Choice Properties Real Estate Investment Trust Q1 2023 Earnings Call

It's some tenant bankruptcies, which have been relatively loss from last couple of years, but importantly exposure to at risk tenants is very limited. This is not by accident. It is partly a function of us being very disciplined in executing on our capital recycling program and I will now discuss progress.

Retail increased by $6 1 million or three 4%.

Maybe just focusing on the retail space retail sector, where you had good same store NOI growth and I heard Mary you talked about moderating there had been some bankruptcies, but not too much and yet you say demand is strong. So maybe you can just talk a little more what type of tenants and how our rental rates trending.

Hi, Mark.

Also strong demand.

In our power centers and also based on sort of the consumer spending data that we're seeing.

Okay, great. Thanks.

We clearly have a shortage of affordable housing and it's hard to build affordable housing, but the demand is obviously there do you anticipate at any point in the next year, maybe being more aggressive on starting new projects.

Mark Thanks for the question I think one of the benefits of choices that we can develop across each of our asset classes and we're very active on the retail and industrial at the moment and on the resi completing two developments.

Where youre seeing strength and tenants are there any areas, where you guys are a little bit concerned.

We're seeing a lot of demand and resiliency in that in that segment.

Recently, <unk> announced they were looking to add some stores and relocate some stores I was wondering if you can maybe give us some color on sort of how you expect that to affect choice and whether or not you'll get to participate.

From a choice point of view, obviously benefited from new investment opportunities. We've been building new shoppers drug Mart developments I believe over the last few years, we booked 25% of their new stores.

So just when the category industrial portfolio, some negative absorption in the quarter.

Relocate in order to achieve that is we didn't have space in the building and then there were a couple of small tenant so nothing really indicative of a sentiment change by by any means.

Fair enough.

Segments of our industrial portfolio.

What's your sense for the rest of the year.

Those are performing particularly well.

You run a mezzanine loan book as well.

Yes.

We more focused on relationship lending.

And for US. It's just a great example, mezzanine program is a great example of us capitalizing on our strong balance sheet to give us opportunities.

Okay. Thank.

The round.

Your next question is from the line of <unk> beer with RBC capital markets. Your line is open.

Maybe touching base on the on the Calgary Office transactions can you, maybe just walk us through the background.

Yeah. Thanks for the question. So we've had this partnership.

With.

The transaction did happen slightly above book.

Yes, okay.

Australian retail and there is no macro scene Theyre all property specific so for retail it was just.

<unk> been a handful of properties that we just adjusted market rents and based on leasing were seeing.

And then on development just the advancement of certain properties, so really nothing.

Actually it's simpler than that assist math pardon me, we had a great second half of last year. So when you just compare year over year.

Hugh you have higher growth, but as you get into the second half the base is higher but no retail will still be strong industrial still going to be very strong. So the dollar value doesn't change we still have growth, but just when you compare to the prior the prior to year gap.

Thanks, very much guys I'll turn it back thank you.

No impact to choice and as we've said before we have a strong relationship with loblaw and the strategy remains the same.

Yes.

So what we what we are not interested in purchasing they will sell to third parties.

And then.

I think you're officially pass the one year Mark on the deal you struck with Allied last year and I think the first.

Lockup expires I think in a few months on your on your stake in Allied.

There been any shift in your thinking around that holding.

Okay.

The first lockup expires as you say it in about three months time.

We haven't changed our thinking.

We will sell it when we believe it makes sense too.

<unk> is still the best office REIT in the country and as they execute upon the sale of the data center, we think it will alleviate some of the pressures on their stock.

Got it.

And then just lastly, I guess this question is probably more for Mario.

What's your sort of thinking around.

Do you have a huge unencumbered asset pool.

In terms of using unsecured versus secured financing and you guys are also one of the few names on the street right now that are still kind of trading at a premium to NAV.

Theoretically you could even consider.

Looking at some equity here, if you wanted to try and.

Do some stuff.

Just curious how.

You sort of thought about your financing mix.

Given where rates are and your stock price is right now.

Hello, Hey tail.

Yes, we.

A lot of options available to us and Thats kind of by design right. Now the plan is the unsecured debt market is our primary source.

And so we go to that.

And.

And basically we're comfortable with the Leverages right now.

And we're able to fund our developments.

Based on that and while keeping the leverage neutral. So so right now we don't need a lot of extra capital right. Now so we'll just refinance what we have coming due.

It leaves the sources that are available right now I think we're getting a reasonable pricing relative to others.

And so right now we'll stay that course.

Okay, that's great thanks very much.

Okay.

Your next question is from the line of Sam Damiani with TD Securities. Your line is open.

Thanks, Good morning, everyone.

Most of my questions have been asked so I'll just ask Mario you talked about.

De risking and the improvement on the balance sheet metrics over the last year or two.

Do you see any further need for.

Improvement in this regard just given the market that we're in in the economy that we're in.

Okay.

Not right now Sam I mean, we.

We like the level we're at.

We're comfortable we think right now.

We have as far as.

Our spending.

It's very it's very manageable right now so.

So the real thing for US is just keeping liquidity and keeping optionality in our debt ladder and so where we had the chance to go 10 year and beyond.

Again, it was just to Derisk and you just don't know whats going to happen. So we're in a position that whatever the market brings us we're able to react.

Okay, Perfect and then maybe just last one to follow on <unk> questions I think is.

Just on that $1 8 billion at Loblaw talked about.

Selling in terms of real estate can you talk about their progress on selling any to third parties.

That's correct.

Yes, I know they are in the process of selling a small portfolio to a third party and I believe it's gone well.

But.

I think they should comment on it.

Yes.

Okay perfect. Thank you very much.

Your next question is from line of Gaurav Massar with <unk> capital markets. Your line is open.

Thank you and good morning, everyone.

A couple of quick questions on my end.

Firstly when you are looking at the liquidity profile on your acquisitions this quarter.

Does seem that you are in a position of strength to take advantage of market dislocations.

I'm, just wondering if theres any asset class or geography, which does stand out over the others.

So look we are focused on the three asset classes being REIT grocery anchored necessity based retail industrial.

And then residential and.

We hope we hopeful that opportunities come our way, but we haven't seen many opportunities that meets our quality criteria.

Our distressed but now.

Okay, Great and just lastly, with the 2023 guidance the distribution increase is there a payout ratio range, which youre currently targeting.

So, yes, I mean right now.

Our plants have is using our capital spend at 85% to 90% payout ratio and.

And we're comfortable at that level I think the last couple of years have just shown that.

Our NOI has been poorly itself so.

Thats for the pandemic and through.

Through various cycles, we've been strong so overall, we're pleased with that payout ratio.

Okay, great. Thank you for the color I'll turn it back to the operator.

Your next question is from the line of Dean Wilkinson with CIBC. Your line is open.

Thanks, Good morning, everyone.

Mary I'll, probably for you just a quick quick question.

Obviously access to credit is really not a problem. Despite maybe what some of the headlines are saying.

It looks like the pricing on the unsecured and the mortgages.

Not quite converging, but getting close whats your thought on the remaining $1 billion of mortgages could you see that coming into the unsecured market and just generally what's the sense, you're getting from mortgage lenders in terms of pricing and availability of credit right now.

Hey, Deane.

So we we went out and we tap the mortgage market last quarter.

The market is strong and obviously they have their own criteria. They are in favor of certain asset classes.

<unk> strong balance sheets.

So theres a sweet spot.

The only thing that I think.

Here's the cost of funds moves and so.

There may be higher costs as we go but right now there is.

Still.

Very favorably priced compared to bonds, but I think the gap is narrowing a bit on the bond side I mean.

The support and the demand that we saw in our last deal was.

It was very very it was very strong and so that I think our pricing I think the last deal came in tighter than the original guidance.

So theres still theyre getting.

The narrower, but we need them, all and and I think having the benefit of a level of lease really makes it attractive to lenders in this environment. So so we think we I think we're going to get good pricing and all debt markets.

Perfect. Thanks.

Okay.

Okay.

There are no further questions at this time I will now turn the call back over to Rael Diamond.

Thank you Brian to summarize we're very pleased with our first quarter performance.

We look ahead, our business is strong and as Mary said, we are well positioned to execute on our strategic framework and deliver on our 2023 plan.

Annual General meeting will follow this morning at 11 o'clock and we look forward to seeing you. There. Thank you for your interest your investment in choice and for joining US This morning.

Okay.

Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.

Please wait the conference will begin shortly.

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