a $69-million equity offering and repaid the REIT’s outstanding line of credit.

“This equity provides us with additional capital flexibility and increases our acquisition capacity to over $200 million.”

Nevertheless, Killam is forecasting full-year 2020 same property net operating income growth to be affected by the pandemic, mainly due to the waiving of rental increases, delay in distribution of rental increase notices to tenants and a reduction in transient revenue at Killam's seasonal resorts.

The majority of Killam’s commercial tenants, both essential and non-essential, were operational by the end of the second quarter with restrictions and protocols in place, management stated.

“As the COVID-19 pandemic persists, Killam will continue to assist and support its tenants that have been negatively impacted by the pandemic,” Fraser said.

Despite current restrictions, commercial leasing activity has continued, he said.

Killam has committed to completing 500 apartment unit upgrades this year to meet market demand, which will result in revenue growth and an increase in the net asset value of the portfolio.

Unit upgrades above $10,000 would provide Killam with an estimated return on investment of at least 10 per cent and monthly rental rate increases of 10 per cent to 30 per cent upon completion of the renovations.

A review of Killam's portfolio has identified a minimum of 5,000 units having repositioning potential, according to Fraser.


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