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Good morning. My name is Sylvie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BTB Real Estate Investment Trust's 2021 First Quarter Conference call for which management will discuss the quarter ended March 31, 2021. [Operator Instructions] Should you wish to follow the presentation in greater detail, management has made a presentation available on BTB's website at www.btbreit.com-investorrelations-quarterlyandannualmeetingpresentations. [Operator Instructions]Before turning the meeting over to management, please be advised that some of the statements that may be made during this call may be forward-looking in nature. Such statements involve numerous factors and assumptions and are subject to inherit risks and uncertainties, both general and specific, which gives rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. A number of important factors could cause BTB Real Estate Investment Trust's actual results to differ materially from the expectation expressed or implied by such forward-looking statements. These risks, uncertainties and other factors that could influence actual results are described in BTB Real Estate Investment Trust's Management Discussion and Analysis in its annual information form, which were filed on SEDAR and on BTB's website at www.btbreit.com. I would like to remind everyone that this conference is being recorded. Thank you. I will now turn the conference over to Mr. Michel Leonard, President and Chief Executive Officer; and Mr. Mathieu Bolte, Vice President and Chief Financial Officer. Mr. Leonard, you may begin the conference.
Thank you, Sylvie, and welcome to our Q1 conference. We ended the quarter with a very positive note on the side that we see the light of what we call the COVID tunnel, and the light is definitely not an oncoming train. We see positive effects in our lease renewals, these new lease negotiations. There was a quarter that basically delivered no surprises, except for certain lingering effects of COVID. The presentation, as Sylvie mentioned in the introduction, is available online. So if you go to our BTB website, you could download the presentation. Regarding our highlights, we did continue to show stability through our diversified portfolio. Our rent collection was very high at 99.6%, and our proactive lease renewals and leasing strategies have bear fruit. BTB is reporting a reduction in our balance of receivables that was at $5.2 million at the end of Q4 2020 to $4.8 million for the quarter, which is even better than our pre-pandemic levels. No additional rent deferral agreements were negotiated during the quarter, ensuring our revenues. Our 3 largest tenants are the government of Quebec, the government of Canada and Walmart, representing respectively 7.3%, 6.2% and 3% of rental revenue. Although the effect of pandemic and the resulting government-mandated restriction have certainly caused certain impacts on the retail industry, BTB has limited exposure to bankruptcies or restructuring from its tenants as, since Q2 2020, we didn't suffer any other such notices from tenants. Our key financial and operating metrics, we have a committed occupancy rate of 91.7% as at April 30, 2021. That number recognizes at least that we concluded with a space that was left vacant by Sportium, and I'll go into the details of the lease a little bit later. We did increase our lease renewal rate by 5.9%. We renewed a little bit more than 50,000 square feet and, in that number, it includes new leases that were concluded. Our available leasable area is 476,000 square feet; FFO per unit at $0.089. Total debt ratio reduced at 58.9%. Our NOI margin at 52.8%. And as I mentioned earlier, our rent collection rate was 99.6%. Our competitive advantages resulting from the COVID was that, basically, we have open-air malls and no enclosed malls. Our diversification of our portfolio gives us a great opportunity in the industrial market and the office markets. Our largest tenants are investment-grade, our core market presence since we redeployed our portfolio, and we are working on increasing our activities and a 5-year growth plan. Regarding our leasing and renewal activities, if we look at the year for lease expiring in 2021, in Q1 we renewed a little bit more than 40,000 square feet. And we've already concluded lease renewals for the years 2022 and later for a little bit more than 54,000 square feet. Our renewal rate for the quarter is 61.3%. And as mentioned earlier, our increase in lease renewal rate is 5.9%. Of note of important note, a little bit better than 31,000 square feet of lease renewals were concluded with office tenants. That represents 78% of our renewal. And that, to us, confirms the desire of those tenants to revert back to the office setting. 51% of office renewals were with the government of Quebec. BTB continues its effort to renew leases for maturities that are after 2021 to ensure the stability of our portfolio. And as mentioned, 54,000 square feet of those were concluded during the quarter. Overall, BTB's renewals were concluded with tenants operating in the following industry, [ whether ] government necessity-based retail, essential professional services, and health and technology. A little bit more than 9,000 square feet of vacant spaces were leased during Q1, and there's a backlog of lease execution regarding lease renewals that is important to note that would have increased our numbers of lease renewals for 2021 by 10,000 square feet. And it's related to tenants. We're just waiting for those tenants to execute the lease documentation that was forthcoming after the lease negotiation was concluded. If we look at our real estate portfolio by geographic sector, as a percentage of total NOI, Montreal represents 55%; Quebec City, 27%; and Ottawa, 18%. The renewed leases that we concluded, 73,000 square feet in Montreal, 13,000 square feet Quebec City, 8,000 square feet in Ottawa; and new leases, 6,000 square feet in Montreal and 3,000 square feet in Quebec City. The average increase in lease renewal rates in Montreal were 6.6% and Quebec City 0.3%, and in Ottawa, 9%. The key events, our occupancy rate went down by 2% as a result of the departure of Sportium that we announced in Q2 2020. They left their space on January 31 this year, as we had previously announced. And as at April 30, this space was re-leased to Princess Auto for a term of 15 years, leasing 38,000 square feet. And as I mentioned earlier, in the 91.7%, the Princess Auto lease is part of the committed rate that I disclosed. Properties located in Ottawa continue to demonstrate their stability as they consist of office and industrial properties. In Quebec City we're also seeing positive trend. We have 2 large-scale retail properties that are showing their strength, with 100% and 97% occupancy rate. The portfolio is basically 5.3 million square feet with 64 properties, the total asset value of $924 million. Ottawa represents 20% of our portfolio, Quebec City at 26%, and Montreal at 54%. Our occupancy rate by sector, Montreal is currently at 91.3% as a result of the vacancy of Sportium. In Quebec City, we're at 89%, in Ottawa at 93%, with a total of 91% in place. By operating segment, our total NOI is spread in the following fashion. In the retail, it represents 27% of our NOI, office at 57%, and industrial properties at 16%. The renewed leases in the retail include 49,000 square feet during the quarter, office at 40,000 square feet, industrial at 5,000 square feet. New leases concluded in the retail at 1,000 square feet, in the office at 8,500 square feet, and the increase in average lease rate in the retail is 4.5%, and the office at 4.7%, and industrial at 48%. We did see a reduction in the occupancy rate of the retail by 5.6%, and that, again, is caused by the departure in January of Sportium. And as I mentioned, the space has been re-leased. 38,000 square feet of that space has been re-leased. The performance has been stable across the 3 segments, supported by the quality of our tenants. Top 2 tenants, remind you, are the federal and the provincial governments. The industrial segment continued to show good traction and performance, where we saw an increase in the occupancy rate. So we're currently at 90% in the retail, at 89.3% in the office, and in the industrial a little bit more than 95%. With this, I'd like to ask Mathieu to present the financial highlights for the first quarter of 2021.
Thank you, Michel. Good morning, everyone. So I'll start on Page 10 with the financial highlights for the quarter. It's important to note that, in the first quarter last year, the pandemic have no impact on financial results yet other than an adjustment that we did in fair value of $6.9 million for last year. If we look at this quarter, COVID-19 had a total negative impact of $0.6 million on the NOI and $0.3 million on net income. This is mainly due to one tenant departure that Michel mentioned, extra G&A expenses that we have to do, and partially offset with improvement in expected credit losses because of better collections. Also, another highlight following the issuance of the Series H debenture last September, we received conversion notices for a total of $3.3 million for the quarter and $3.9 million since the issuance. So remember, the conversion price is at $3.64, and the unit closed at the end of the quarter at $4.22. So it's a 20% improvement over the previous quarter and 34% increase compared to the same quarter last year. So the conversions had a 0.1% negative impact on FFO and AFFO per unit. However, the conversions, combined with the refinancing strategy, contributed to an improvement in the debt ratio, from 59.4% at the end of the previous quarter to 58.9% now. Just the last highlight, following the $30.4 million equity issuance in April 2021, so we had a $15 million outstanding balance on the acquisition credit facility that was paid. Moreover, so we have, at this point, 100% of the $23 million credit facility that is now available for operating and acquisition purposes. So let's move to Page 11 as we dive into the financial results. Since the quarter last year was not affected by the pandemic, other than the impact that I mentioned for the fair value adjustment, so we just wanted to show on this slide the run rate even if the portfolio had limited impact for this quarter. Net operating income totaled $12.4 million compared to $12.8 million for the same period of 2020. So the $0.4 million decrease is due mainly to the $0.6 million COVID-19 events, as discussed previously. The net income totaled $2.5 million compared to a loss of $5.7 million for the same period in 2020, and the increase was as well attributed mainly to noncash items and, more specifically, to the decrease in the fair value investment properties in 2020. So we'll look more into the details on the next pages for the revenue, NOI, FFO and AFFO. So on Page 12, we show a slight decrease in rental revenue by 1.4%. The property acquisitions and dispositions that we did in 2020 result in a reduction of $0.4 million in revenue for Q1 2021. That's for the revenue. So if we look at the NOI line, there is an offset with the operating expenses. So the net of acquisition disposition of last year is net on an NOI standpoint. So on the same-property basis, revenues were up 0.3%. Also, excluding the $0.5 million of COVID-19 events, revenue would stand at $24 million for the quarter, representing a 0.6% increase compared to Q1 2020, and it's mainly due to lease renewals and the leasing effort. From a NOI standpoint, we show a decrease of 2.8%. And again, excluding the COVID-19 events, NOI would be up 1.8%, and SP NOI would be up 2.8%. Moving on Page 13. FFO per unit was $0.089, so it's down $0.101 from the same quarter last year. COVID-19 events represent a negative 0.5 impact compared to last year. We also had to adjust the liability related to the deferred unit-based compensation, considering the unit price is up by 20% since last quarter. This represents a negative impact of $0.09 on FFO. The FFO payout was 84% versus the same quarter last year of 105.2%, so it's a big improvement of 20%. AFFO per unit was $0.086, down from [ $0.002 ] from the same quarter last year. Excluding the $0.3 million COVID-19 events, the AFFO per unit would be $0.103. And the AFFO payout was 87.4% versus the same quarter last year of 119.3%, so it's an improvement of more than 30%. Next, on Page 14, the weighted average interest rate for mortgages was 3.56% compared to 3.71% for the same quarter last year. So it's an improvement, or a decrease, of 50 basis points. So we continue to benefit from the current low rate environment in our refinancing. Our debt to gross book value was 58.9% compared to 59.3%, so it's down 0.4%, with an objective to reduce further this ratio with the current debenture conversion and the raise of equity that we did in April. So knowing that the unit price is trading above the conversion price, we expect the conversion trend to continue over the coming months. If the remaining balance of the Series H gets converted, this represents 3% additional reduction of our debt to gross book value. Our liquidity stood at $14 million, of which $6 million in cash, $8 million under the current credit facility. It is important to mention that we were able to renew our credit facility with our lender to have more flexibility between the operating and acquisition lines at favorable terms. And also, as discussed on April 8, BTB announced that it closed a bought deal public offering of $30.3 million. So $15 million of the net proceeds has already been used to pay the total amount outstanding under the acquisition credit facility. Finally, on Page 15, so our commitment for the year total $105 million, of which $47 million will be completed this month, so the month of May, and $61 million will be refinanced in the second half of 2021. Just to mention that, out of the $47 million to be completed this month, we will have an equity top-up of around $16 million. Okay. This completes our presentation. And with that, we'll move to the Q&A.
[Operator Instructions] And your first question will be from Brendon Abrams at Canaccord.
Maybe just first on the lease with Princess Auto replacing the Sportium space, just wondering how the new rate would compare to the prior rate.
The new rate is higher than the prior rate.
And if I read correctly, it looks like they took up the majority of the vacant space.
Yes. Sportium left behind, let's call it, 44,000, 45,000 square feet, and the Princess Auto leased 38,000 square feet. So there's a small balance.
Maybe just on the leasing front with respect to the office segment, spreads were positive, almost 5%. Just wondering what the TI environment is for your portfolio right now in terms of whether it's renewals or new leases.
Well, the [ TIs ] location that we do grant are generally in line with what we did in 2019. So it's not, surprisingly, higher than what we had concluded in the past. So it's on a similar trend as 2018, 2019.I think that what you're referring to is the fact that, obviously, construction prices have increased. And what we're trying to do is that we're trying to pass on the responsibility to the tenant. So we do give them an allocation, let's say, $25, $35 per square foot in the offices sector, but anything that they would spend above that amount would be for their own account.
So it seems like things are back to kind of pre-COVID environment in TI.
Yes. We do see that. I think that with vaccination, as soon as we're -- generally are going to receive our 2 doses, I think that there's a pent-up demand for employees to regain their office spaces. I think that, generally, people are a little bit demoralized being home. And every professional that I speak to is basically telling during discussions that they can't wait to go back to their office spaces because they feel that they need the proximity with co-workers.
And then just last question from me before I turn it over, just on the acquisition front. Maybe could you just remind us your kind of current liquidity position today, and maybe how the pipeline of acquisition opportunities is looking like and where you're kind of focusing most of your energies there?
I'll ask Mathieu to answer the first part of the question, and I'll answer the second part.
Yes. So Brendon, just in terms of liquidity, as I mentioned, the whole line is available as of today. So we have $23 million on both the operating and acquisition line. As we did the equity raise, we paid down the acquisition line, but we have about $14 million available to deploy. So that's close to 37 plus some of the cash that we have on hand.
So if you add everything up, it's roughly close to $45 million available for acquisitions. And so if you normally will finance an acquisition between 60% and 65%, so that gives you the total acquisition availability that we would have today in order to conclude transactions.As we see, we're seeing the market reopening, we have a number of potential acquisitions that are in the pipeline that we're looking at. We haven't concluded anything on that front yet. We have an industrial property that's located in an industrial area of Montreal that is soon to be acquired by BTB. Certain conditions [ are ] remaining to be waived, one of which is it's a sale and leaseback, so we have to conclude a lease in order to waive all conditions. And that's an acquisition of an industrial property that is 99,000 square feet, of which we have a clear height of 45 feet. So it's a great industrial property, and we could finally close on this acquisition by mid-June. And then, there are certain properties that are on the market where we are looking at putting in different LOIs. If I add all the different possibilities that are offered to BTB, and if we were able to successfully get all of these acquisitions under our belt, it would be more than $300 million. So a lot of velocity in the market. We don't see cap rates increasing, whether it's office space, whether it's industrial spaces, obviously, or retail spaces. We see that we're back to pre-pandemic levels on that front. And the properties that are offered in the market are really great alternatives, great purchases for BTB. So I'm not saying that we're spending $300 million tomorrow. I'm just saying that there is available for us a certain amount of great properties to acquire.
Next question will be from Matt Kornack at National Bank.
With regards to the lease renewal spreads, going forward, this quarter was pretty good. Obviously, the industrial asset that you leased had a very juicy spread, and we know that that's fairly consistent across the board. But would you view these as kind of the mark-to-market potential across the portfolio more generally? Or are there some specificities to what was leased in this quarter?
No, Matt. We've renewed 2 leases, 2 large leases in the retail landscape, one of which had a very, very nice increase for us, really good increase in NOI. One was generally flat, but the other one was, as you say, a juicy increase. So we're seeing that overall, in the -- when I said pre-pandemic level, I think that there's a regain of activity amongst the large users, the large tenants, national tenants, and we're seeing it in our portfolio.Next year, we have 2 leases that are up with Walmart. We're in discussions with Walmart, and we don't foresee a huge rental increase with Walmart. As everybody knows, they're tough on their lease renewals. But I mean, obviously, Walmart is going forward, but that's the type of tenants that we have there. They're usually necessity-based, nationally spread out, and they are looking at their portfolio, and they do want to renew.And I think it's a very positive sign, because I know that, for instance, Walmart had published not too long ago a list of locations that they are not renewing. So they're calling certain locations. And in our case, they've told us that they would renew our 2 locations, and now it's just a matter of determining terms and conditions. So overall, I think it's very positive. And as I mentioned, as vaccination progresses, I think that we're going to finally come out of this and be able to go have a dinner at a sit-down restaurant and enjoy the company, which we haven't been doing for 14 months. So I mean, you're a very good analyst in the market. And when you calibrate pent-up demand, whether it's for traveling or whether it's for restaurants or certain necessities that humans love to have, I think that we're going to see a regain in the economy that could be very, very successful.
Yes. Sooner the better on that front, although maybe Quebec -- you'll get out of it a bit sooner than we are in Ontario.
Well, yes, I think that Quebec was less liberal, more conservative on its approach; and usually, Quebecers are labeled as being the most liberals in Canada. But when it comes to these things, it seems that we're the most conservatives.But yes, we see the progress. Our Prime Minister is gung-ho these days, and they're talking about de-confining certain areas of the economy, which would be very welcome.
And then, I guess, on occupancy, you'll have a tailwind on the Sportium re-leasing. But are there any other sort of major vacancies that you anticipate leasing, or space that's currently occupied that you'd anticipate becoming vacant?
Well, I mentioned during our last call that we have a space in Saint-Bruno that's 30,000 square feet that we decided not to renew the lease of the tenant because the tenant was basically trying to negotiate a pandemic rent. And we decided that we didn't want to be stuck with a pandemic rent on a long-term basis, so we didn't close the lease renewal there.And so this is vacant, and we have a substantial activity on that space. Whether it's going to be for the whole space or we're going to have to split the space in 2, I think that we'll know soon enough. And then, there's another space, a large space available in Gatineau, which used to be called [ Hull ], for 26,000 square feet, and we're exchanging an LOI with a national necessity-based tenant for that space. So yes, to answer your question, we do have a lot of activity in the retail segment especially these days, and I think it's going to be fruitful. And yes, it should help us on our NOI eventually.
And last one for me, Mathieu, with regards to the straight-line rent. I know there was a sequential increase this quarter. Can you give us a sense as to what the sort of run rate level should be there? And I guess, will a part of it go from sort of straight line into cash rent? Or what are the dynamics ultimately there?
Yes. So we had one adjustment for straight line, just a negotiation that we have with the town of Laval last year because of delays in the construction to give them the space. We had an additional extra month before giving them the space. So we did negotiate 4 months of free rent, but it was 4 months that we extended at the end of the term, as well. So we had to make an adjustment.So basically, what we did, we did write off the revenue that was recognized; but, on the other hand, we were able to recognize almost the same amount in terms of deferred rent on that other line. That's an amount of about $125,000, which impact the first quarter that shouldn't be part of the run rate, moving forward. Total adjustment for straight-line rent was $397 million for the quarter.
I just want to add, the city of Laval was a tenant in our property located at 3131 Saint-Martin Boulevard. And we closed this new lease for roughly 26,000 square feet just at the time when the pandemic hit, and there was a total confinement that was enacted by the government. And as a result, we couldn't get our Ps and Qs together in order to start the construction.So hence, the construction was delayed, although the lease had started. And obviously, the tenant didn't want to pay rent for the period of the confinement; so, hence, the 4 months of free rent that were granted at the beginning of the term with, as Mathieu mentioned, an extension of 6 months at the tail of the lease in order to basically create less of a movement. And in their case, they needed the extra term for their operations, anyway. So it was successful, and it is the only construction delay that really impacted us due to COVID in 2020.
[Operator Instructions] And your next question will be from Yash Sankpal at Laurentian Bank.
Just want to focus on the acquisition figure. You said about $300 million of properties you are looking at. Could you maybe give some more color on the geographical areas and property types?
I'm not going to go into geography because that's a little bit of a tricky answer, but there is an industrial portfolio that we're looking at. We're looking at 2 office buildings on the island of Montreal, and we're looking at 2 properties in Ottawa, 2 office properties in Ottawa.
Are these properties coming from any of your competitors' REITS?
I can't answer that question.
But you are staying away from the retail segment. Is it fair to say?
No. I don't want to say that. I think that we go from opportunity to opportunity. We examine the opportunity and, if it makes sense, then we'll put an NOI in. It depends. I don't want to basically isolate ourselves and say we're not going to buy a retail property this year because I think that, with the de-confinement and vaccination, as that progresses, there may be a very positive impact, and we'll see.But right now, there's just no retail opportunity that we want to look at. So yes, there are some out there, but none that would fit our interest. But whatever the brokers put together or put in front of us, we'll look at it, but it doesn't mean that we're going to go forward.
And moving on to leasing. When you talk to your retail clients' tenants, what are you hearing from them when you have renewal discussions, or in general when you talk to them? I'd like to understand how they feel about the situation.
For instance, in the office segment -- and I know that this is very present in Toronto and downtown Montreal, but I remind you that we don't own properties aside from a head office in downtown Montreal and another one that is not a major property. But in our properties that are located in Tier 1 type of suburban areas, I won't say that it's business as usual, but it's definitely close to being business as usual.And so these tenants, some are looking. I'll give you a little bit of color. There's a tenant in Quebec City that has 2 years left on their lease. They want to renew, but they want to change the way that the layout of their offices are. So this to us is positive, because this is a renewal that is going to be in progress. Yes, it's going to cost us a little bit of money in order to extend the term by 10 years, but the tenant is staying. So the tenants are not saying, we're leaving in the office segment. They're saying we want to look at the way our operation is laid out in our office space. And this is not a general trend. It's very specific to certain areas. We have ongoing lease negotiations. We're close to closing certain lease negotiations with new tenants in our office properties, in suburban office properties. And for them, it's business as usual. So we don't see what we hear occurring in the downtowns. On the contrary, we're seeing an increase, not a fundamental increase in demand, but a good, steady demand for our office products. In our retail, and I'll give you another example. In Quebec City, we had the 2 vacant spaces, and one was 2,500 square feet; the other one, let's say, closer to 2,000 square feet. They were both leased during the quarter. And it's sort of, yes, franchises, but with large franchisors. So we do see the positive effect. When I mentioned that we see the end of the COVID tunnel, I think that this is part of it. We're seeing that the market is coming back. And I understand that the market in the downtowns is not so much coming back right now, but I think it will. And it's just a question of logistics as to how you get to your office space, is everybody vaccinated, how you're going to demonstrate that you are, in fact, vaccinated. And I think that those are all questions for the downtowns, but these questions in the office segment don't necessarily apply to our suburban properties.
And now I have a few questions for Mathieu. The rent collection, 99%, is that the rent you are supposed to receive as per your leases? Or is it after you have negotiated any deferrals and any other arrangements?
Those are contractual rent.
And your account receivables declined by about $400,000 from $5 million to $4.8 million -- sorry, $400,000. So how does that flow through your income statement and cash flow statement, if you could explain a bit?
Well, in terms of collection, we can go through the math together, yes, if you want. But in terms of the collection, for the P&L, we see the improvement of the provisions for credit losses. So definitely, we see it on the P&L side.It's important to remember, we had some deferral rents last year for which we did took some provisions. If we look back in Q2 2020, we have for about $1.6 million of deferred rent, and we have provision of about 20% on those. And then, as we move along during the year, and as the tenants start to pay under their agreement, we're left now with only $25,000 of [ REIT ] tenants are not fulfilling their proposal. So that created some provision release positively for this quarter. So that's something that we see on the P&L. And in terms of cash flow, I mean, I guess we see the cash coming in from that difference from last quarter. So as Michel mentioned, we're back to a level that is even better than pre-pandemic at this point.
And at this time, we have no further questions. Mr. Leonard, please go ahead.
I think that the theme of our presentation this morning was to show that, definitely, we see improving signs regarding the reopening visibility as the vaccination progresses. I think a very positive sign is the fact that we did experience a conversion of our debenture holders that is causing deleveraging of our total debt ratio was, again, a positive sign.If we look at our same-property NOI and its effect on COVID; and if we withdraw the effect of COVID, and Sportium didn't leave, then we would have an extremely positive same-property NOI. We're showing an increase in lease renewal rates that's very high. And the available liquidity from our cash or our undrawn lines of credit totals $44 million that we can redeploy in order to glean more NOI from our operations, which is incredibly positive. So we're ending the quarter on an extremely positive note, an extremely positive mindset, and we're looking forward to resuming our growth and going from here. So thank you very much for participating in our conference this morning and for sharing our positive results, and we'll see you in our conference in Q2. Thank you very much.
Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.