INTERVIEW Don’t jump to conclusions about Cominar

DON’T JUMP TO CONCLUSIONS ABOUT COMINAR

BY RENÉ VÉZINA, JOURNALIST SPECIALIZING IN ECONOMICS

On September 15 the real estate investment trust Cominar announced the launch of a "strategic review process" in order to evaluate its options, but the very next day the media were already mentioning the possibility of the firm being put up for sale.

"One should not jump to conclusions so quickly," Cominar’s president and chief operating officer Sylvain Cossette said when asked about it. "We’ve just started discussions about what action to take. Please give us time to let that happen!"

FACING REALITY

Like all real estate investment trusts in Canada, Cominar has been hard hit by the Covid-19 pandemic. Over a 12-month period the S&P/TSX capped real estate index (a sub-index of the Toronto Stock Exchange Income Trust Index) registered a decline of nearly 24%. Cominar is one of the 21 firms considered in the index, along with Riocan, Canadian Apartment Properties and others. They have all suffered from the crisis to varying degrees. The Cominar share price dropped from $13 to $7.30 as of September 18. Sylvain Cossette believes that the lower price does not reflect reality.

"There is a gap between the stock price and the intrinsic value of the company, and we must work to reduce it," he noted. "It’s one of the two avenues we’re pursuing,

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1. Alexis Nihon in Montréal

2. Place de la Cité in Québec City

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the other being to optimize our options according to the current needs of the company."

Sylvain Cossette refuses to be defeatist and insists that it will be business as usual, especially since "Cominar is a firm that is not only fortunate, but also has a lot of assets."

A TIME FOR REFLECTION

Its existence under the official name of Cominar dates back to 1998, but the Dallaire founding family has been active in the sector since1965 when it purchased its first apartment buildings in Québec City.

Over the years Cominar has taken on a dominant position in Québec real estate. It now has 315 buildings (80 of which are office buildings), 55 industrial buildings and 44 commercial malls, many of them Québec landmarks such as Rockland Centre and Alexis Nihon in Montréal, Centre Laval, the Champlain Mall in Brossard, Centre Les Rivières in Trois Rivières and Place de la Cité in Québec City, not to mention other properties ranging from Gatineau to Rimouski.

But the pandemic dealt a crushing blow.

For example, between April and June the firm managed to collect only 75% of the rents due, and barely 46% of rent normally received from retailers. That resulted in a $215 million devaluation of its entire portfolio. The slowdown not only lowered its share price, but in August also led the company to reduce monthly stock dividends to shareholders by half, dropping from $0.06 to $3.03 per unit.

"While certain sectors of the economy were able to benefit from the repercussions of the pandemic, such as the food sector, real estate was negatively impacted and Cominar was not spared," added Sylvain Cossette. But he made a point of thanking the Government of Québec for enhancing the federal emergency commercial rent assistance program, thereby helping to mitigate the shock.

Appointed president of the firm in 2018, Sylvain Cossette has no intention of giving up, and stresses that it would be inappropriate to sink into negativism. While foreseeing better days ahead, he nevertheless considers it important to initiate a comprehensive review of the company’s various asset categories.

The commercial sector is certainly attracting his attention. "I see beautiful things ahead," mentioning that for 2020-21 the firm has signed new rental leases covering 200,000 square feet with "quality retailers" linked to essential services that are pandemic-resistant.

The retail industry has gone through and continues to experience difficulties in what he calls the mid-market fashion sector, "where we have reduced our exposure." The sports and leisure sector has done well, apart from the recent closing of the Sportium store. But Cominar managed to rent out that vacant space at Centre Laval to an important international sporting goods retailer. And there is also the fact that food services are always in demand. "We are working with our shopping centres to attract shops and services other than strictly retail businesses."

WORKING FROM HOME / WORKING IN THE OFFICE

Office buildings, however, are also under pressure, with many employees still working from home if they have not been laid off altogether. The question then arises: will this trend to teleworking leave downtown areas abandoned, no longer able to compete?

"I’m a big believer in the urban environment, and it’s important to remember that employers go where the human capital is," said the president. He himself lives in Griffintown, the booming new neighbourhood near the downtown core where the giant cranes of construction sites pepper the skyline.

He also noted that in Montréal’s Mile End neighbourhood an emerging artificial intelligence milieu has taken root. It is a sector that calls for highly specialized employees, many of whom want to stay in the area. They thus need to be provided with good housing. "It’s a question of balance. We must learn how to properly supervise telework so that the contribution of people away from the office is positive. I must admit that I’m pleasantly DEBBY DOKTORCZYK présidente PATRICE GROLEAU propriétaire

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surprised, but at the same time the importance of a tangible, physical link can’t be underestimated." He has also observed a real resurgence of interest in the suburban office, which entails the crucial notion of transport and mobility. "Will it be limited or sustainable? Honestly, I don’t know it’s going to evolve."

SEVERAL SCENARIOS TO CONSIDER

As regards Greater Montréal, Cominar has plans for many major projects, both in the downtown core and in the suburbs. They are less likely to be destabilized by the pandemic because they are strategically located.

A year ago the firm was anticipating the construction of several thousand residential units on sites that are already attractive, and that will remain so over the long term. On the South Shore, for example, plans were for six towers near the Champlain Mall. The upcoming completion of the Réseau express métropolitain (REM) light rail network nearby was also a factor of interest.

In the downtown core Cominar owns the train station (Central Station) "a unique asset in Canada with considerable potential, whose real value exceeds its current market value," noted Mr. Cossette. Cominar is thinking of building residential units there. There are also projects planned for Québec City, notably in the west-end Duplessis neighbourhood, which would greatly benefit from the projected tramway network so dear to the heart of mayor Régis Labeaume.

Cominar adopts a positive and contagious "the glass is half full" attitude, as the recent appointment of two new senior executives indicates. Antoine Tronquoy was promoted to the position of executive vice-president and chief financial officer, and Nathalie Rousseau joined the firm in a new role as executive vice-president – management of assets and investment transactions.

"That such talented individuals are joining our team is a very good sign," said the president. He is well aware that people are wondering about his timeline for implementing a new approach. Three months or up to a year? Nothing has been determined for the moment as the review process is still underway. As he notes, a comprehensive overview takes time and calls for prudence.