BTB Real Estate Investment Trust (BTBUN) Earnings Call Transcript & Summary

Good morning. My name is Sylvie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to BTB Real Estate Investment Trust's 2020 Virtual Annual and Special Meeting of Unitholders. [Operator Instructions] The annual and special meeting will begin with the customary introduction by the Chairman of the Board of BTB, the recognition of the quorum and the business of the annual and special meeting, including management's presentation. [Operator Instructions] Please note that questions submitted online can only be seen by BTB's management. Should you be connected by phone and wish to view the presentation, please go to BTB's website at btbreit.com, Annual Meeting Presentation to find a presentation link. This presentation will be bilingual, both in French and in English. Before turning the meeting over to the Chairman of the Board of BTB and management, please be advised that some of the statements that may be made during this annual and special meeting may be forward-looking in nature. Such statements involve known and unknown risks and uncertainties that may cause the actual results of the BTB Real Estate Investment Trust to be materially different from those expressed or implied by such forward-looking statements. The risks, uncertainties and other factors that could influence actual results are described in BTB Real Estate Investment Trust's management discussion and analysis of financial results, and is in its annual information form, which were filed on SEDAR and on BTB's website at btbreit.com. I would like to remind everyone that this conference is being recorded. Thank you. I now will turn the conference over to Mr. Jocelyn Proteau, Chairman of the Board of Trustees; Mr. Michel Léonard, President and Chief Executive Officer; and Mr. Benoît Cyr, Vice President and Chief Financial Officer. Mr. Proteau, you may now begin your annual and special meeting.

Thank you very much, [Foreign Language]. Good morning, ladies and gentlemen. [Foreign Language] I'm Jocelyn Proteau, Chairman of the Board of the Trustees for BTB Real Estate Investment Trust, and I will chair this meeting of unitholders. [Foreign Language] Welcome to everyone. [Foreign Language] This meeting will be held in both French and English. Please do not hesitate to ask questions in the question period at the end of this meeting. [Foreign Language] It was announced on April 27, 2020, that the company would be authorized to hold a meeting by virtual means. So it is 11:04, so I'd like to open this meeting. [Foreign Language] Let me introduce the individuals seated next to me, Michel Léonard, President and CEO; Benoît Cyr, our CFO and Chief Financial Officer. Also present is Mr. Mathieu Bolté, the person who took over the responsibilities of Mr. Cyr as of May 25, 2020, as Mr. Cyr announced his retirement to take place in September of this year. [Foreign Language] Mrs. [ Martine Gotiae ] and Etienne Mailhot from Computershare Investor Services will act as scrutineers for this meeting. [Foreign Language] Madame [ Noaxel ] will act as Secretary for this meeting. [Foreign Language] A question period will be held after the vote on the various resolutions proposed today. Please note that only unitholders or their proxy may ask questions during the question period. If you have a specific question with respect to an item for your consideration and the agenda, please keep your questions for that period. [Foreign Language] I have received an affidavit from Computershare, and -- our registered agent transfer, confirming the transmission by mail to the unitholders of the notice of the meeting, the management proxy circular and the proxy forms was duly made. I ask that such affiliate with copies of the documentation transmitted by mail to the unitholders be filed by the Secretary together with the minutes of this meeting. [Foreign Language] I will now ask for a motion to waive the reading of the notice of the meeting. [Foreign Language]

[Foreign Language]

[Foreign Language]

Mr. Chairman, my name is J.P. Janson, I am a unitholder, and I second this proposition.

So we have a motion to waive the reading of the notice for this meeting. May I receive a motion from a unitholder who wishes to second the proposal -- sorry, sorry, it was done. So thank you all. So the motion is approved. So let's move to Item E, quorum. [Foreign Language] The contract of Trust stated -- states that, to constitute a quorum, unitholders attending the meeting, either personally or by proxy, must hold a minimum of 5% of the outstanding units. [Foreign Language] I have received the scrutineer's report on the number of unitholders participating or represented by proxy as well as the number of units represented by their holders of proxy. [Foreign Language] The scrutineers have counted and confirmed that 3 unitholders are attending or represented by a proxy for a total of 4.2 million units, representing 6.7% of the outstanding units. [Foreign Language] Based on the report that I received, I declare that the quorum has been obtained, and that the meeting has been duly called and constituted. [Foreign Language] Since this is a virtual meeting, only the votes received by proxies will be tabulated. [Foreign Language] The management discussion analysis, the audited consolidated financial statements and the auditor's report for the fiscal year ended December 31, 2019, have been filed on SEDAR, and have been presented to the unitholders. [Foreign Language] I would now invite Mr. Michel Léonard and Benoît Cyr, respectively, President and Chief Executive Officer, and Vice President and Chief Financial Officer, to make their report on the 2019 fiscal year. Mr. Léonard?

Thank you, Jocelyn. I'll start the presentation by introducing the trustees, [Foreign Language] You heard the Chairman of the Board of BTB, Jocelyn Proteau. With us today also is -- present is: Jean-Pierre Janson, Vice Chairman of the Board of Trustees; Luc Martin, who's President of the Audit Committee, [Foreign Language]; Lucie Ducharme, President of the Human Resource and Governance Committee; Fernand Perreault, President of the Investment Committee and Trustee [Foreign Language]; Luc Lachapelle, trustee; Peter Polatos, trustee; and myself, President and Chief Executive Officer of BTB, also acting as trustee of BTB. As you are aware, and as we've repeated throughout our presentations, is that our goal is to increase and maximize the value of our assets by the dynamic and responsible management, with the goal of maximizing total returns to our unitholders. Through this, [Foreign Language], so increasing our asset base through generating accretive acquisitions to increase distributable income, and therefore, refund -- fund distributions. We also optimize the value of our assets through dynamic management of our properties to maximize their long-term value, and therefore, its unit. First, I'd like to talk about the impact of COVID-19 on our business. From the get-go, as soon as we heard of the pandemic and the different government decrees, we implemented a task force composed of different levels of management from our different departments. [Foreign Language] That allowed BTB to quickly established a rent deferral program for some of its tenants in order to mitigate the risk associated with short payments of rent or full rent abatements. Each tenant requests were analyzed on a personal basis and by our COVID committee. And we made decisions based on the industry in which they operated regarding their lease obligation, their payment history and a direct impact on their operations. So you can establish or [Foreign Language] Also we implemented cost-cutting measures. We scaled back our noncore construction investment. [Foreign Language] So we have a temporary suspension of 25% of all executive and trustee compensation, and we did review our distribution policy in light of the cash flow that we were to glean from our 2020 operations. If you look -- regarding our contractual rent collection, from our office segment in April, we received 92% of our rent; where in the month of May, we received 99.7% of our rents. In the retail segment, the sectors [Foreign Language] The retail segment being the most affected by the pandemic, in April, we received 60% of our rents, and in May, 72% of our rents. In the industrial sector [Foreign Language] So in light of the crisis that was affecting our cash flow given the pandemic, the Board of Trustees approved a resolution to reduce the annual distribution from $0.42 per unit to $0.30 per unit, which is a reduction of 28.6%. So regarding our growth strategy, obviously, at the moment, there are no -- there's no plan in place in order to review investments as there's not a lot of different investments being proposed in the market. But normally, in normal circumstances, we strategic reposition -- strategically repositioning our properties. We do conduct acquisitions, and we're going to go through the acquisitions and dispositions of 2019. We lead -- so we tried and we successfully increased the lease, the rents that are received from our leasing as well as increase our rents in lease renewals. And we financed our acquisition by both deal and capital management. So regarding our growth strategy, our strategic repositioning, so during the course of the last 18 to 24 months, the Board of Trustees conducted a strategic review of our portfolio, and identified certain properties that we were to sell and going in due course of business. So we -- in light of the strategic repositioning, we have disposed of all, if not almost all the properties that were identified. There are 2 properties that are left onto the repositioning -- in the strategic repositioning. So it's 550 and 560 in Henri-Bourassa Boulevard West, and 2059 René-Patenaude in Magog. [Foreign Language] So we see that there is an effect of the strategic repositioning on our total asset value, where we saw that in 2015 to 2019, we saw a growth of assets of 600 to -- from $633 million to $939 million. And at the same time, we saw our total leasable area increase from 5,095,000 square feet to 6 -- to 5,650,000 square feet, and we saw a reduction of the number of properties from 71 to 66 along [Foreign Language] So we disposed of shopping center located in Delson, with a small retail unit that was attached to it for total consideration for the first shopping center at $22.5 million, to the smaller retail outlet at $1.9 million. We also disposed [Foreign Language] and we also sold the property that was located in Saguenay in August 2019 at the price of $4.4 million. In 2020, we disposed of 2 properties, 1 located in Ingersoll, Ontario, for $13.3 million, and we disposed of an industrial property located in Montréal on March -- in March 2020, at a sale price of $9,250,000. [Foreign Language] So we decided through this repositioning strategy, to concentrate on 3 markets, which is the Greater Montréal Area, the Greater Québec City Area and the Greater Ottawa Area to eventually foray into the Toronto area. The -- when we purchase properties, normally, the purchase -- our target purchase price is between $10 million to $50 million, and we're looking at properties with a long-term vision, so we're looking at long-term leases, high occupancy rates, a tenant/client mix that is well established, such as governmental institutions or national -- or international businesses. We've acquired in 2019 [Foreign Language] and this property is leased on a long-term basis by SC360, which is a subsidiary of Telecon, and they are in the voice and data network infrastructure. We also purchased a property located on Sir-Wilfrid-Laurier Boulevard in Saint-Hilaire. Our acquisition date was June 2019, at a purchase price of $19.6 million. It's a mixed-use property, office and commercial, of a gross rentable area of 128,000 square feet, and the main office tenant is BBA, an engineering firm. We also acquired a property -- a power center property in Saint-Bruno, and again, in June 2019, for a purchase price of $43 million. It's a retail property, and its gross rentable area is 366,000 square feet. The main tenant is Walmart, with a space that is north of 150,000 square feet, Addition, Staples, Yellow and Cineplex. We also acquired an office property in the first quarter of 2020, which is located at 2611 Queensview Drive. The acquisition date was February 2020. The purchase price was $21.8 million, and it has a GLA of 77,500 square feet, and our main tenant is WSP, a company that is publicly traded. So if we do a summary of our acquisitions, where you saw that we had sold for north of $50 million of properties. We acquired $96 million of property during 2019 and 2020. So the breakdown of our portfolio by geographical region is [Foreign Language] So at this time, we have 38% of our investment in the office segment; 27% of our investments in the industrial segment; 25% in the retail segment; and 10% in the mixed-use segment. So regarding our leasing strategy, we have a leasing team that is proactive in the market when it comes to searching for new tenants. So mixed in with our marketing effort, we are quick to target new tenants and to ensure the diversified tenant base. So we saw that in more than 915,000 square feet of leases were expiring throughout 2019, and so we were able to negotiate new leases for 284,000 square feet and also conclude 692,000 square feet of lease renewals. Some notable transactions for which occupancy did take place in Q1 of 2020. We had Satcom in Ottawa for 32,000 square feet; and the City of Laval for our property located in Saint-Martin for 20,000 square feet. [Foreign Language] We were successful in concluding transactions regarding our lease renewals, so we went from 455,000 square feet of lease renewals concluded in 2018 to 692,000 square feet in 2019, an increase of 52%. And we've increased our retention rate. In 2018, our retention rate was 54% to 2019, at 75.6%. [Foreign Language] 2019 was a record year for BTB regarding its occupancy rate, as we concluded the year with a 93% occupancy rate, an increase of 2.2% from 2018, where the -- by segment, 89% occupancy rate in the office segment; 96% in the retail segment; 96% in the industrial segment; and 92% in the segment of mixed-use properties. If you look at our top 10 tenants, they compose Walmart, SAIL, Loblaws, Strongco, Public Works Canada, the Government of Québec, Shoppers, and ATIS, a door and window company. We did provide in the presentation certain client testimonials. Usually, every year, we do run these client testimonials by way of a video, but this year, unfortunately, given the nature of our virtual presentation, we are not going to be in a position to play these presentations. I will now turn the presentation to Benoît Cyr, our CFO, in order to give you the highlights of the year ended 2019.

[Foreign Language] Thank you. [Foreign Language] Highlights of the year are 66 properties at the end of the year, representing $5.7 million of square feet. Rental income for the year closes last December, $93.6 million, a payout on our distributable income at 99.8%. The occupancy rate was at 93.2%. Total assets, $939 million and a mortgage debt ratio at 52.8%. [Foreign Language] Revenues increased from $87 million to $93.6 million, an increase of 7.1%, due to the repositioning efforts on our portfolio. Acquisition has contributed to an increase of approximately $5.2 million in the rental income, as the shortfall associated with the disposed properties is approximately $3.3 million. The NOI also increased of approximately 7% from $47.6 million to $50.9 million. And finally, the same-property -- net property income increased by 6.7%. The revenue of the same-property portfolio increased by 3.4%, and the NOI by 3.9%. The recurring FFO, [Foreign Language] So FFO increased by 3% in dollar value, but the per unit decreased from 55% to -- 45% to 40.7%. The AFFO increased by 4%, but per unit, it's a decrease of $0.037. And the payout ratio of the distributable income increased from 92% to 99%. And from the 40 -- and the decrease in the per unit from $0.45 to $0.42. Decreases in the per unit ratio and increases in the payout ratios of the distributable income, the FFO and the AFFO, are mainly due to events which occurred at the end of 2018 and at the beginning of 2019. Particularly, the bankruptcy of Pharmetics, a lease cancellation by Shire, big tenants in our portfolio in [ Saint-Laurent ] and the acquisition of BTB's head office, which add a 20% occupancy rate at the time of the acquisition. [Foreign Language] At the beginning of 2019, committed occupancy rate was at 89.3%, and the in-place occupancy rate was at 87.8%, and was at 91.6% at the end of '19, an increase of 3.8%. The total value of our assets increased from $859 million to $939 million. [Foreign Language] We invest to improve our properties and to preserve the -- to improve in our properties to preserve the quality of the infrastructure and the service provided to tenants. This include value-added maintenance, property improvement projects and redevelopment projects. [Foreign Language] We invested $5.5 million in CapEx in 2019, and $4.4 million in TIs in 2019, for a total investment of 9 -- total $10 million compared to $9.6 million last year. [Foreign Language] And we did 2 public issuance during the year: one bad deal of Trust units, 6.2 million Trust units issued at $4.67, for a net proceed of $27 million. [Foreign Language] We issued the convertible debentures in last October, $24 million at 6% annual interest rate. And the net proceeds of the -- was used to redeem the Series E in the amount of $23 million that was bearing interest at 6.9%. [Foreign Language] As of March 31, 65 properties for 5.5 million square feet of rentable area. Rental income at $23.9 million versus $21.6 million last year, an increase of 10.3%. The payout ratio of the distributable income at 106% versus 111.6% a year ago, an improvement of 5%. The occupancy rate at 92.4% versus 91.7% a year ago, an increase of 0.7%. And the total asset value of $943 million compared to $843 million a year ago, an increase of $100 million. Finally, the mortgage debt ratio was at 52.8% compared to 54.3% a year ago, an improvement of 1.5%. Again, increase in the rental income, increase in the NOI of 15%, mostly due to the net contribution of the transaction we did in the last quarters and a slight increase in the operating expenses. The same-property NOI increased by 3.6% due to a decrease in the operating expenses and an increase in the rental income. [Foreign Language] And as it was announced, that's my last AGM with BTB, as I will retire in the next few months. I would like to address a few thanks to the team. [Foreign Language]

[Foreign Language] Thank you very much to out of you, Mr. Léonard and Cyr. [Foreign Language] The next item on the agenda is the election of the trustees, who will remain in function until the next annual meeting. The following is the list of candidates proposed to all the position of trustees until the next annual meeting: Jean-Pierre Janson; Luc Martin; Fernand Perreault; Lucie Ducharme; Luc Lachapelle; Sylvie Lachance; Peter Polatos; Michel Léonard; and myself, Jocelyn Proteau. [Foreign Language] The votes were tabulated for each candidate. [Foreign Language] Since only votes by proxy can be and were tabulated, I received the scrutineer's report regarding the results of the vote for each candidate. [Foreign Language] For Mr. Martin, 85.1% in favor, 14.8% withheld [Foreign Language] for Mr. Perreault, 3.6 million votes, 87.1% in favor and 12.8% withheld. [Foreign Language] I declare Mr. Perreault renewed. [Foreign Language] For Mrs. Lucie Ducharme, 3.5 million votes, 84.9% in favor, 15% withheld [Foreign Language] 82% in favor, 17.9% withheld [Foreign Language] For Mrs. Sylvie Lachance, 3.5 million votes, 85% in favor, 14.9%, withheld [Foreign Language] For Mr. Peter Polatos, 3.3 million votes, 81% in favor, 8.9% withheld [Foreign Language] For Mr. Michel Léonard, 3.8 million votes, 91.7% in favor, 8.2% withheld [Foreign Language] With respect to myself, the scrutineers have counted 2.5 million, 84.8% in favor, 15.1% withheld. [Foreign Language] The next item on the agenda is a motion to appoint KPMG as independent auditors of BTB. It is proposed that they hold office until the next annual general meeting of the unitholders, and it is also to authorize the trustee to establish their compensation. [Foreign Language] With respect to the appointment of KPMG, the scrutineers have counted 3.9 million, so 94% in favor, and 6% withheld. [Foreign Language] The next item on the agenda is a motion to amend the contract of Trust, as described in the management information circular dated May 4, 2010. [Foreign Language] With respect to the proposed amendment of the contract, [ 3.7 ] votes, 90% in favor, 10% withheld. [Foreign Language] The next item on the agenda is the motion to renew, for a 3-year period, the unitholders' rights plan as described in the management information circular dated May 4, 2020. [Foreign Language] With respect to the proposal to renew this plan, 2.6 million votes, 87% in favor, 12.3% withheld. [Foreign Language] It's now the moment for the unitholders who wait to wish ask a question to management or to the trustees or make some comments. You are now welcome to express yourself.

[Foreign Language] Thank you. [Operator Instructions] And your first question will be from [ Paul Dunham ] at Burlington Capital Planners.

Mr. Léonard, my name is [ Paul Dunham ], Burlington, Ontario. I'm a shareholder. I remember very well, Sylvie Lachance from First Capital in Toronto and -- First Capital Realty. The French-Canadian women are very beautifully dressed up for AGMs, I noticed. Now my question is this, with 52.8% mortgage rate -- ratio, which is fairly high. And we are now in a point where rates are absolutely razor-thin, renegotiating mortgages is -- got to be a major saving potential for the company. Now to talk about that for the year 2020, what -- how much of your mortgages will be renegotiated? And maybe is it possible under certain circumstances for some mortgages to be renewed even though the term isn't up? Go ahead.

Okay. Thank you for the question. The -- we have mortgages that are maturing this year, but what we've seen so far this year is that lenders have incorporated in their lending schedule a floor rate. So unfortunately, I think that in normal times, we would be able to glean mortgage rates that will be far below what we're paying now. Witness early in this year, we concluded a mortgage on a 10-year basis at less than 2.35%. And that was for a property that we financed at the beginning of the year. So yes, Q1, the trend for refinancing was optimal, and we did go to the market in order to finance certain of our properties at this time. Unfortunately, right now, the market is not optimal for refinancing, but we're seeing signs in the market that towards the end of the summer or early fall, I think we should hopefully go back to the normality that existed, and we won't see the floor rates that are imposed by the lenders. And fortunately, for us, most of these mortgages that we have up for renewal are mostly at the end of the year. So we still have time to wait for the market to recover in order for us to glean some savings in refinancing.

[Operator Instructions] And at this time, there are no further questions. Mr. Léonard, please go ahead.

We have a question from the web.

[Foreign Language]

So I'll repeat the question in English. The question relates to the COVID-19 and how is this going to affect efforts -- going green efforts for BTB. We are still involved and very present in ways that we have to reduce our carbon footprint. [Foreign Language] So as far as our environmental plan and our impact on the environment, we have not abandoned -- given the COVID-19 pandemic, we have not abandoned any of our efforts in order to reduce our footprint. So as I understand, there are no further questions. So I'll ask Jocelyn to conclude this assembly.

Thank you very much. [Foreign Language] Since there are no further questions, I declare this meeting adjourned. So thank you very much for being with us today. Thank you. [Foreign Language]

[Foreign Language]

Ladies and gentlemen, this does indeed 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. [Foreign Language]