True North Commercial REIT, the publicly traded owner of largely Class B office towers across Canada, is halting its monthly distribution, sending the real estate investment trust’s units tumbling 15 per cent.
True North TNT-UN-T, which predominantly operates in Ottawa and the Greater Toronto Area, previously slashed its payout by 50 per cent in mid-March, but management announced Tuesday that it would halt the distribution altogether “for approximately six months or earlier if appropriate.”
Instead of paying monthly distributions to unitholders, True North intends to buy back its shares to help close their discount to the REIT’s net asset value. In a news release, chief executive officer Daniel Drimmer called the decision “the next logical step in the REIT’s strategy.”
By buying back units, True North will boost its earnings per unit, which is a measure many investors watch closely. However, many investors, and particularly retail investors, also purchase REITs for their monthly payouts. It is unclear what they will value more in the long run.
Earlier this year, Dream Office REIT raised money to buy back units for the very same reason – to help close the discount to net asset value – but the units have lost more than half their value since.
True North’s units dropped 15 per cent by midday Tuesday, while BMO’s Equal Weight REITs Index is up 3.5 per cent on the day because investors are more hopeful now that the Federal Reserve will end its rate-hike campaign. True North’s units are now down 80 per cent this year. The REIT did not immediately return a request for comment.
True North also announced Tuesday that it will consolidate its units at a ratio of 5.75 to 1, meaning every 5.75 units will be converted into one unit. Share consolidations are commonly used when stocks are struggling and verging on penny-stock status. By consolidating, a company can quickly boost its share price by spreading the same value of earnings over fewer shares. True North’s units are now worth $1.22 apiece.
True North reported third-quarter earnings Tuesday and occupancy rates across its portfolio are now 93 per cent, down from 97 per cent in the same quarter of 2019 before the COVID-19 pandemic. The REIT’s funds from operations, a measure of operating income, fell to $55-million over the first nine months of the year, down from $66-million during the same period in 2022.
True North attributed its falling net operating income to increasing vacancies and higher financing costs as mortgages are refinanced. The weighted average interest rate on True North’s debt is now 4.03 per cent annually, up from 3.54 per cent at the start of the year.
Earlier this year, Slate Office REIT, which owns office properties in Canada and the United States but derives half of its operating income from the Greater Toronto Area and Atlantic Canada, slashed its own monthly payout by 70 per cent.
Tim Kiladze