Q3 2023 CT Real Estate Investment Trust Earnings Call

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Good morning, My name is Marie and I will be your conference operator.

To date.

At this time I would like to welcome everyone to cheeky reach Q3, 2023 earnings results Conference call.

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After the speaker's remark there will be a question and answer session.

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The speakers on the call today are Kevin Salzburg, President and Chief Executive Officer of C. T right.

Jody Springle senior Vice President real estate, and Lesley Gibson Chief Financial Officer.

Today's discussion may include forward looking statements.

Statements are based on management's assumptions and beliefs.

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

Please C C T reach public filings for a discussion of these risk factors, which are included in their 2022 M. DNA and 2020 280 S, which can be found on C. T reach website and on SEDAR.

Yeah.

I will now turn the meeting over to Kevin Spielberg, President and Chief Executive Officer of Sika right Kevin.

Thank you Marie.

Good morning, everyone and welcome to city of Reeds third quarter Investor Conference call.

Quite a challenging economic environment see theory continues to deliver consistent growth and stable results when.

When <unk> was established over a decade ago, the tagline of delivering reliable durable and growing results was a vision for an enterprise that was set up to not only withstand headwinds but to thrive in spite of them.

Irrespective of market conditions over the last decade, we have grown our portfolio earnings net asset value and distributions, all while improving our balance sheet and payout ratio.

As we recently celebrated the 10 year anniversary of our initial public offering. This milestone has given us an opportunity to pause and reflect on our track record since inception, and I am proud of what our team has been able to achieve over this time.

Highlights to the end of the quarter include delivering a total return to unit holders of 131% outperforming both the S&P <unk> composite and the S&P T. Essex cap REIT indices, which delivered total returns of 100% and 62% respectively, adding.

Adding 117 properties consisting of 11 million.

Millions of square feet to the portfolio.

Investing approximately $2 $6 billion and acquisitions developments redevelopments and intensification projects.

Achieving compound annual growth rates of 7.0% to 3% and net operating income.

567% in <unk> per unit, and 4.66% and net asset value per unit and declaring an increase in our distributions at least once every year for a total increase of 38% all while reducing our payout ratio to 74, 8%.

Our occupancy rate has consistently remained above 98% and our weighted average lease term and the weighted average term to maturity on our debt remain amongst the longest in the industry.

Additionally, our annual rent Escalations and Capex recovery mechanisms.

And we will continue to provide steady and reliable organic growth.

The underlying fundamentals of our business today are in great shape, our occupancy rate stands just above 99%.

Our development pipeline tied primarily to Canadian tire is better connected strategy sits north of 1 million square feet and although not immune we are fortunate to currently be well insulated from the impacts of higher interest rates with only one debt maturity to refinance over the next 18 months.

<unk> Q3, 2023 results are an extension of our track record, thus far and validation of our strategy that seeks to continuously deliver above average relative returns for below average relative risk.

Jodi and Leslie will speak to the quarter in greater detail, but as we look to the next 10 years for CTO read we are confident in our ability to continue to grow our business and strive towards the continued delivery of reliable durable.

Results for our unit holders Jodi will now walk you through an overview of our investment leasing and development activities and then Leslie will speak to our financial results Jody.

Thanks, Kevin and good morning, everyone as highlighted in our press release yesterday, we were pleased to announce one new investment this quarter of $28 million.

This new investment relates to aid the land lease and development of a new Canadian tire store located in Kingston, Ontario that will add an incremental 113000 square feet of gross leasable area to the portfolio upon completion at a cap rate of six 9%.

In Q3, we completed two projects totaling $40 million, which added an additional 158000 square feet of GLA Cheetah portfolio.

These included the intensification of an existing Canadian tire store located in summer side, Prince Edward Island, as well as the development of a new Canadian tire store located at Islington Avenue and highway 401 in Toronto, Ontario.

If you're in the greater Toronto area I strongly recommend checking of this recently opened Canadian tire store, which has been built using <unk> latest concept connect design and features state of the art in store technology that elevates the omnichannel customer experience.

At the end of the quarter C. T V had 25 properties that were at various stages of development with five projects currently expected to be completed by the end of 2023.

These development projects represent a total committed investment of approximately 365 million upon completion.

144 million of which has already been spent and 54 million of which we anticipate will be spent in the next 12 months.

Once built these projects will add a total incremental gross leasable area of approximately 1.1 million square feet to the portfolio, 99.4% of which has been pre leased at quarter end.

We were also pleased to have completed two additional Canadian tire store lease extensions this quarter, taking the year to date total of Canadian tire lease extensions to Twenty's Douglas.

As at the end of Q3, the weighted average lease term for our portfolio was 8.5 years, which remains one of the longest in the sector. Finally, our portfolio remains 99.1% occupied in line with last quarter with that I will turn it over to Leslie to discuss our financial results Lesley.

Thanks, Jody and good morning, everyone.

As Kevin highlighted we were pleased with solid results delivered by the REIT again this quarter.

S F O per unit on a diluted basis was strong up three 1% to 31 cents compared to Q3 of 2022.

This increase was primarily driven by growth in the same store net operating income as well as the positive impacts of the intensification is completed in 2022 and 2023.

Sell it at S. F O printed in the quarter was also strong for the same reasons coming in at 32.7 cents up one 9% compared to 31 cents in Q3 of 2022.

Same store NOI grew by 1.9 million or one 8% as a result of contractual escalations contributing 1.5 million primarily being the one 5% average annual rent Escalations included in the Canadian tire leases.

But the balance of the growth primarily from continued recovery of capital expenditures and interest earned on the unrecovered balance, which contribute approximately $1.2 million to NOI in the quarter.

Partially offset by a decrease in property operating cost recoveries of 800000.

In addition, same property NOI for the quarter was $3 6 million or three 4% higher due to the increase in same store NOI and a further $1.7 million.

Spell intensification completed in 2022 and 2023.

In the third quarter, when excluding the fair value adjustments G&A expense as a percentage of property revenue was two 9%.

This figure represents an increase from 2.5% in the same period of the previous year.

Primary reason for this increase as higher compensation costs, specifically to the variable component of compensation a component of compensation Awards.

With respect to the fair value adjustment the decrease of approximately $66 7 million in the quarter was mainly driven by changes in the underlying investment metrics for industrial properties within the portfolio and to a lesser extent from changes to investment properties metrics related to certain small market retail properties, all partially offset by changes.

The underlying cash flows as a result of NOI growth and lease extensions.

Distributions in the quarter increased by three 5% compared to the same period in the previous year, reaching 22.5 cents as a result, the F O payout ratio stood at 74, 8%, which represents an increase of 0.5% from the same period last year.

Oh, so in Q3, we continued to repurchase units through a N C. I b facility buying back approximately one point in main millions of our units and average price of $42 48 in the quarter.

Turning now to the balance sheet, our debt metrics continue to remain strong with no significant changes in the comparable quarter in 2022.

The interest coverage ratio at 3.71 times for the current quarter was in line with 372 times in the comparable quarter of 2022.

The indebtedness to EBIT fair value ratio was $6 eight one times also comparable to $6 eight six times in Q3 of 2022.

C. G meets indebtedness ratio slightly increased from 46% in the same quarter of last year to 41, 1%. This increase can be primarily attributed to the higher utilization of credit facilities to finance intensification and development activities in 2023.

Dennis ratio continues to be within our target range and considering the current macroeconomic backdrop and interest rate environment. We're pleased with the strength of our balance sheet.

Lastly, with respect to liquidity $73 million remains available through our committed credit facility and a further $300 million available on our uncommitted facility with Canadian Tire Corporation.

And with that I'll turn the call back to the operator for any questions.

Yeah.

Thank you.

At 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 ask at this.

We ask that you please limit yourself to one question and one follow up.

We'll pause for just a moment to compile the Q&A roster.

The first question.

Is from Lorne Kalmar from <unk>. Please go ahead. Your line is now open.

Thank you very much and good morning, everybody.

Just wanted to quickly chat on the development spend obviously up quite a little bit this quarter.

Can you maybe give a little bit of color on what drove that and I know you've kind of alluded to your development spend expectations over the next 12 months, so maybe a little bit more color on that as well if you wouldn't mind.

It's let's see I'll start off I think really it's just more towards the like summer construction season. It. It's you know when when we've been building to July August and they're started June or July August and September.

It tends to be that sort of better months easily in terms of what where we're developing them and what we're paying and accruing for but I think beyond that it's a it's nothing and nothing unusual from my perspective.

Okay, and then maybe just a follow up on that I guess, the credit facilities kind of ticked up a bit.

Any thoughts on maybe terming that out.

Yeah, No Laurie I mean R. R.

<unk> you know the long term has not changed and you know we're constantly watching the the debt markets and obviously the the recent week and a half at a decrease in the underlying gse's is constructive from that perspective.

You know, but we also have the option to be patient and we still got room on our bank line and in our unconventional he with C. T C.

But but yes definitely markets have us or are a lot more positive in the last little while compared to have they have been say for the last five six months.

Yeah. So it's a low bar to get excited about but we'll get you anything at this point. Okay. Thank you [laughter] I'll I'll take the quarter point or so no problem.

[laughter].

Thank you.

The next question.

Is from our side.

Some do Yemeni from T. D. Please go ahead. Your line is now open.

Thanks, and good morning, everyone.

I guess, Kevin just for you on the piece of new investment announcements a year to date, it's a little slower than what we saw last year.

And I Wonder if you could give a little color on what you're expecting over the next few quarters in terms of the pace and whether or not you might add another 11 million square feet over the next 10 years.

Thanks, very much Sam good morning.

Obviously.

It ebbs and flows from quarter to quarter.

But the positive is that Canadian tire remains committed to their better connected strategy, they've come out and said that publicly.

The better connected strategy to remind you is a significant real estate component to it which the REIT will.

We will play a role in.

Obviously, you were having continuing discussions with Canadian tire on new projects new opportunities.

I would say in the context of the current environment I.

I think both the REIT and CTC are proceeding at a little bit more cautiously.

We could potentially see the timing of certain projects.

Shift out, but nothing concrete to say about it at this point should there be any changes or specific updates obviously, we will telegraph telegraph that at the appropriate time.

But I am still confident in the pipeline and the opportunity set.

I think in.

In the next decade.

I'm certainly hopeful that we'll be able to replicate the amount of growth that we've had in our first 10 years.

But obviously that.

That remains to be seen.

That's very helpful and a second.

Second one from me would just be on Canada square, if theres anything tangible.

Tangible you can provide in terms of an update there both in terms of the progress of the redevelopment, but also any potential impacts to the NOI line for the REIT over the next couple of years.

So I can definitely provide an update I'm not sure I would describe my update is tangible though because there hasn't been too much improvement since since the last quarter quite frankly.

Our municipal approval process is ongoing we still expect that.

That will conclude at some point next year in 'twenty four.

Obviously, we're still working and Oxford continues to work with Canadian tire on.

On the future office requirements, but this work stream is still very much underway.

And we have no update from the LRT in terms of timing completion, I think the one thing that.

<unk> continues to evolve.

As I just referenced as the macro environment.

And obviously, we'll see that.

Unfolds over the next little while in terms of.

Decisions that we have to make in terms of next steps and the phasing of the development.

But in terms of NOI erosion, I mean, I think we've kind of taken our lumps. Thus far yeah lastly, famous Lesley yeah. I mean, there there are still confused some tenancies within the buildings at the North end of the site that are contributing to NOI and <unk> and they will continue to decrease as we head towards the development, but whether were you never know.

On short term basis or on a Christmas basically whatever it happens to be well try to keep those going and as long as we can and those tense are happy to be here. So there will be some but I'm not expecting it to be overly material in any given quarter over the next little while.

And then just on the on the flip side, Sam just in terms of the lease up of 21, <unk>, which is not part of the first phase of the redevelopment and I think the comment I would make is the office leasing market is slow.

We have a couple of floors that are available I think we could see.

The floor is zero independently or a portions of Florida. So I think it'll be a staggered lease up over time and.

I think it'll be on the slower end of the lease up as were.

Used to relative to our retail portfolio portfolio.

I don't think anybody would be surprised to hear that thank you very much and I'll turn it back.

Thanks.

Thank you.

As there are no further question at this time I will turn back the meeting over to Kevin Salzburg, President and CEO for closing remarks.

Thank you Maria and thank you all for joining us today.

Look forward to speaking with you again in February after we release, our Q4 results.

Have a good day.

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