Thank you for standing by. This is the conference operator. Welcome to the Nexus REIT 2020 Second Quarter Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Kelly Hanczyk, Chief Executive Officer. Please go ahead.
I'd like to welcome everyone to our second quarter results conference call for Nexus Industrial REIT. Joining me today is Robert Chiasson, Chief Financial Officer of the REIT. Before we begin, I'd like to caution with regard to forward-looking statements and non-GAAP measures. Certain statements made during this conference call may constitute forward-looking statements, which reflect the REIT's current expectations and projections about future results. Also, during this call, we will be discussing non-GAAP measures. Please refer to our MD&A in the REIT's other securities filings, which can be found at SEDAR.com for cautions regarding forward-looking information and for information about non-GAAP measures. The second quarter was another solid quarter for the REIT. I'm not really going to spend much time going over the second quarter results. I'll let Rob go into more detail on our financials and our collections.
As mentioned in our press release, we have decided to move forward with our move to the TSX. We're hopeful this will be done by mid-September. At this time, we will look to complete a share consolidation on a one for four basis. We believe this move will bring exposure to a much larger investor base and should result in positive momentum for our unit price going forward. Operationally, we continue to monitor and work closely with our tenants. Our occupancy for the quarter remains stable at 94.9%. In April, we lost a 16,000 sq ft tenant at 935 Reverchon, one of our Montreal industrial properties. Have seen interest in the space, we hope it'll be leased over the next quarter.
This was more than offset by approximately 8,000 sq ft at our interest of new revenue coming from our office building at 2045 Rue Stanley in Montreal. We'll see a small uptick in vacancy in the fourth quarter as we have a 25,000 sq ft industrial unit at 41 Royal Vista Drive in Calgary coming back to us at the end of October. We have a good handle on renewals for the balance of the year as the larger renewals are all complete or very close to being complete, with only a few small retailers left. We have had a strong start to our 2021 renewals. In Richmond, B.C., we are continuing the process of repurposing 1771 Savage Road, with drawing packages submitted to the City of Richmond on May 15th to accommodate our two new leases that have been signed.
With delays in permitting due to the city employees working from home, we expect a delay in completion but are hopeful the leases will still commence in 2020. In addition, we continue to work on the drawing package for a planned 70,000 sq ft addition to the property so that we'll be in a position to pre-lease and break ground hopefully in 2021. On the acquisition front, we have two potential industrial asset acquisitions under due diligence. A 95,000 sq ft, strong covenant, non-oil and gas-related property in Alberta on 10 acres, and one in the GTA, which would be a half interest on approximately 500,000 sq ft with a very strong multinational covenant. The acquisitions are expected to be funded with a combination of cash on hand, proceeds of mortgage financing, and 2,750,000 Class B LP Units of a subsidiary limited partnership of the REIT.
The units will be issued at a contractual price of CAD 2 per unit and exchangeable for REIT units on a 1-to-1 basis. On the disposition side, we are marketing two Quebec properties. The small office properties that we have been marketing in Lachine, 10330 Côte-de-Liesse, and are quietly marketing our large 380,000 sq ft non-enclosed strong covenant retail center in Victoriaville, Quebec. If successful, we would use these proceeds to continue to increase our exposure to the industrial real estate sector, which currently sits at about 50%. I'll now hand it over to Robert Chiasson to give greater detail of the REIT's financials.
Thanks, Kelly. We've been pleased with the resilience of the majority of our tenants through COVID-19. Our rent collections remain strong. Looking at our rent collections, excluding amounts that have been deferred and that will be satisfied through the Canada Emergency Commercial Rent Assistance, or CECRA program, we collected 97.1% of April and May, 97.9% of June, and 98.1% of August. We're still determining to what extent we may participate in CECRA for August, and almost all deferral arrangements have ended. We have also seen rents being paid slower since the start of COVID-19 and expect additional payments to come through the balance of the month of August. We placed mortgages on previously unencumbered properties in the quarter, generating just over CAD 14 million, and had cash on hand at the end of the quarter of just under CAD 19 million.
We also had access to an additional CAD 5 million under our credit facility. We are in the process of refinancing a CAD 18 million retail mortgage that comes due on October 1st. We have two smaller industrial mortgages coming up in September and December. Our balance sheet is strong enough to begin looking at acquisition opportunities again. The office building that we co-own in Montreal is at approximately 97% economic occupancy with long-term stable tenants and is making a positive contribution to our results. Our NOI for the quarter was up slightly as compared to Q1, with COVID-19 reducing NOI by approximately CAD 175,000, offset by lower operating costs, including seasonal expenses. General and administrative expenses were down primarily due to the timing of expenses related to our RSU program and other period costs, but also due to decreased travel and related expenses.
Our payout ratio was up slightly from Q1 to 79.8%, with an all-unit acquisition having been completed in February and impacting slightly. Proceeds from mortgages put on the acquisition properties will likely be deployed to complete acquisitions to balance out the capital structure of that deal. We had other income in the quarter relating to an increase in the amount of vendor rent obligations we expect to receive from the Richmond BC property vendors through to the completion of build-out of tenant spaces. We've normalized the AFFO and FFO, as well as our payout ratios, to exclude this income. Also on April 1st and through the second quarter, we issued units to the Richmond BC vendor for the development management agreement we entered into, and as described in the notes to the financial statements.
A portion of these units is held in trust by the REIT to be released to the vendor over time. While these units are held by the REIT, they do not accrue distributions. This is what led to a reduction in our distribution per unit for Q2 to CAD 0.039 cent per unit. I'll now turn it back to Kelly.
I will now open up the call to any questions that anyone has.
We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We'll pause for a moment as callers join the queue. The first question comes from Kyle Stanley from Desjardins. Please go ahead.
Hey, good afternoon, guys. Congrats on the quarter.
Thank you.
Yeah.
Just looking at the COVID-19 impact during the quarter of CAD 175,000. The CECRA abatement was CAD 150,000. I'm just wondering, can you reconcile the difference there and then maybe what are your thoughts on how that trends into the second half?
Without wanting to get into specifics, we did benefit from a wage subsidy through one of our partners that property manages for us, and so their savings were passed along to us. We also incurred some incremental operating expenses in terms of health and safety at some of our properties. The net of some concessions offered, the net of the 25% abatement for provinces outside of Quebec under the CECRA program and the 12.5% abatement within the province of Quebec, where the Quebec government has announced a program that would reduce the landlord exposure to half what it is in the rest of Canada. That's how we come up with the CAD 175,000.
Okay, thanks. The CAD 150,000 related to CECRA, so that adjusts for the 25% landlord abatement outside of Quebec as well as the 12.5% in Quebec?
Correct.
Okay, perfect. About CAD 1.2 million of rents were deferred during the quarter. Were there any abatements outside of that and then not related to CECRA program?
Yeah, there was a small amount of abatement, just over CAD 100,000. Those would be tenants that primarily are retail, would not qualify for CECRA but had demonstrated financial distress during COVID.
Okay.
Also large enough to negotiate such concessions.
Yeah. No, that makes sense. Okay, just looking at Richmond quickly here. There's CAD 110,000 of incremental NOI this quarter from the new tenants paying rent. I'm just wondering, in discussions with those tenants, how are operations going at the facility so far? How do you expect to see kind of that NOI contribution ramp up a bit?
Yeah. Well, they were closed, obviously, with COVID because the three that are open were closed. They're all open and operating now, albeit by the new rules, which is probably a little tougher. We're deciding what to do in August for them. Going forward, they would be fully operational and expect to be paying full rent.
Okay, great. I think there's one space left to be leased up there. Is there any development on that front?
No. The spaces are leased. We're just waiting for the permitting to be able to build them.
Oh, fair enough. Okay, perfect.
Yeah. Then the vendor guarantee for until those come on.
Right.
Yeah.
Okay. Just two quick ones for me here. The mortgage on the Victoriaville property that I thought it was maturing in July, but it sounded like maybe it's now in October. I'm just wondering, what are the thoughts there?
Yeah. We extended that one three months. Obviously July was not a great time to be refinancing. As we were in discussions through April, May, June on that mortgage. Most of our tenants across our portfolio, or many of our tenants, I should say, across our portfolio on retail were not operating. At that particular property, I'd say about 50%-60% of our tenants are national credit tenants, Canadian Tire, Dollarama, Metro. We've got a Brick there, Mark's Work Wearhouse, and then some other regional retailers. Just the underwriting environment wasn't conducive to refinancing that mortgage in July. We got a three-month extension from the lender, and we're in discussions with various lenders on that now.
Okay, great. Just the last one. Do you have any idea on timing of the potential graduation to the TSX? I know obviously it depends on their approvals, but just what are your thoughts there?
Yeah. We're looking at September. Again, it is dependent on their approvals and us getting them all the information they need on a timely basis. We're pushing to graduate as quickly as we can.
Okay, great. That's it from me. I'll turn it back. Thanks.
Great. Thank you.
Once again, if you have a question, please press star then one. The next question comes from Troy MacLean from CIBC. Please go ahead.
Hello.
Hi there.
Oh, okay. Congratulations, guys. Looks like another good quarter. Not only that, I'm just reading through the MD&A, good progress on all the other things you've been working on in spite of the virus. Doesn't seem to be slowing you down that much. My question really relates to the little pie chart that is in the MD&A. If I'm reading it correctly, and I'm assuming this is as of the end of the quarter, you're at 48.5% industrial. Is that the way I'm reading this?
That sounds about right, yes.
Where would you see it, if everything goes according to plan, exiting the year?
If everything went to plan, with the acquisitions that we have going right now, it takes it to about 52%. My goal, if we were successful in selling our non-enclosed retail center in Victoriaville, that's a fairly large center. That would make a fairly significant swing. Probably, I would think closer to approaching 60%, where ultimately, I think down the line, I'd like to see that number approach 75%. Most of the opportunities that we're looking at and we're exploring are in the industrial sector.
Okay. If you are successful in everything that you would like to divest, say by the end of the year, do you think there are enough opportunities on the horizon in the industrial space to be able to redeploy all those funds more or less right away or would it take some time?
I think it would take a little bit of time, but we are working on a number of other opportunities. We have strong connections with some, I guess you would call it families that have possible opportunities for us. If we're in a cash position, I think we could deploy it relatively quickly.
Yeah, I'm familiar with that because we've talked about it before, and I think that's a great plus for the REIT. Final question. We talked about this on the last call. You're still committed to the DRIP and to the 4% discount?
We are right now, yes. We don't have a huge uptake in participation. I think if participation went too high, we'd probably have to look at reducing it. The way I look at it's rewarding the unit holders that have been there for a long time for us, and that's the way we look at it. From our perspective, it's staying where it is for now.
Well, as a former investment banker, my sort of advice would be that, and this is not hard and fast, run it by your own advisors, obviously. Coming into the TSX listing, first of all, you're going to get some additional spotlight on you just when that happens. This to me it adds a bit of luster to the story. If you want to discontinue, it might wait until after that event takes place, assuming it does take place.
Yeah.
View of it. I don't know whether you guys agree with that or not.
We're not looking at discontinuing it at this point.
Right. Okay. Well, I think it's good. We talked last time too about if you had any ideas about repurposing any of the properties or in order to attract a different kind of tenant to some of the space that might be problematic. We've had government money bridge people until we're theoretically post-COVID-19 or post the subsidies. Once we get to that, the businesses have to live or die based on what consumer behavior is or whatever other business they're doing. I don't know whether we're fully into that transition yet or not. Yeah, I know it's becoming a shrinking part of the total exposure that you have, but is there any update on any of that now that we're further along in the COVID-19 process?
Yeah. I'd say in the retail side, it's kind of been with our partner on all hands on deck and really monitoring the tenants and working with them. Our concepts on some of our sites in Montreal where we're talking about multifamily perhaps down the line, it's still moving, but just slower than what we would have because, obviously we've been focused elsewhere.
Right. Okay. Well, I think you guys could claim that the quarter was successful given what you had to deal with. Congratulations, and that's all for me. Thanks.
All right. Thank you.
This concludes the question and answer session. I would like to turn the conference back over to Robert Chiasson. Please go ahead.
I'd just like to quickly clarify my comments in terms of rent collection. We collected 97.1% for the month of April, 97.9% for the month of June, and 98.1% for the month of July. I misspoke earlier and said August. For the month of August, we're still determining to what extent we might participate in CECRA, and deferrals are falling off the table. For April to date, we're sitting at about 90% collection. That doesn't apply any assumptions with respect to ongoing CECRA participation. Month of August, sorry, 90% for the month of August, applying no assumptions in terms of CECRA. We've seen rents roll in a little bit slower as we entered COVID with the payable groups of our tenants working from home and for various other reasons.
We expect that 90% for the month of August to be similar to what we've seen for April, May, and June. For now, in terms of unadjusted collections, we're sitting at about 90% for the month of August. I'd like to turn the call back over to Kelly Hanczyk.
All right. Well, I want to thank everyone for taking the time to call in. I look forward to the next results call when hopefully we've graduated to the TSX.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.