Retail REITs hammered but eye recovery

RioCan has posted a $350 million loss; Choice Properties saw its asset value drop by $380 million in Q2

Western Investor
July 29, 2020

RioCan’s 5th & Third East Village in Calgary boasts 178,000 square feet of retail.| RioCan REIT
— RioCan’s 5th & Third East Village in Calgary boasts 178,000 square feet of retail.| RioCan REIT

Some of the largest retail landlords in Canada are facing huge losses and asset write downs as the COVID-19 pandemic continues to stalk shopping centres.

But companies say there are signs of improvement in the retail sector as more stores reopen and about 90 per cent of rents are now being paid.

RioCan Real Estate Investment Trust (RioCan REIT) Canada’s largest real estate investment trust, reported a $350.8 million loss in the second-quarter, down from a net income of $253 million a year earlier.

"This second quarter was undoubtedly the most challenging quarter ever for many of our tenants as non-essential businesses were mandated to close in mid-March,” noted Edward Sonshine, CEO of RioCan, which has a total enterprise value of approximately $11.9 billion.

The blow was not surprising to RioCan, which moved early to work with retail tenants with rent deferrals and other supports as the pandemic began.

“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,” Sonshine had said on April 8.

About 15 per cent of RioCan’s business comes from local stores such as nail salons and independent restaurants which were forced to close.  The majority of RioCan tenants, however, are major retailers, such as grocery markets and drug stores, who continue to make lease payments.

RioCan collected 86.8 per cent of rental income in the second quarter, including those tenants who received government funding and short-term rent deferrals, according to Sonshine.

Choice Properties REIT, which owns and operates more than 720 properties in Canada comprising about 65 million square feet of leased space, posted a $95.8 million loss in the three months ending June 30.

About 75 per cent of its tenants are food or pharmacy-based retail outlets. Stores owned by Loblaw Companies account for approximately 56 per cent of Choice revenues.

For the year, Choice has knocked $379.1 million off the value of its assets.

“We’re encouraged by some initial signs of things returning to normal,” Choice president and CEO Rael Diamond said during a second-quarter financial conference call with analysts “Every day, more business reopen and people find more ways to get on with their daily lives.”

Choice reported rent collections in the second quarter were 89 per cent of expected collections, and early July collections were at 94 per cent.

“This is an encouraging sign and our rent collections are steadily increasing each month as more tenants are getting back to business,” Diamond noted.


Frank O'Brien is the editor of Western Canada's biggest commercial real estate newspaper, Western Investor, as well as a contributing editor at West Coast Condominium, real estate contributor to Business in Vancouver and a regular media commentator on real estate investment.
Copyright © Western Investor

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