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Good morning. My name is Anis, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the BTB Real Estate Investment Trust 2020 Fourth Quarter Conference Call for which management will discuss the quarter ended December 30, 2020. [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 inherent risks and uncertainties, both general and specific, which give 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 expectations 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 management discussion and analysis and 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 Léonard, President and Chief Executive Officer; and Mr. Mathieu Bolté, Vice President and Chief Financial Officer. Mr. Léonard, you may begin your conference.
Thank you very much, and welcome to our conference. It's with great pleasure that we are producing and supplying you with our results for Q4 2020. As mentioned before, you could follow our presentation if you're on our website at Investor Relations and at the location that was given to you by our conference facilitator. I am on Page 4 of said presentation. So we are starting with the effects of COVID obviously, on BTB. And as reported earlier -- in earlier quarters, we had set up a task force, and our task force is still in place to monitor what's going on with the new federal program that was announced for commercial tenants. In this case, BTB's input is no longer necessary in order to qualify our tenants for the program, nor does the program require BTB to contribute in any financial way for the program as the CECRA program required us to do so. But we've decided, in any event, to assist our tenants with their various questions and to help them file within the program in order to ensure that they do receive the different assistance from the program. We did establish a protocol for rent and accounts receivable collections. And I think that it is not worthy, and Mathieu is going to dwell into the details, but you will -- you probably saw that accounts receivable collection were very strong, where we reduced to an almost $9 million of accounts receivable to approximately $5 million at the end of the year. So as part of our task force, it was important for us to monitor our cash flow and our operational expenses. And regarding the new federal program, we saw that very few tenants of ours did take part into the program. Just a recap on the CECRA program, we did file successfully 80 -- or approximately 80 applications, which represented roughly 15% of our tenant base. We did receive all government subsidies that we were scheduled to receive by Q4 2020. And from the month of May to the month of December, we did not negotiate or put in place any additional rent deferral agreements with our tenants. There is $800,000 that remain to be collected in our rent deferral program that took place between March and September. And as reported in Q2 and thereafter for the year, we only had 4 tenants that filed for bankruptcy or restructuring and that occurred in Q2 2020. And therefore, there is no tenant of BTB that have filed for restructuring as well since. Regarding our operational highlights, I'm on Page 5. As you saw from our numbers, and you will hear from Mathieu, our portfolio did show continuous resilience. We had no exposure -- additional exposure to bankruptcies or restructuring. We collected 100% of our rent for Q4 2020 and 98.8%, almost at 99% for the COVID period, and the subsidies from the federal government have all been received. We have a significant level of activity for lease renewals and new leases. Although, if we go back to the month of April of last year, we didn't think that this 2020 was going to be as strong as we saw, and I'll go into the details of the numbers. We concluded the year with a positive same-property NOI growth, and that excludes from the calculation of our NOI growth, same-property NOI growth, I should say, a payment that was received in 2019 on a comparable basis for a lease cancellation of $1.1 million. We did successfully redeem Series F debenture that was coming to maturity in 2020. And we issued a new debenture, and we started to receive conversion notices. And in Q4 2020, we received the equivalent of $615,000 of conversion notices for the Series H that was issued in September 2020 in replacement of the Series F debentures. I'm also pleased to report that we are continuing to receive conversion notices since, and even yesterday, we received conversion notices. The payout ratio is at our expected level following the adjustment that occurred in May of 2020. Our book -- our same-property NOI, slightly lower for the year at 0.1% as affected by COVID-related issues that Mathieu is going to talk about. The fair market value of our portfolio was down as a result of the office and retail sector, where we saw our appraised cap rates increased slightly, and that generated an adjustment in the fair value of the total portfolio. However, during that time, we also saw an increase in the value of our industrial properties, and that had a counter effect to the fair value adjustment of the office sector and the retail sector. Our book value is calculated at $5.4 per outstanding unit of BTB. Turning to Page 6. Our committed occupancy is 92.2%, our total debt ratio at 59.4%, the mortgage debt ratio of 52.9%. We received 100% of our rent collection for Q4. Our FFO per unit is at $0.099 and the payout ratio is at 75.5%. We did -- and regarding our lease activity, lease, renewals and conclusion of new leases for 1.1 million square feet in 2020. And we saw in all categories a 6.8% increase in the lease renewal rate. We're no longer reporting the mixed-use category as we understood that it was too confusing for investors. So we basically reallocated the mixed-use category into either the office sector or the retail sector. I'll give you an example. Our property at the corner of Saint-Catherine Street and Crescent Street in downtown Montréal was categorized as a mixed-use, and now it's been recategorized as an office property. Our competitive advantage, I'd like to remind our investors that BTB does not own enclosed malls in the retail segment, and our portfolio diversification gives good exposure to the industrial and office market. Our largest tenants are investment-grade. Our -- we have a core market presence, and our 2018 repositioning strategy definitely shows its strength. Regarding our lease activity. As I mentioned earlier, we -- our total activity was 1.1 million square feet for the year 2020, basically representing 21% of our total leasable area. We concluded 836,000 square -- I'm on Page 7. We concluded 836,000 square feet of lease renewals, and that includes lease that were renewed for subsequent years, so 305,000 square feet were renewed for lease expiration of 2020 and 531,000 for later year. And one thing that is important to note that during our Q4, we renewed 74,000 square feet with -- in the office in the office sector. We concluded for the year 281,000 square feet of new leases, which is an important statistic, given the fact that if we go back to May, most would have said that the lease renewals would have been difficult, and also that new lease would have also been difficult. Our lease renewal rate was 66%. We were affected by Sportium, which was a -- who is a tenant -- was a tenant where we were trying to negotiate a long-term lease with them in our Saint-Bruno property. And given that they didn't want to pay the market rate for our space, we decided not to conclude the lease with them that represented 30,000 square feet, and otherwise, our lease renewal rate would have been at 86%. And that singular lease caused a decrease in our occupancy rate in the retail sector of 2.7%. So the message I'm trying to give you is not the fact that they didn't want to renew. It's the fact that we didn't want to renew them. So the -- another important statistic is the average rental rates of renewed leases. So it was 6.8% for the year. We saw an increase of 9% in the industrial sector, 2.2% in the office -- in the retail sector and 7.3% in the office sector. We also increased the average lease term to 5, almost 6 years compared to 5.5 years in 2019. And turning to Page 8. In our capital allocation, we've reported we did purchase 2 properties in 2020, the last one in Q4 2020, an industrial property located in Laval on the North Shore of Montréal. The purchase price was $8.1 million. And throughout the year, we did dispose off certain properties, whether Côte-de-Liesse in London, Ontario -- Côte-de-Liesse in Montréal, London, Ontario, 1001 Sherbrooke Street East in Montréal and 560 Henri Bourassa also in Montréal, but occurring in Q4 2020. So given the fact that we no longer report on the mixed-use property, 24.7% of our portfolio are industrial, 48.8% are office properties and 26.5% our retail properties. With this summary, I'd like to ask Mathieu to go into the details of our financial reporting, namely our financial performance. Mathieu?
Yes. Thank you, Michel. Good morning, everyone. I'll start on Page 10 to discuss our financial results and the key financial metrics. So net income totaled $3.9 million compared to $41.6 million for the same period in 2019. The decrease is primarily attributed to noncash items. So first, in 2019, BTB recorded an increase in the fair value of investment properties of about $34 million compared to a $2.3 million increase in 2020. So for the year, fair value adjustment on investment properties showed a reduction in the fair value of our retail and office properties of $26 million, mainly COVID-related that has been partially compensated with a positive increase for our industrial properties of $18 million, driven by new leases and as well capitalization rate. Total fair value adjustment for 2020 is a negative $8.4 million or equivalent to 1% of the value of the -- of our portfolio. Also for the quarter in 2019, BTB recorded an increase in net adjustment to the fair value of derivative financial instruments of $1.2 million compared to a decrease of $2.9 million in 2020. Our competitive results, as Michel mentioned, were affected by the recording in Q4 2019 of an indemnity from a tenant percent to a lease cancellation prior to the end of the term for a total amount of $1.1 million. So we will cover, on next 2 pages, the figure on an adjusted basis for the revenue, the NOI, the FFO and AFFO. Finally, we can say that most of the impacts of the pandemic were recorded in the second quarter with no additional bankruptcies announced in the third and the fourth quarter. The Q4 results are mainly impacted by 4 tenant bankruptcies announced in the second quarter with a $0.3 million impact on the top line and no additional elements for expected credit losses. On Page 11. So excluding the $1.1 million indemnity collected in Q4 2019, revenues are down 8.3% or approximately $2 million from $24.5 to $22.5 million. For an NOI standpoint, the reduction of revenues has been compensated by a $1.7 million operating cost reduction coming from productivity and the closure of some properties during the last week of December following the government measures. The NOI margin is up 60 bps compared to last year. Year-to-date, the NOI is up 0.7%. And excluding the COVID-19 impact that we estimate at about $1.3 million for the year, the NOI growth would have been 3.3% for the year. Moving on Page 12. FFO per unit was $0.099, down from $0.118 for the same quarter last year. The difference is coming from the indemnity paid last year. Our FFO payout was 75.5% versus the same quarter last year of 88.7%, so an improvement of approximately 13%. AFFO per unit was $0.098, down from $0.108 for the same quarter last year. So again, excluding the indemnity of last year, the main difference coming from a $0.6 million variance with last year related to the straight-line rental revenue adjustment of last year. Our FFO payout was 76.3% versus the same quarter last year of 96.8%. In this case, it's an improvement of about 20%. So overall, for the year, the impact of COVID-19 on FFO and AFFO was $0.043 per unit, with the main drivers being or $0.006 per unit related to the CECRA program, $0.022 per unit for the allowance for expected credit losses and $0.015 per unit for the second quarter bankruptcies. Next on Page 13. Just to mention, the weighted average interest rate at the end of the year was 3.57% compared to 3.92% for the same quarter last year, so a decrease of 35 basis points on interest rate on average. So we continue to benefit for -- from the current low rate environment in our refinancing, and during the quarter, we closed $31 million to refinance 2 properties. Our debt to gross book value was 59.4%, compared to 59.1% a year ago. So we maintained a ratio below our goal of 60%. Also, our liquidity stood at $15 million, of which $9 million in cash and $6 million available under our credit facility. Finally, moving on Page 14. So Michel mentioned that we -- as you know, we closed in September last year, the new debenture to refinance the Series F debenture that was coming due in December last year. So as Michel mentioned, I would like just to mention that the conversion price was fixed at $3.64, which explains the start of the conversion that we started to see in the quarter last year, and is going along as well this first quarter. And then for the mortgages due in 2021, so in the short term, $106 million is coming due, of which $66 million will be completed in due course during the first half of the year, and the remaining will be completed in second half of 2021. So that concludes our presentation. And with that, we will move on to the Q&A.
[Operator Instructions] Your first question comes from Leon Shen with II Capital.
Just a couple of quick questions for me. Just in regards to liquidity, I was just wondering if you can comment how you feel about your current cash position today for the rest of 2021?
Look, I think we still -- thank you for your question. I think we've been working, obviously, last year in terms of cash position, as Michel mentioned, improving the AR position, working with our bank to improve our credit facilities. So we might have more next quarter. But overall, I think it's -- we feel good about the position, but it's something that we constantly have to keep monitoring.
Okay. Great. And just -- and the last one for me. I know it's still kind of in the early stages in the process, but what do you see in terms of acquisition opportunities at this stage?
During the third and fourth quarters, we didn't see a whole lot of properties on the market. But during the first quarter of 2021, we're seeing an influx of properties on the market and very interesting potential investments. So obviously, as you saw, our cost of capital being down, it will allow us to migrate to purchasing even better producing properties for us. So we're not jumping the gun at acquiring anything that we want or anything that we're seeing. We're still being very careful on that front. However, we see that during the year 2021, BTB could acquire a good chunk of properties if the market continues to treat us well.
Your next question comes from Matt Kornack with National Bank.
Just wanted to quickly follow-up on that last question, maybe a bit more detail in terms of where you're seeing these assets. Are they Montréal, Québec City, Ottawa as well? And what type of assets? I mean, it doesn't seem like industrial pricing is all that attractive, given your cost of capital at this point. But maybe office, retail, et cetera, what are you seeing on that front?
No. Seeing -- well, I mean, you've written a lot, Matt, about the different REITs that are basically undergoing strategic reviews and investment this and investment that, and I sort of read your frustration in one of the papers that you published, but that's neither here nor there. But I think that there are going to be opportunities that are going to stem from these groups that are going to probably disinvest, and I would like to be ready for these groups to have a conversation with them in order to see what would be suitable for BTB. So that's one part of it. The other part is definitely -- of your question is industrial. It's difficult for us to touch industrial given the cap rates, whether Toronto, Montréal or elsewhere in Canada, we're seeing cap rates that sometimes are below 5%. And that's definitely not accretive for us, and we're not going to venture into the territory of a nonaccretive acquisition. So we're still -- how can I say disciplined on that front, and -- but there are going to be opportunities in the office sector. We're not going to be looking -- even if there's a fire sale on enclosed malls, we're not going to be looking at enclosed malls. We don't own any. And I think it's going to be more for an investor that will want to work these portfolios out, and I don't think that we're playing in this category. So we're basically concentrating on -- it's going to be office, going to be retail, it could be mostly office, I don't know. I haven't seen a lot of retail opportunities on the market these days. So -- but have seen office opportunities, really good office opportunities, but not in the downtowns. We're not looking in downtown. Our strategy was to look -- to invest in the suburbs, and this is a strategy that has been in place for quite a while now. And our office properties are operational in the suburbs. We're -- as you saw, we're getting 100% of rent collection. And so these are well located, great tenants. And given the fact that they're not high-rise, it seems that the attendants have the opportunity to be in their workspaces.
And I guess, in addition to potentially issuing equity capital to expand the portfolio, I mean, would you entertain looking at lightening up on the industrial side, considering you're probably sitting on some pretty sizable gains in that portfolio and low cap rates and/or -- I know that seems to be the trend these days and it's the last thing I need is another person looking at it. But I mean, it doesn't make sense to expand. It's 24%, I think, of your portfolio. So can you opportunistically redeploy that capital into these office assets?
I think that the answer, Matt, is yes, we could. But do we want to? I don't think so. I think that the industrial properties have basically being a diversified REIT. Investors, I think, should see the fact that given the fact that we did receive 100% collection from our industrial tenants, 100% from our office tenant and some discussion with our retail tenants, and it would have been extremely difficult for us, and I won't say survive because I think we would have survived it. But there would have been a few months of a lot of ache in order to get through 2020, having a portfolio concentrated in retail, for instance. And given the fact that our industrial office really contributed a lot to our bottom line and our performance, I can see the value of what it is to be a diversified REIT. And I think that this is -- has proven that a diversified REIT can weather the storm and show the resilience of this portfolio. So we know that we're sitting on 24% of industrial assets that are performing. We know that it's worth more money than -- I mean, in some properties we acquired 7 years ago at a 9% cap rate on the North Shore of Montréal, and these would be valued today at, say, 4.5% to a 5% cap rate. So there is definitely an increase in value. Our tenants are fantastic in these properties. So there -- I won't call it who's who of Canadian operations, but it could be a who's who of Québec. And as a result, I think that the way that it's been performing, I don't see why we would put them on the market.
Okay. No, that's fair. And last one for me. Just as you look out for the next couple of years with regards to the lease maturity profile, anything opportunity risk-wise that we should keep our eye out? And then a tangential unrelated question, but it sounded like you're not looking for downtown assets. But you haven't come across any -- like your new headquarters type properties on Sainte-Catherine Street at this point. Have you?
Yes. Well, like our property, our head office, that is definitely downtown, we have tenants that are in occupancy of our building. And I'm not allowed to name the tenant. We have a tenant on the fifth floor of our building, and it's a well-known provider of equipment. The first letter is an A and the last is an E, and they have a megastore close to our property, and it's their office space. And they've been an operation, and they are in operation. So it depends on which segment you are. And given the fact that we only have 5 floors, people can just walk up, or if you are in a downtown property like yours at 130 and the Exchange Tower, and let's say, that you're the 30th floor, it could take you 2 hours to get to your space, given the restrictions for the elevators. And we don't have these -- we do have a restriction for the elevator. However, you can go up by foot using the stairs, and 5 floors is only good for your health. So I'll just to say, opportunities that would be similar, we would definitely look at. But buying Place Ville Marie, I don't think that it's part of our -- it wouldn't be part of our target.
Your next question comes from Yash Sankpal with Laurentian Bank.
Your leasing activity, quite healthy activity. Could you talk a little bit more about your retail leasing? What you're seeing? And who are the tenants that are coming forward to do early leasing or releasing?
Well, I can tell you two things. In the retail segment, as you know, we reported that Sportium basically put itself under restructuring in Q2, and that was a large space that we in a building that we own on the South Shore of Montréal. And right now, the space is under an accepted LOI for the entirety of the space, and where the tenant would take occupancy in the month of June of this year. So now this -- the LOI is subject to lease execution. So we're waiting to execute the lease. Also, we reported L’Aubainerie and en Gros that filed also -- that had filed for bankruptcy in Q2 2020. And this space right now has been approved for a lease to a major food retailer -- a Canadian food retailer. And so, we're waiting again on this one, it's 26,000 square feet. We're waiting for a lease to be signed. So the activity remains in place. And we're not -- there was another space. I can't go through. There was another tenant bankruptcy done in March at Le Chatelier and the West Island of Montréal. That space has been relet as well. So we do see that there is activity. We're talking with retail brokers, and there are -- I forgot to mention, we renewed a lease with Staples in Saint-Bruno, which is 20,000 square feet. We're in discussion for a lease renewal with them again, and those lease renewals are for 10 years. Negotiating with them again for another lease that is coming to maturity in Saint-Jean-sur-Richelieu. So our tenant base is still there. They're renewing their leases. And as we reported, the -- we're still generating a rental increase from the retail segment, was 2.2% last year. And although I would say, Yash, that we are not trying to gouge on our lease renews in the retail sector, we're just trying to be fair. We're not trying to be -- our expectations are sort of lowered, but we're concluding these lease renewals, and we're still getting an uplift regarding the net rate that we are generating from these lease renewals, and they're long term. So generally, with our tendency, we're seeing that there's -- we're talking about long term. So I don't know if I answered your question, but the activity is strong. You saw our number of overall lease transactions for last year at 1.1 million square feet. I think it's substantial, and it shows that -- it shows again the resiliency of our portfolio.
That's good color. Now moving to the office sector. You have seen -- and your portfolio is doing quite well. But if you look at the overall market, vacancy rates have gone up, subleasing sublet space has -- the proportion has gone up. So in that environment, how do you think your portfolio will fair over the next little while?
I think that the numbers that you saw regarding the vacancy going up and rates coming down, a landlords market towards a tenant market is really applicable to the downtowns and not really to the suburbs. If you saw -- if you look at our office properties in the suburbs, we're all -- we're doing extremely well. We did a lease renewal with Desjardin Group -- Financial Group. We did 2 lease renewals with them last year, long term, again, increase in rental rates. So it's -- we don't see -- in our properties and in our environment, we don't see the competitiveness that you are reporting regarding the landlord or tenants market. But I'll say this, however, is that we're trying to be fair. We're not trying to gouge. We're just trying to conclude transactions. And we're looking for an increase, obviously, in revenues, but we're not trying to hit home runs all over the place. So we are resilient in our office segment. And whether Québec City, whether -- Ottawa, we're almost 100% full. So -- and we're not seeing signs because we're having leases coming to maturity. We're renewing them. And if we're not renewing them, then we're seeing that there's tenants looking for space, and we can book these new tenants. So there is leasing activity. And -- but I think that the color that you've given in your question is mostly applicable to the downtowns -- the Canadian downtowns.
Okay. Are you seeing any tenants moving from downtown to suburban locations in your portfolio?
No. We haven't seen it. We hear about it, but we haven't seen it.
Got it. Okay. And given what you are seeing out there, are you happy with your asset allocation or would you prefer to move towards a certain sector or reduce your exposure to a certain sector going forward?
I would love to have the cost of capital so low that we could buy industrial properties. But I mean, I have to deal with reality. So we have to look at what the market will offer BTB and not the dream and colors. So it's -- we are still going to be opportunistic and whatever opportunity that we get in the market, we're going to -- if a great opportunity, we're going to jump on it. And we're going to -- so the allocation of capital per se, I think that in this current climate, it would be nice to do a strategic plan and say, we should be 30-30-30 in each category. But in reality, it's going to be an opportunistic way of looking at the market. And if we see, as I mentioned, we hear about the bigger REITs that want to basically put certain properties on the market. If it's a big bundle and if the market supports us, then we may jump on it given the quality of whatever is going to be on the market. But I mean, we're ready to transact, and we would love to transact and have an opportunity to increase our size.
So if I read this correctly, you would like to reduce your office exposure and increase your industrial exposure or your retail exposure?
No, no, no. I just said that I think that I can dream about increasing our industrial exposure. But at our cost of capital, I think it would be very difficult. And I don't think that if a larger REIT decides to sell all their industrial properties, I don't think that they'll sell the industrial properties at a 7% cap rate. I think that they'll go the gusto and try to glean as much money as possible from their sales. So -- and I don't think we're going to be able to play in that league.
[Operator Instructions] There are no further questions at this time, Mr. Léonard. You may proceed.
Thank you very much for attending our conference this morning. Pretty -- are very excited about our results. I think that BTB is on the right track, and especially showing its resilience in this portfolio, but also looking at the leasing activity that we did go through during 2020, a very tough year for leasing and being able to conclude 1.1 million square feet of transactions. I think there was a splendid year for BTB. And we're looking at 2021 on a renewed basis in order to continue and look at the market in order to have growth opportunities. So again, thank you for following us. Thank you for attending, and we'll see you at Q1 2021 very soon. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.