Adventus Realty Trust Provides an Analysis of US Public Real Estate Investment Trust (REIT) Market Performance for the Office Sector During COVID-19

April 22, 2022

Adventus Realty Trust by its Trustee, Adventus Realty Services Inc. (Adventus) Provides an Analysis of US Public Real Estate Investment Trust (REIT) Market Performance for the Office Sector During COVID-19

COVID-19 has had a significant impact on the Real Estate and other Industries over the past 2 years. Within the various sectors of the Real Estate Industry, COVID-19 has had a different impact depending on the particular Real Estate sector being measured. Given Adventus’ US Office sector focus, the comparison of Adventus to US Office REITs is a very meaningful analysis.

Pursuant to the Appendix in this News Release, we are providing the periodic summarized reports prepared by Eastdil Secured (an affiliate of Wells Fargo Bank) to assist with analysis in this regard. The Eastdil reports measure the increase (decrease) in the price on a percentage basis of selected public-traded US REIT sector stocks from their pre-COVID-19 2020 peak to the date of measurement during COVID‑19.

Analysis of Eastdil Reports

The US Office sector suffered a significant decrease in market value at the start of COVID-19 (in excess of 30%), which continued through the balance of 2020, and then improved somewhat to a decreased percentage of between 20% and 25%, throughout 2021 following March 31st. This decrease in US public Office REITs compares closely to the decrease in Net Asset Value (NAV) of Adventus to $13.39 per unit (as of December 31, 2021) from $19.35 per unit (as of December 31, 2019), representing a 30.8% decrease.

Based on Eastdil’s reporting, the reductions to NAV reported by Adventus during COVID-19 amounting to a 30% decrease from our December, 2019 NAV, are not out of line with the reductions in stock trading prices of US public Office sector REITs based on the overall market conditions in the US Office sector.

In Q1 2022, most REIT sectors, including the US Office sector, have experienced increased price performance as COVID-19 appears to be winding down. During April 2022, however, US Office sector REITs are still being valued well below their peak 2020 pre-COVID-19 price levels (20.3% lower than 2020 pre-COVID-19 values).

Adventus is looking forward to a recovery year in 2022 for office markets throughout North America. While New Tenant leasing activity over the past two years was nominal, Adventus has experienced a significant increase in both new and renewal leasing activity during the first quarter of 2022 in both our Chicago and Atlanta submarkets.

As well, there are significant accounting differences for a Canadian entity compared to a US entity, resulting in significant impacts on NAV which require clarification as described below.

Differences in Reporting in Canada vs. the US

Adventus reports its investment property values under International Financial Reporting Standards (IFRS), whereby the initial expenditures on property acquisition, capital additions, leasing commissions and tenant improvements are recorded at cost, then subsequently adjusted based on fair values as determined by independent appraisals. Accordingly, in times of flat or falling real estate markets (i.e. during COVID-19), the spending of capital to improve or maintain properties, under IFRS accounting guidelines, serves to reduce the reported investment property values and NAV, notwithstanding that these capital expenditures provide future economic benefits. For the two-year period from December 31, 2019 to December 31, 2021, Adventus incurred $28.4 million in net capitalized costs, including leasing commissions, tenant incentives, and capital improvements, which were deducted from NAV over this period via this fair value adjustment. Additionally, the reduction in fair market value over this two-year period based on year end independent appraisals was $54.9 million. Together, these amounts total $83.3 million, representing approximately 75% of the total reduction to NAV over the two-year period.

By contrast, under US Generally Accepted Accounting Principles (US GAAP), the initial expenditures on property acquisition, capital additions, leasing commissions and tenant improvements are recorded at cost, then subsequently amortized over the expected life of the property or lease term, as applicable. This methodology more closely matches the periods over which the future economic benefits would apply.

The significant NAV decreases reported by Adventus pursuant to IFRS accounting principles would not have been made under US GAAP. Accordingly, Adventus Management is of the strong view that the more conservative accounting treatment in Canada has created an excessive reduction in NAV compared to US reporting which should be somewhat reversed once COVID-19 has ended and normal commercial markets are re-established.

About Adventus

Adventus is a Canadian based private Real Estate Investment Trust (REIT) and is focused on US income producing commercial real estate, in the suburban office markets of Chicago, Illinois and Atlanta, Georgia. For more information on Adventus, including our team, corporate strategy, photo gallery, details of our portfolio and press releases, we invite you to visit our website at www.adventusrealty.com.

Cautionary Statements Regarding Forward-Looking Statements

This press release may contain forward-looking statements with respect to the REIT and its operations, strategy, financial performance and financial condition, as well as with respect to the previously disclosed acquisitions and future acquisitions of properties. These statements generally can be identified by the use of forward-looking terminology such as “anticipate”, “believe”, “plan”, “forecast”, “expect”, “intend”, “would”, “could”, “if”, “may” and similar expressions. The actual results and performance of the REIT and the acquisitions discussed herein could differ materially from those expressed or implied by such statements. Accordingly, readers should not place undue reliance on forward-looking statements. These cautionary statements qualify all forward-looking statements attributable to the REIT and persons acting on its behalf. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Some important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, changes in interest rates, competition and changes in securities or other laws or regulations or the application thereof. The cautionary statements qualify all forward-looking statements attributable to the REIT and persons acting on its behalf.

Unless otherwise stated, all forward-looking statements speak only as of the date of this press release. Except as required by applicable law, the REIT specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

ADVENTUS REALTY TRUST         
By its Trustee: ADVENTUS REALTY SERVICES INC.

Per: Rodney B. Johnston, FCPA, FCA           
President and Chief Executive Officer


APPENDIX

This analysis measures the increase (decrease) on a percentage basis of US publicly-traded stocks in selected US REIT sectors. The following table summarizes the changes in the market performance of US publicly-traded stocks in various real estate sectors from their peak pre-COVID-19 2020 stock trading prices to the date of measurement below(1):

 

REAL ESTATE SECTOR

Report Date

OFFICE

INDUSTRIAL

MULTI-FAMILY

HOTELS

MALLS

21-Apr-20

-33.9%

-13.6%

-29.0%

-54.6%

-59.8%

30-Jun-20

-30.1%

-6.7%

-27.0%

-51.9%

-52.1%

15-Sep-20

-32.7%

-0.5%

-30.9%

-45.7%

-52.3%

18-Dec-20

-29.0%

-3.5%

-27.4%

-28.8%

-42.4%

31-Mar-21

-22.2%

7.3%

-16.2%

-12.8%

-21.9%

30-Jun-21

-18.5%

16.6%

-3.7%

-13.9%

-9.6%

30-Sep-21

-24.5%

23.2%

3.3%

-17.5%

-16.0%

03-Dec-21

-20.6%

57.9%

22.6%

-25.1%

-2.3%

21-Jan-22

-22.9%

41.4%

12.1%

-17.9%

-5.5%

31-Mar-22

-16.3%

46.0%

15.9%

-10.7%

-15.1%

15-Apr-22

-20.3%

45.9%

15.3%

-10.8%

-17.9%

(1)  Source: Eastdil Secured Capital Markets. For the purposes of this analysis, peak pre-COVID-19 values were set in 2020 prior to February 21, 2020, being the commencement date of COVID-19, as per guidance from Green Street Advisors

 

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