RioCan REIT swung to a large loss in its latest quarter amid rent deferrals resulting from COVID-19 lockdowns.
RioCan Real Estate Investment Trust says it collected about 73% of rent due in April, May and June, calling the period "the most challenging quarter ever" for many tenants.
"The orderly reconfiguration of certain declining retail concepts has literally been shown the door," chief executive Edward Sonshine wrote in a letter to shareholders.
RioCan--which owns, manages and develops properties and counts major retailers among its tenants--said in a statement it expected rent collection to improve as businesses reopened, and that it collected 85% of rent in July.
The company posted a net loss of $350.8 million or $1.10 per diluted unit for the three-month period that June 30, down from a net income of $253 million or 83 cents per unit a year earlier.
Funds from operations were slightly softer than analyst expectations. Per unit, funds from operations hit 35 cents per diluted unit, compared with 48 cents per diluted unit a year ago and 38 cents per unit expected by analysts polled by Refinitiv.
RioCan said it had participated in Canada Emergency Commercial Rent Assistance for all eligible tenants (about 14%), with total CECRA rent abatements of $9.9 million for the quarter. The company also wrote down the value of some properties in enclosed shopping centres and Alberta properties in "the depressed oil and gas market," and brought in lower fees for property management and lease cancellations.
Sonshine wrote that while the COVID-19 health crisis was unexpected, the changes to the retail landscape did not come as a surprise, as the company has been shifting its holdings over time away from malls and toward necessity retailers such as grocers and pharmacies in urban areas.
Tenants that bring in the most cash for the company include Canadian Tire Corp., Loblaw Cos. Ltd., TJX Companies, Inc., Cineplex, Metro Inc./Jean Coutu and Walmart. The company also got a $4.2-million boost in operating income from its first three residential rental towers. Sonshine wrote that RioCan expected a "steady stream" of residential rental income going forward.
"Actually, the pandemic has accelerated trends that have long been in the making. ...These overarching trends are not new news to RioCan," wrote Sonshine, emphasizing that the company has been investing in "convenient" locations near transit lines in Toronto, Ottawa, Calgary, Montreal, Edmonton and Vancouver, as more customers shop online and pick up goods curbside. Properties in those cities now make up more than 90% of the company's yearly revenue.
Still, RioCan said it expected funds from operations per unit to be about $1.60 for the full year of 2020, impacted negatively by the pandemic.
"As for e-commerce, it will definitely remain a key component of retailers' go-forward strategy with consumers drawn by the convenience of shopping at home. However, there are still the matters of the high cost of delivery, particularly for the 'last mile' in dense urban areas with traffic congestion, and the human desire for personal interaction."