Q1 2021 CT Real Estate Investment Trust Earnings Call

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Okay.

All participants please standby your conference is ready to begin.

Good morning, My name is Valerie and I will be your conference operator today at this time and would like to welcome everyone to see T reached Q1, 2021 earnings results conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press Star then the number one on your telephone keypad.

To withdraw your question Press Star then the number two.

The speakers on the call today are Ken Silver Chief Executive Officer of C. T REIT.

Leslie Gibson, Chief Financial Officer, P T REIT, and Kevin and Salisbury, President and Chief Operating Officer C. T REIT.

Today's discussion May include forward looking statements such as such statements are based on management's assumptions and beliefs.

These forward looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements.

D C C T reached public filings for a discussion of these risk factors, which are included and the 2020 M D and E and AI F and which can be found on the C. T reached website and on SEDAR and went and I'll turn the call over to Ken Silva, Chief Executor, and Executive Officer and C. T REIT.

Ken.

Thank you operator, and good morning, everyone.

Very pleased to welcome you to see day rates first quarter, 2020, one Investor conference call and to share with you and the results of another strong quarter.

Notwithstanding the disruption heartache and ex the pandemic has created for now over a year C. T. REIT has continued to produce the same kind of solid results and delivered prior to the pandemic and.

Since our IPO.

We designed and have consistently manage the REIT to produce consistent growing value.

It reflected and growth and the SSO and now per year.

Gotcha.

And I mentioned distributions.

We continue to leverage the relationship with our majority of unit holder and most significant tenant and Canadian tire.

Which provides a solid foundation anchored and high quality well located real estate and long term triple net leases.

While we complement that and so that's.

Foundation, a freestanding retail and distribution facilities with value add acquisition and development opportunities at its core our focused net lease strategy predictor predictably delivers resilience and growth.

Those core attributes resilience and growth where net.

More clearly on display and in the most recent quarter and over the past year.

I'm going to turn the call over to Kevin and Salzburg, Our President and Chief operating officer to provide and update on our investing activities and operations.

And at Gibson, Our Chief Financial Officer will then review the financial aspects of the quarter before turning the call over for questions Kevin.

Thanks, Ken and good morning, everyone I hope, you're all keeping well.

Outlined in Yesterdays press release, we are pleased to announced six new investments this quarter that will require an estimated $42 million to complete these.

These new projects include the expansion of six Canadian tire stores, and Cochrane Castle, and and Milton and Ontario, Charlottetown, and summers Ipi and Lethbridge, Alberta.

When completed these investments are expected to earn a weighted average cap rate of six four per cent and will add approximately 162000 square feet of incremental GLA to the portfolio.

It was one of our core competitive advantages that we support Canadian tire and its ongoing real estate requirements.

Since IPO CPA REIT has funded the expansion of over 40 Canadian tire stores within its portfolio, adding approximately 400000 square feet of GLA through these investments.

And with the addition of these fixed newly announced store expansions. We currently have 15 store intensification and one expansion of a Canadian tire distribution Center plan for completion over the next two to three years, which will add an incremental 446000 square feet and 322000 square feet to the portfolio respectively.

With respect to the previously announced investments and the first quarter, we completed the vendor and existing Canadian tire store and lower Sackville, Nova Scotia, which added approximately 53000 square feet of incremental GLA.

The REIT also sold its aren't the prior mall property and our prayer, Ontario during the quarter.

Yeah.

At the end of the first quarter CPR of 26 properties that were in various stages of development.

These projects represent a total committed investment of approximately $240 million upon the completion and 59 million of which has already been spent and 34 million of which we anticipate will be spent and the next 12 months, excluding the Canada square redevelopment and the development of lands that we own and Calgary, Alberta. These projects will add a total incremental gross leasable.

Area of approximately 860000 square feet to the portfolio upon completion.

95 per cent of which has been pre leased.

And our March 31, 2020, one CPR rates occupancy rate was 99, 3% in line with both Q1, 2020 as well as year end.

With respect to the impact of COVID-19, and her property operations rental collections remained strong and generally in line with the REIT pre pandemic historical average with.

With the recent Lockdowns and stay at home measures put in place by various government agencies throughout the country and response to the third wave of the pandemic, we continue to monitor and manage to the extent possible the impact of such measures on our portfolio reinstate required operating policies and procedures at our properties and continue to work with those tenants whose businesses have been negatively affected.

That I will turn it over to Leslie for a review of our financial results.

Thanks, Kevin and good morning, everyone.

Despite the key and challenges from the pandemic. We are again very pleased with the strong Q1 results at C. T regions delivered.

And the quarter, we reported a diluted F. F O per unit of 27.3 cents, an increase of seven five per cent compared to the 25.4 cents per unit and Q1 of 2020, reflecting the positive impact and the NOI variances and lower interest expense.

Diluted <unk> per unit increased $5, one per cent to 38 cents versus 29.3 cents and Q1 of 2020 did the same factors affecting F O per unit growth.

Reported net income increased $3 7 million or three 9% and the quarter compared to the prior year and main contributors to the growth or the rent escalations and the C. T C banner leases, which contributed $1 6 million and the net addition of income producing properties and completed developments and intensification and 2021 and and <unk>.

<unk> and 'twenty, which contributed a further $1 4 million to NOI growth.

Same store NOI increased $1 6 million and one seven per cent compared to the prior year, primarily result of contractual rent escalations contributing nearly $1 9 million, which includes the 1.5 annual rent Escalations on average contained within the Canadian tire store leases, partially offset by the expected credit losses for tenants.

Significantly impacted by the pandemic, which decreased NOI by $4 million.

Same property NOI increased by $2 3 million or $2 five per cent compared to Q1 and 2020, primarily due to the increase in same store NOI by $1 6 million and intensification is completed in 2020, one and 2020, which contribute to zero point $7 million for NOI growth.

Our rental collections remained strong through the force corner at $99 four per cent.

And this is continued through both April and May with collections at 99, 6%.

General and administrative expenses as a percentage of property revenue were $3 one per cent, which is higher than the $2 four per cent and Q1, 2020 driven by the fair value adjustments on unit based compensation and a lower income tax expense and the current quarter.

Excluding these non cash items, we anticipate our annual G&A run rate to be in line with prior years.

The REIT reported fair value increase of $4 3 million of our investment properties for the first quarter of 2021 day valuation metrics used for virtually unchanged from those who use and our December 2020 reporting.

Our <unk> payout ratio for three months ended March 31st 2021 was 73, 6%.

This was a decrease of 5.2 per cent from the same period and the prior year due to increase and he asked those folks per unit exceeding the rate of distribution and the distribution rates.

The interest coverage ratio increased to $3 six eight times and Q1 compared to 3.43 for the first quarter of 2020.

The increase and the interest coverage ratio is primarily due to the growth and EBIT F. B combined to the decrease in interest and financing charges.

The quarter over quarter interest expense and financing charges decreased primarily due to decrease and the class C. L. P units from resetting the interest rate as of June one and 2020 on the series 316, and 17 18, and 19 class C. L. P units with C. T C and decreased mortgage interest expense partially off by it.

Offset by and increase utilization of the credit facilities.

Moving to the balance sheet, we continue to be and a strong financial position C. T. Recent deadness ratio was 42.5 per cent as at March 31st 2021, compared to 42, 9% a quarter ago did.

Did you increase was primarily due to the reduction of total indebtedness along with the growth of the REIT investment property portfolio.

Early in the first quarter, we successfully completed the issuance of $150 million of unsecured debentures, but the 10 year term and a coupon of 2.371%.

The proceeds were then used to complete the early redemption of the $150 million unsecured debentures originally set to mature on June <unk> 2021.

But this early refinancing completed we have no further debt maturities to refinance until the second quarter of 2022.

This recent issuance illustrates a couple of points and better continue that strategy have chosen a term of 10 years is consistent with our sector, leading weighted average term to maturity of just under eight years. The coupon was chosen true chosen was as typical slightly more expensive than the shorter term debenture would've been but much less so than on some other occur.

Asians and the market.

Additionally, the longer term chosen provides flexibility for the REIT with respect to future borrowings and allows us to consider a broad range of potential terms and response to market conditions and the future.

In addition, with 294 million available to our committed commercial commit committed credit facilities and 7 million cash on hand, coupled with no debt maturities for the next 12 months, we continue to maintain a liquid position.

I would also like to speak to the trend in our book value per unit as at March 31, 2021, the book value per unit was $14.74 up from 14 and 62 per unit.

Price as at December 31, 2020, primarily due to net income exceeding distributions.

And with that I will turn it back to the operator for any questions.

Yeah.

Thank you and this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

We will pause for a moment to compile the Q&A roster.

Our first question is from human true Gupta with Scotiabank. Please go ahead.

Thank you and good morning.

And you just looking at the new investments Oh, and then you have 42000 and schools had expansion and Milton once you.

Just wondering what is the cap rate on this and Densification I know overall, you mentioned expense also the coker and investments.

I'm not sure it's Kevin and we don't we don't typically break out cap.

Cap rates per investment and we typically report them on a on a combined basis. So I don't think we'd be prepared to disclose that at this point.

Sure.

Maybe you know by force it was more around the difference between the GTA and listen to a search engine and the market.

And clearly he get them built into the stand out there.

So just wondering is there like any scrap or any big difference between when all of G D, but she though like it does and what it yeah.

Yes, there would be so we we typically are.

I guess price.

The cap rate or the return.

And their respective investment based on the market characteristics and it would approximate a market cap rate. So I think it's fair to say there'll be a spread between the urban and transportation and the secondary market loans.

Got it okay.

And then you'll just sticking to Milton.

And it looks like its still two years out or is it everything which is taking a bit longer book or it's the typical what you are seeing.

And the market well similar to what we would see with most developments anything and a more urban setting and generally takes longer so from.

<unk> and Perelman's perspective, and then obviously, it's a slightly larger.

And so I'm, a little bit longer to construct as well.

Got it.

And then you know and generally expansion North and you guys tourism and six announced does it leaves the site.

The expense is that in response to the pot and dummied them and that is Canadian that looking for larger stores. All day was always and the pipeline with or without COVID-19.

Well I'll, let Greg comment on their plans for the store network from more broadly, but we have described previously how the trend has been and what we've seen is the requirement for more square footage not less as time goes on and I think the pandemic has only served to reinforce that with the all of the store.

And and clean and pairs sales.

Sales more generally and so.

We're very happy obviously with the growing pipeline and we liked the development program.

And with completions are slated to start mostly.

And next year, we're sort of ramping up from some of the deferred and delayed projects that were put on hold.

Outside of the pandemic.

Got it.

And maybe just final question from me How's the pipeline looking for third party acquisitions, and then are you seeing any goldmans and diesel.

And so there's a little bit more deal flow that I've seen and the market more broadly.

There's a couple of interesting transactions out there that I'm aware of.

And that I think will be a benchmarking or help with benchmarking for and <unk>.

These assets.

As we go forward to coming out of the it depends.

Pandemic, a couple of things that we're looking at but nothing to report at this point.

Yeah, and then the pricing is there any difference there.

And couple of Augusta and things going out there.

And then like Cleveland on the bushes, what is being treated right now.

I think I think my my comments from previous quarters would still hold I think you know quality net lease assets with covenant and tenants long terms are commanding a lot of attention and premium valuations and I think cap rates on those assets will be lower than they were heading into the pandemic.

I think what's been interesting and we've seen.

And some other retail and non grocery anchored trade and the quarter.

I think there's less interested in that but at least the trades are picking up again I think the pricing on that is higher than pre pandemic.

Hum.

But obviously.

The depth of buyers for those assets has been significantly reduced over the last 12 plus months.

Awesome. Thank you for the colon and I've done and thank you.

Thank you once again, please press star one at this time if you have a question. Our next question is from Sam Damiani with TD Securities. Please go ahead.

Thanks, Good morning, everyone.

I guess I'd like to just get into the expansions that were announced last night.

You know the math.

Moving to an average price per square per cost per square foot of $250 and a and an average rent in and around the 16 dollar Mark and both of these metrics would be sort of plus or minus 10, and 15% premiums to the current portfolio.

But the location mix doesn't seem to be materially off of off base with respect to the overall portfolio.

So I'm just wondering are these are these rents on these expansion is the same as with respect with existing stores or are they said that the current market rents.

And so different than the existing store rents and.

And just some color there would be would be of interest to make sure.

Yeah to answer your second question first.

And the rents would be slightly higher than in place and I think your comment about increasing construction cost is really the reason why that is we base it off and market cap rate as I described.

And with cost Escalations coming in and as they have.

That's leading to slightly higher rents and I think you know the trend on market rents as it relates to increase and construction costs will be interesting to watch over the next couple of quarters.

And you know what we feel comfortable obviously with the slightly higher rent because we're blending it with the existing in place rent and it's you know the expansions are smaller than the typical store size. So it blends and not too far away from the current average.

But yes, it's a it's a concern and construction costs and something we're watching closely and obviously, it's going to have an impact on rental figures.

And so the 250 Bucks a foot obviously it doesn't include land are correct me, if I'm wrong, because the REIT already owned the land on these respective states.

Like what would be the all in replacement cost if you will let's see.

And with the land is excluded at 250 with it would it be another 50 Bucks a foot for the land.

It really depends where you are buying land and Sam.

You know on average could that be a.

Approximately.

Correct it sounds it sounds in the ballpark yes.

Thanks, and just over to I guess, Canada square any update on the process. There I guess there was a designed panel recently and just.

And you can expect for next steps as well.

Hi, Sam it's Ken.

Our development manager and and and corner, our Oxford property submitted a development application back in December 2000, Twenty's said municipal process.

Is underway.

So that's moving forward.

You know really nothing.

Changes in terms of our timing we're still waiting.

For Metro links to give us some indication as to when.

D L are to be completed on Eglinton and win.

And we would get the land upon which we would be building phase one so no no significant changes on that front.

Okay. Thank you I'll turn it back.

Thanks, Dan.

Thank you.

Our next question is from Jenny mile with BMO capital markets. Please go ahead.

Thanks, and good morning, everyone.

Good morning.

We're about to Sam's question about the new developments can you comment on whether or not you are securing a similar type and and quantify rent escalations on these deals that you have within the current portfolio.

Ah, yes, we the rent Escalations will continue and I'll also mention them.

And where there's less than a certain amount of term, we're extending the leases as well.

Okay, and I guess broadly speaking are you still able to secure that kind of REIT escalation when you're talking about.

Renewals with thought with C. T I'm not sure if youre doing much at this point, that's cooking and excellent. There's still a couple of years out, but just wanted to get a sense of whether or not you're still able to get similar rent escalations going forward.

So we did have one clean entire store lease that comes up for expiry.

This year. It was at least we acquired from a third party and and because it was the third part at least they actually had fixed rate options to extend and KBR has extended that lease.

The next round of expense of leases that expire in 2023, so are we.

We are still and the process of working through the future of those sites.

And when we and the new assets are typically we.

And we do get the rent escalations so that pattern.

Continues on at this time.

Okay, Great and then with regards to the 2020 threes at what point do you start discussions and that's still a little bit early now.

No those discussions have already begun.

Okay great.

And then there's a I think this question's for Leslie and it looks like there's one mortgage expiring I believe that secured against Canada Square can you remind me when that expires and.

And that one is not until March of 2023, we have one other small mortgage secured by our stand alone Canadian tire store, we acquired that.

It expires in a summer of 'twenty two.

And I've tried to great and I mean, there's there's so little by way of secured mortgages is it fair to say that you're probably looking at paying these off when they come due and then just going you know a full 100% unsecured.

I think that's fair to say for the standard will Canadian tire store.

And as it relates to the Qantas, where you know when and when that mortgage tons due will be sort of hopefully heading into construction and different states that project, so and we'll be looking to add and work with our partner and and do and put some financing on that project, that's probably unlikely that that secured financing it may change into some different format.

Construction of some of that kind of facility, but and we'll probably more unlikely to roll that into it and unsecured.

Okay. Thank you that's all from me.

Thank you.

Next question is from Tal Woolley with National Bank Financial Please go ahead.

All right good morning, everybody good.

Good morning.

Just wondering.

Prices up significantly since the last time Canadian tire sold down some of its interest and the REIT have there been any conversations about and potentially lightening up in the future.

In terms of their or their position.

Hi talents, it's Ken.

We've had no indication from Canadian tire with respect to any of their plans one way or the other.

Okay. That's great. Thanks, very much everyone.

Thank you.

Thank you.

Yeah.

And is there no further questions registered at this time and we'd like to turn the meeting over to Ken Ken Summers P. L for closing remarks.

Thank you operator, and thank you all for joining us today.

Hopefully by the time, we speak to you again in August we will be speaking of the pandemic, mostly in the past tense until then please stay safe.

Thank you. This concludes today's call you may now disconnect.