Analyzing Canadian REITs, Part V: Retail

by: Monty Spivak

<< Return to Part IV

This is the next Canadian real estate segment in the series. Again, the purpose of this series is to expose investors to alternative high-yield, moderate risk alternatives, with geographic diversification. The small and micro-capitalization of these securities lend them to the strategy proposed in my previous series of articles: Positioning Your Equity Portfolio For High Yield With Moderate Risk.Crombie REIT (OTC:CROMF) is almost exclusively anchored by Sobey’s supermarkets, and both have Empire Inc. (OTCPK:EMLAF) as their controlling shareholder.

Many large Canadian Retail malls are anchored by large American chains. Wal-Mart (NYSE:WMT), and presently Target (NYSE:TGT) have (or in the case of Target soon will be) present in the larger retail malls owned and managed by Riocan (OTCPK:RIOCF) and Calloway (OTC:CWYUF). Many of the other malls are anchored by supermarkets – for example,

This section is divided into 3 sections, with the information sources identified in Part 1:

1. The name, tickers, and US stock exchange prices. This will help non-Canadians find these securities on U.S. exchanges, when possible.


CDN Ticker

US Ticker





Becker Milk Company



Calloway REIT







Crombie REIT







First Capital Realty




Fronsac Real Estate Investment Trust



Gulf & Pacific Equities Corp.



Partners Real Estate Investment Trust







Plazacorp Retail Properties



Primaris REIT







Retrocom Mid Market REIT







Riocan REIT







Scotts REIT







2. A table of statistics based on the Canadian stock exchange activities. The US sources do not typically carry this data, which may be important to your investment decision.

3. The following (name, website, Description, 2011 Financial and other info) provides a description and financial results. This will help you identify and understand the company activities and results.

Becker Milk Company (website N/A)

The Becker Milk Company Limited (Beckers) is a real estate management company. It is a real estate investment company, best known for its former dairy and convenience store businesses. As of April 30, 2011, the Company owns and manages 69 retail commercial properties, one of which is being held for sale. One property is in Metro Toronto and the balance is in other areas of Southern Ontario. Most of the properties are single store sites with a few multi-store plazas.

As of April 30, 2011, the Company had leased to third parties 87 retail stores and three residential sites. The residential sites are made up of apartments above the retail commercial sites. Sixty-one sites were leased to Mac's Convenience Stores Inc. (a subsidiary of Alimentation Couche-Tard Inc.). The remaining 26 retail sites were leased to other tenants. Author's note: Single tenant dominance – and the tenant experienced financial problems.


As of December 31, 2010, it owned 128 shopping centers, one office building and one industrial building, with total gross leasable area of 24.2 million square feet, located in communities across Canada. As of December 31, 2010, the SmartCentres Group of Companies (SmartCentres) owned approximately 21.5% of the Trust. On November 23, 2010, it acquired a 50% co-ownership interest in an 18.47 acre development property in Toronto. On September 13, 2010, it acquired two properties in Ontario and Quebec from a joint venture between SmartCentres and Wal-Mart Canada Realty Inc.

Q3/11 fully diluted (FD) funds from operations (FFO) were $0.426/unit compared to $0.401 last year and our $0.42 estimate. Q3/11 results benefited from completed acquisitions, earnouts and developments, as well as lower interest expenses and G&A costs. Same-property cash NOI rose 1.0% in Q3/11 (1.4% on an IFRS basis) due to lease up of previously vacant space and lower bad debt expenses. This marks the eighth consecutive quarter of positive same-property cash-NOI growth. On September 26, Calloway announced an agreement with Target Corporation (TGT) to convert two (of its four) Zellers stores into Target locations. The conversion will begin in 2012, with the store opening expected by summer 2013.


Crombie invests in income-producing retail, office and mixed-use properties located in Canada. As of December 31, 2010, Crombie owned a portfolio of 130 commercial properties in eight provinces, comprising approximately 12 million square feet of gross leaseable area (GLA). On February 1, 2010, Crombie completed the refinancing of the office and retail portfolio, the Halifax Developments (HDL). During the year ended December 31, 2010, it acquired five retail properties, representing approximately 186,000 square feet of GLA; acquired three retail properties, representing approximately 147,000 square feet of GLA; acquired nine properties; acquired one Quebec property, representing approximately 47,000 square feet of GLA, and acquired two Quebec properties, representing approximately 86,000 square feet of GLA, all, from the subsidiaries of Empire Company Limited (Empire).

Q3/11 fully diluted (FD) funds from operations (FFO) was $0.26/unit versus $0.25/unit a year ago and our $0.26/unit estimate. Q3/11 FFO was mainly lifted by acquisition growth, which offset a 0.5% decline in Q3/11 same-portfolio NOI (on both a cash and accounting basis). The decline in same-property NOI was primarily driven by a decrease in occupancy in the REIT’s enclosed retail properties. The REIT’s overall occupancy was 94.7% at Q3/11 compared to 94.9% at Q2/11 and 95.5% at Q3/10. The quarter-over-quarter decline in occupancy was due to a 130-bps decline in enclosed retail properties. Crombie (CRR.UN-SP) completed 815,000 sq. ft. of new and renewal leasing in 9M/11 (~149,000 sq. ft. in Q3/11) on the 1,092,000 sq. ft. of leases maturing in 2011.

First Capital Realty (OTC:FCRGF)

First Capital Realty Inc. (First Capital Realty) is an owner, developer and operator of supermarket and drugstore anchored neighbourhood and community shopping centers located in metropolitan areas. As of December 31, 2010, it owned interests in 178 properties, including three under development, totaling approximately 21.6 million square feet of gross leasable area. The average size of the shopping centers is approximately 120,000 square feet, with sizes ranging from 20,000 to over 500,000 square feet. During the year ended December 31, 2010, it acquired four shopping centers, consisting 658,000 square feet. Effective January 2010, it acquired the remaining 40% ownership interest in the joint venture (FCB) with Brookfield LePage Johnson Controls Facility Management Services, which provided property management services for its properties. On August 15, 2011, the Company acquired Macleod Plaza. On September 20, 2011, the Company acquired Longstreet Shopping Centre in Edmonton, Alberta.

Q3/11 FD FFO was $0.24/share ($0.25/share excluding other gains, losses, and one-time items) compared to $0.23 last year and our $0.24 estimate. Q3/11 FFO was boosted by a +3.4% rise in same-property NOI, excluding redevelopments and expansions, and acquisitions, which offset the timing difference between raising capital and investing it. Including redevelopment and expansions, same-property NOI rose +4.4% in Q3/11. Other gains, losses, and one-time items included a $1.5 million non-cash expense related to debenture conversion inducement (a temporary reduction of conversion price to encourage conversion). Portfolio occupancy was 96.3% at Q3/11 compared to 96.4% at Q3/10 and 96.2% at Q2/11. Approximately 40 basis points of Q3 vacancy related to space held for redevelopment.

Fronsac Real Estate Investment Trust (website N/A)

Fronsac Real Estate Investment Trust (REIT), formerly Fronsac Capital Inc., is a Canada-based company. It is operating in the real estate commercial market. Fronsac is the owner of two commercial properties located in Mont St-Hilaire and St-Jean-sur-le-Richelieu. The commercial property has three tenants, a McDonald restaurant, a Beau-Soir convenience store and an Ultramar service station. 9167-9688 Quebec Inc. is the subsidiary of the Company.

Q3/2011: On July 1st 2011, Fronsac Capital Inc. ("Fronsac") was converted into a real estate investment trust by exchanging its common shares for trust units of Fronsac REIT. On that date, Fronsac REIT issued 13,790,000 units exchanged for 13,790,000 shares of Fronsac. Fronsac REIT has then inherited the real estate portfolio of Fronsac and continued its operations. The net loss of the third quarter was $(80,710) or $(0.006) per unit (2010: $(47,509) or $(0.003)). The 2011 net loss includes an expense of $35,572 related to the conversion of Fronsac into a real estate investment trust and to acquisitions of properties.

Gulf & Pacific Equities Corp.

Acquires, manages and develops grocery-store-anchored shopping malls in rural centres in Alberta and British Columbia.

November 25, 2011 – announced the nine months 2011 revenues of $3,157,422 up from $2,861,622 in the same period last year, representing an increase of 10.3%. As well, the company reports Funds from Operation of $0.04 per share for the nine months period. Details of the nine and three months financial results for fiscal 2011 and 2010 under International Financial Reporting Standards (IFRS) are available at Sedar or at the company’s website. All of the Company's outstanding 8% unsecured debentures due September 1, 2013 (the "Debentures"), have been redeemed. The Debentures were redeemed for the principal amount of the Debentures outstanding plus accrued and unpaid interest.

Partners Real Estate Investment Trust (OTC:PTSRF)

Partners REIT (formerly Charter Real Estate Investment Trust) is a mid-market retail REIT, focused on acquisitions of $10 mln to $50 mln in primary and secondary market with a portfolio comprising 20 properties, totaling approximately 1.6 million sq. ft. of retail space.

Q3/11 FD FFO was $0.04/unit, unchanged from a year ago, but below our $0.05/estimate. Improvements in the REIT’s rental income (NOI) resulting from Partners’ (PAR.UN-SP) recent leasing activity and retail property acquisitions completed over the past 12 months were offset by higher interest expenses, greater general and administrative expenses and a 32% increase in the weighted average number of basic units outstanding. Q3/11 same-property NOI rose 5.3% year over year (Y/Y), reflecting an increase in same-property occupancy to 98.5% from 95.2% a year ago and a decline in property operating expenses due to lower accounting costs and reduced property management fees as a result of the REIT’s successful renegotiation of external property management agreements.

Plazacorp Retail Properties

Plazacorp Retail Properties Ltd. acquires, develops and redevelops retail real estate throughout Atlantic Canada, Quebec and Ontario. The Company's portfolio as at December 31, 2010 includes interests in 107 properties totaling over 4.9 million square feet and additional lands held for development. These include properties directly held by Plazacorp, its subsidiaries and through joint ventures. The Company invests in development of new properties on behalf of existing clients or in response to demand; redevelopment of amortized shopping malls and strip plazas, and financial investments in properties. During the year ended December 31, 2010, the Company completed 872 thousand square feet of new and renewal leasing deals At December 31, 2010, overall occupancy for the portfolio (excluding properties under development and non-consolidated investments) was 97.4%. During 2010, its average occupancy for enclosed malls was 96.8%, and occupancy for single use assets was 100%.

For the quarter ended September 30, 2011, Plazacorp reported funds from operations ("FFO") of $3.7 million, consistent with the same period in the prior year. FFO per share was $0.071 for the three months ended September 30, 2011 ($0.071 per share diluted) compared to $0.075 per share for the three months ended September 30, 2010 ($0.074 per share diluted). FFO was buoyed by growth in net property operating income (net of financing expense), offset by the effects of the internalization on FFO, as well as one-time administrative costs and one-time costs on mortgages defeased. The per share numbers were also impacted by the $27.7 million equity raise completed at the end of September. Plazacorp reported FFO of $10.4 million for the nine months ended September 30, 2011, an increase of 3.1% over the same period for the prior year. FFO per share was $0.203 for the nine months ended September 30, 2011 ($0.203 per share diluted) compared to $0.204 per share for the nine months ended September 30, 2010 ($0.204 per share diluted).


Primaris owns, manages, leases and develops retail properties, primarily in Canada. These properties are typically mid-market retail centers in major cities or major retail centers in secondary cities. The portfolio's focus has been enclosed shopping centers. As of December 31, 2010, Primaris owned 29 principal properties. As of June 30, 2011, its properties included Aberdeen Mall, Burlington Mall, Cornwall Centre, Dufferin Mall, Eglinton Square, Grant Park, Lambton Mall, Northland Village Mall, Place d'Orleans and Tecumseh Mall. In August 2010, Primaris acquired Cataraqui Town Centre in Kingston, Ontario. Primaris Retail REIT is a shopping centre REIT (primarily enclosed malls) with 32 income producing properties totaling 13.5 mln. sq. ft. Primaris targets three markets: mid-market properties in major urban centres, primary shopping centres in secondary markets, and other retail. Primaris completed its initial public offering in July 2003.

Q3/11 fully diluted Funds From Operation was $0.35/unit compared to $0.34/unit a year ago and our $0.36/unit estimate. The improvement from last year was mainly the result of the large, accretive portfolio transaction completed in Q2/11, and Cataraqui Town Centre, acquired during Q3/10. However, lower-than-expected economic occupancy weighed on same-property NOI, which rose a modest 0.1% in Q3/11, below expectations of 1%-2%. Primaris’ committed (occupied plus executed leases for unoccupied space) occupancy was 96.5% at Q3/11 compared to 95.7% at Q2/11 and 97.0% at Q3/10. The spread between committed occupancy and economic occupancy was 50 bps higher than usual (~1% currently vs. an average of 0.5%). A number of small tenants in some stage of bankruptcy accounted for the lower economic occupancy. These tenants include: Tabi, Blockbuster, Jacob, Please Mum, Sterling Shoes, Clothing for Modern Times (Urban Behavior, Casablanca) and others. The REIT also held some space vacant for remerchandising or redeveloping (Cataraqui and Lambton Mall).

Retrocom Mid Market REIT (OTC:RTRCF)

Retrocom Mid-Market REIT owns 34 properties totaling 5.4 mln. sq. ft., invested primarily in mid-market shopping centres across Canada. It is controlled by Mitchell Goldhar (24% voting interest). Retrocom is a retail property real estate investment trust. Retrocom REIT focuses on owning and acquiring mid-market retail properties in cities across Canada. Its overall occupancy rate as of December 31, 2009. was 89.9%. Its Smartcentres Portfolio, totaling approximately 522,915 square feet of gross leasable area, is located in the major metropolitan market of the Greater Toronto Area. As of December 31, 2009, the SmartCentres Portfolio was approximately 91.4% occupied. As of December 31, 2009, Retrocom owned a portfolio of 23 retail mid-market commercial properties, covering 4.3 million square feet. The properties are located in British Columbia (one), Alberta (two), Saskatchewan (six), Ontario (ten) and one property in each of Manitoba, New Brunswick, Nova Scotia and the Yukon Territory. On June 12, 2009, it sold two properties in Manitoba.

Q3/11 FD FFO was $0.11/unit, up from $0.08/unit a year ago and above our $0.09/unit estimate. The increase in Q3/11 FD FFO was due to Retrocom’s acquisition activity over the past 12 months and a reduction in interest expense due to the refinancing of maturing mortgages at lower interest rates over the past four quarters. Same-property rental income declined 3.0% year-over-year (Y/Y) as same-property occupancy in Q3/11 was 82.0%, down from 84.4% a year ago. However, including the REIT’s completed pre-leasing agreements for properties under development, Retrocom’s overall occupancy would have been 87.8% versus 85.1% in Q3/11.


RioCan is Canada's largest REIT with interests in a portfolio of over 300 community and new-format shopping centres in Canada and the U.S., including 10 greenfield sites, totaling over 43 mln. sq.ft. of NLA (the REIT's share), as well as a 14% interest in Cedar Shopping Centers Inc, a U.S. shopping center REIT. As of December 31, 2010, it owned and managed a portfolio of shopping centers, with ownership interests in a portfolio of 297retail properties, including 10 under development, containing an aggregate of over 70.7 million square feet. As of December 31, 2010, it had ownership interests in a portfolio of 287 shopping centers, comprising 63.7 million square feet. In addition, it had ownership interests in 10 Greenfield Development projects as of December 31, 2010. During the year ended December 31, 2010, it acquired a total of 48 properties (19 in Canada and 29 in the United States). On October 8, 2010, it announced the acquisition of Las Palmas Marketplace in El Paso, Texas through a joint venture arrangement with Kimco Realty Corporation and Dunhill Partners, Inc. In December 2011, it purchased the Sheppard Centre on a 50/50 joint venture basis.

Q3/11 fully diluted funds from operations were $0.36/unit, up from $0.35 last year and slightly below our $0.37 estimate. Operating FFO, which excludes transactional gains and development expenditures no longer capitalized, were $0.37 per unit, up from $0.35 a year earlier. Same-store NOI growth of +1.1% overall benefited Q3 results, as +1.3% growth from the Canadian portfolio (97% of same-store NOI) and +1.0% in the U.S. portfolio (in U.S. dollar terms, down 5.0% in $C) were negatively impacted by the effect of the translation of U.S. results into Canadian dollars at a higher Canadian dollar exchange rate. Acquisitions, completed development activities and higher fee income contributed to the improvement in operating FFO, but were partially offset by a higher outstanding unit count, lower lease cancellation fees and increased interest and G&A expenses. The REIT’s overall occupancy, including committed but not currently rent-paying space, was 97.5% at Q3/11, flat from Q2/11 and up from 97.1% a year earlier. Economic occupancy (occupied space where tenants are currently paying rent) was 96.3% at Q3/11, up 50 bps from 95.8% at Q3/10. The REIT estimates that the annualized rent from the approximately 0.5 million sq.ft. of committed space that has been leased, but not yet occupied (or paying rent), is ~$12 million, or approximately $0.04/unit of annualized FFO/AFFO.


Scott's REIT, indirectly through SR Operating Trust (SR Trust), holds a 68.9% interest in Scott's Real Estate Limited Partnership (Scott's LP) and holds directly a 100% in Scott's Trustee Corp. (Trusteeco), the sole trustee of Scott's GP Trust (GP Trust), the general partner of Scott's LP. Scott's REIT owns a geographically diversified portfolio of retail properties across Canada. As of December 31, 2009, Scott's REIT indirectly owned a portfolio of 207 income producing retail properties across Canada (the REIT Properties) with an aggregate of approximately 777,004 square feet of gross leasable area. On November 16, 2009, the Company announced a sale leaseback transaction with Shoppers Drug Mart Corporation (Shoppers) for 12 properties located in Alberta, Manitoba, Ontario, Quebec and Nova Scotia. Priszm is a tenant at 79 of the REIT’s properties excluding leases yet to be assigned to Soul Restaurants Canada Inc. (Soul) and FMI Atlantic Inc. (FMI). In total, Priszm accounts for 24% of total minimum rent and remains a major credit risk for Scott’s REIT. In Q3/11, Priszm sold 43 restaurants in New Brunswick and Nova Scotia to FMI, an entity controlled by a current Canadian Yum! Restaurants International franchisee (NYSE:YUM) traded on the NYSE, including locations at 19 properties owned by Scott’s REIT. Of the 19 properties, consent was required by Scott’s to assign 16 leases to FMI, which the REIT provided. However, these lease assignments have not yet been executed by Priszm and FMI. The three remaining properties were disclaimed by Priszm and Scott’s simultaneously completed new lease agreements with FMI.

Q3/11 FD FFO was below expectation at $0.11/unit (on an IFRS basis excluding a $0.01/unit write-off of a tenant allowance and $0.12/unit in transaction costs relating to the REIT’s $12 million convertible debenture offering), down from $0.20/unit from a year earlier. On a cash basis, Q3/11 FD AFFO was $0.14/unit, down from $0.20/unit a year. The decline in the REIT’s FD FFO and FD AFFO was driven by lower rental income (NOI), higher interest costs and greater general and administrative expenses. Same-portfolio NOI in Q3/11 decreased by 10.3% year over year (Y/Y) or declined 6.8% Y/Y on a cash basis. Q3/11 same-property occupancy fell to 95.5% from 99.0% in Q3/10. Subsequent to the end of Q3/11, an additional four units became vacant in Atlantic Canada, reducing the REIT’s occupancy to 94.9%.

Disclosure: I am long OTC:CROMF, OTC:RTRCF, OTCPK:RIOCF.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here