Canada’s real estate investment trusts (REITs) are scrambling to contain the damage as residential and commercial tenants struggle to pay rent during an economy staggered by the new coronavirus pandemic.
Most at risk are residential-weighted REITs dealing with a nationwide ban on evictions and rent increases, and those with exposure to the boutique retail sector that has been largely shut down under provincial health regulations.
Landlord groups across western Canada say that from 27 per cent to nearly 50 per cent of tenants did not pay their rent on April 1 and some studies suggest that, unless the pandemic eases and work life resumes, the non-payment rate could increase in May.
Tenants advocates from Vancouver to Toronto have called for a “rent strike” while the pandemic continues.
Canadian Apartment Properties REIT (CAPREIT), Canada’s largest real estate investment trust in the multi-family sector with a portfolio of approximately 58,000 rental suites it owns across the country, took proactive measures to keep tenants in place and rents flowing.
On March 20, before provinces began enacting a rental rate freeze and banning evictions, CAPREIT deferred all rent increases “for the foreseeable future.”
The Toronto-based company is also offering tenants facing financial hardships due to COVID-19 a deferred rent program, and a program that allows such tenants to apply their damage deposit (one month’s payment) as a credit towards regular rent payments. The company has also urged its tenants in financial trouble to discuss payment options with their managers.
CAPREIT, which also owns rental units in Ireland and Norway, saw its share price slump to a 52-week low of $44.04 on March 24 before rallying to $45.21 as of April 15.
Other major rental companies active in the West, including Centurion Asset Management, Northview Apartment REIT, MetCap Living, and Boardwalk REIT have also pledged to work with tenants in distress, though they mostly referred tenants to the various government assistance program set up since the pandemic began.
Calgary-based Mainstreet Equities, one of Alberta’s biggest landlords, also deferred all rent increases early and “until further notice” and is offering financially stressed tenants a flexible rent payment plan.
Rent non-payment is more hardball in the commercial real estate sector, however, where there is less forgiveness or government assistance.
RioCan REIT, one of Canada’s largest owners of retail space, expects to lose up to 25 per cent of its revenue over the next two months. Many of its smaller retail tenants have been closed under government direction due to the coronavirus.
“We’re planning for our revenue to be down as much as 25 per cent over the next 60 days, and I suspect it might be a little longer than that. And we can handle it,” REIT CEO Ed Sonshine said April 8.
About 15 per cent of RioCan’s business comes from local stores such as nail salons and independent restaurants which have been forced to close. RioCan may defer rental payments for such tenants for 60 days, Sunshine suggested.
The majority of RioCan tenants, however, are major retailers, such as grocery markets and drug stores, who continue to make lease payments.
But the retail exposure and the virus crisis has taken a toll. RioCan shares plunged to a 52-week low of $12.41 on March 24. Shares of the REIT have since rallied to close at $16.34 on April 15, down 50 per cent from a year earlier.