Retail REITs hammered but eye recovery

RioCan has posted a $350.8m loss; Choice Properties saw its asset value drop by $380m in the second quarter

Choice Properties REIT’’s Grandview Central shopping centre, Surrey. | PC Urban

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% 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% 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% 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% 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. Net loss for the second quarter of 2020 was $95.8 million, compared with net income of $238.3 million in the same period in 2019. 

About 75% of its tenants are food or pharmacy-based retail outlets. Stores owned by Loblaw Companies account for approximately 56% 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 businesses reopen and people find more ways to get on with their daily lives.”

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

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