Q4 2023 CT Real Estate Investment Trust Earnings Call
Okay.
Good morning, My name is Daniel.
Your conference operator today.
At this time I would like to welcome everyone to see heat rates.
Q4, 2023 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 at that time. Please press Star then one one on your telephone.
To withdraw your question. Please press Star then one one again.
The speakers on the call today are Kevin Salzburg.
And Chief Executive Officer of Cte REIT.
Jody Spiegel senior Vice President real estate of Cte REIT.
Unless Lee Gibson.
<unk> financial officer of <unk>.
Today's discussion may.
Include forward looking statements.
Sure.
Statements.
May be 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.
Please see <unk> reads public filings for our disk.
Question of these risk factors, which are included in their 2023.
MD&A and 2023.
Aif, which can be found on <unk> website and on SEDAR.
I would now like just trying to call over to Kevin Salzburg, President and Chief Executive Officer of Citigroup Kevin.
Thank you Daniel Good morning, everyone and welcome to <unk> quarterly Investor Conference call.
Despite a challenging macroeconomic backdrop C. T REIT delivered a solid fourth quarter performance to cap off yet another strong year of consistent and growing results.
2023 was filled with accomplishments key milestones and a memorable anniversary and I am happy to be able to recap our achievements from the past year with you today.
First and foremost I am very pleased with the strong growth rates that we achieved across our key financial metrics in 2023.
For the full year, we achieved a four 6% increase in net operating income.
Two 5% growth in same store NOI.
Four 3% growth in same property NOI and an impressive four 9% growth in <unk> per unit.
These results are a clear demonstration of how the successful execution of our strategy has translated into strong financial performance during the year.
This growth in earnings once again contributed to <unk> ability to announce yet another increase in its distributions earlier. This year earlier last year as we have done every year since our initial public offering in 2013.
At year end, our payout ratio on an annual basis stood at 73, 4% a reduction of over 100 basis points relative to year end 2022.
With respect to our portfolio growth, we delivered an impressive 839000 square feet of new gross leasable area through our active development pipeline and invested over $150 million.
This included our new 350000 square foot net zero certified distribution center in Calgary, Alberta that we completed this past quarter.
Canadian tire is now taken occupancy and will begin operating out of the facility this quarter and rent commenced on January one 2024.
Other notable completions in 2023 included New third party retail located at our shopping center in Moose jaw, Saskatchewan, two new Canadian tire store developments in Sherbrooke, Quebec in Toronto, Ontario, and nine Canadian tire store expansion projects.
From a balance sheet perspective, we repaid all outstanding amounts owing on our line of credit after raising $250 million and a successful unsecured debenture offering in November.
As such at year end, we had no variable rate debt outstanding and our balance sheet is in excellent shape with our only debt maturity in 2024 related to one series of class C. L. P units that comes due midyear.
Through the course of 2023, we repurchased over 450000 and CPA REIT units through our NCI B facility at a weighted average purchase price of $13 99 per unit.
For a total cost of just over $6 3 million.
And as we described on our call last quarter. We also successfully celebrated <unk> 10 year anniversary since going public and our tremendous track record that we've established since our IPO.
C theory unwavering dedication to long term success remains our primary focus as Jodi will relay our operational performance. This past year reflects the strength of our assets as well as the health of the retail leasing market and our portfolio remains nearly fully occupied.
We continue to proactively manage our weighted average lease term and to work towards driving rental growth by engaging in new leasing activities and renewal discussions with both Canadian tire and our third party tenants.
From an investment perspective, our development pipeline has been a great source of growth and opportunity for <unk> and we were pleased to announce an attractive new redevelopment project yesterday.
We also continue to look for additional opportunities that suit our strategy and fit within our financial parameters. We work hard not to take undue risk and have improved our balance sheet and debt metrics in order to deal with an ever changing financial backdrop provide flexibility and capitalize on those investments. We feel are best suited to our long term growth.
I want to take a moment to thank the whole <unk> team for their efforts hard work and dedication over this past year I am very pleased with how 2023 turned out and we are being purposeful about our prospects as we chart. Our course for 2024 and with that I will now pass it over to Jodi to walk you through an overview of our investment leasing and development activities and then Leslie will speak to our financial.
Our results Jodi, Thanks, Kevin and good morning, everyone as highlighted in our press release yesterday, we were pleased to announce one new investment this quarter. This new investment relates to the redevelopment of an existing enclosed mall located in Winkler, Manitoba. If you recall, we purchased this property unattractive terms in 2016.
And expanded the freestanding Canadian tire store onsite in 2018.
We have now entered into a lease with an additional new anchor tenants that will allow us to partially demoed the balance of the property and complete the asset strategy for this property that we devise at the time. It was acquired it is anticipated that this $9 1 million dollar investment will be completed by the end of 2025 at a cap.
Rate of 9%.
In Q4, we successfully completed seven projects totaling $96 million, which added an additional 455000 square feet of GLA to the portfolio the projects.
<unk> expanding for existing Canadian tire stores, located in Nappanee, Ontario, Ingram Euro British Columbia, and Sydney in Bedford, Nova Scotia. Furthermore, we developed a third party pad at one of our properties in Hamilton, Ontario, as well as entered into a ground lease with a third party in Kingston, Ontario Q&A.
The future development of a new Canadian tire store lastly, as Kevin noted, we completed our first net zero certified distribution center in Calgary, Alberta and turned over occupancy at the building to Canadian tire as you can see there is significant activity to conclude the fourth quarter and wrap up a very busy year.
At the end of the quarter DGB at 18 properties that we are at various stages of development. These development projects represent a total committed investment of approximately $258 million upon completion $86 million of which has already been spent and $43 million of which we anticipate will be.
Spend in the next 12 months.
<unk> built these projects will add a total incremental gross leasable area of approximately 571000 square feet to the portfolio 98, 8% of which has been pre leased at quarter end.
We also continue to focus on our existing portfolio of high quality net leased assets in 2023, we successfully extended 28 Canadian tire store leases and over 310000 square feet of third party leases at a 10, 3% blended weighted average renewal spread.
Our portfolio remains nearly fully occupied at 99, 1%.
As at the end of Q4, the weighted average lease term for our portfolio was eight four years, which remains one of the longest in the sector with that I will turn it over to Leslie to discuss our financial results Leslie.
Thanks, Jody and good morning, everyone.
As Kevin highlighted we were pleased with the solid results delivered by the REIT again, this quarter and for the full year.
Underpinning the solid growth our fourth quarter NOI grew by $4 8 million or four 4% as a result of same store NOI growth of $2 3 million or two 2% as well as the contribution to the intensification acquisitions and developments, which contributed a further $2 5 million to NOI growth.
Drivers of the same store NOI increase where contractual rent escalations of $1 $6 million, primarily being the 1.5% average annual rent Escalations included in the Canadian tire leases.
With the balance of the growth primarily from the continued recovery of capital expenditures and interest earned on the undercover to balanced which contribute approximately $900000 to NOI in the quarter.
Same property NOI for the quarter was $3 8 million or three 6% higher due to the increase in same store NOI and a further $1 $5 million from intensification is completed in 2022 and 2023 and <unk>.
Additional acquisitions development completed in 'twenty, two and 'twenty three added a further $900000 to total NOI.
In the fourth quarter, excluding fair value adjustments G&A expense as a percentage of property revenue was 62, 6%, which is slightly less than the same period in the prior year.
The same metric for the full year was two 9% which was the same as 2022.
With respect to the fair value adjustment the decrease of approximately $39 3 million in the quarter was mainly driven by changes in underlying investment metrics for a number of retail properties as well as an industrial property within our portfolio.
However, these decreases were partially offset by positive changes to underlying cash flow assumptions related to the retail portion of our portfolio.
For the full year, the fair value adjustment with a decrease of $78 6 million for the same reasons as the Q4 changes.
Diluted <unk> per unit in the quarter was up two 5% to 33.0 cents compared to $32.02 in the fourth quarter of 2022.
This increase was primarily driven by the growth in net operating income partially offset by increased interest cost on the public debentures and an increase in the interest expense related to the credit facilities due to higher utilization and higher cost of borrowing for.
For the full year diluted <unk> per unit was up three 5% to $1.38.
Growth in <unk> per unit on a diluted basis was strong for the same reasons coming in at 33 up three 8% compared to Q4 of 2022.
On a full year basis diluted <unk> per unit increased to $1 23.
<unk> growth of four 9% versus 2022.
Distributions in the quarter increased by three 5% compared to the same period in the previous year.
As a result, the <unk> payout for Q4 was 74, 3%, which is unchanged from the same period last year.
Additionally, in Q4 2023, we continued repurchasing units through our and CIB facility buying back approximately 3 million units of our units at an average price of $13 50.
Turning now to the balance sheet, our interest coverage ratio was down slightly to three six times for the current quarter compared to $3 seven two times in the comparable quarter of 2022.
Mainly driven by the growth in interest expense and other financing charges outpacing the growth in EBIT fair value.
Your dentist to EBIT fair value ratio was 683 times comparable to the $6 eight six times in Q4 of 2022, we remain very comfortable with where our debt metrics are.
The issuance of the series a senior unsecured debentures as well as a decrease in the fair value of our investment properties took our indebtedness ratio up slightly to 41, 4% from 47% in the same quarter of the last year.
Our indebtedness ratio continues to be within our target range and considering the current macroeconomic backdrop and interest rate environment. We are pleased with the strength of our balance sheet.
And lastly, with respect to liquidity at year end, we had 20 million $21 million of cash on hand, and $297 million remains available through our committed credit facility and a further $300 million is available on our uncommitted facility with Canadian Tire Corporation and.
With that I will 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 one one on your telephone keypad.
To withdraw your question. Please press Star then one on Ken.
Well pause for just a moment to call the Q&A roster.
Yeah.
Our first question comes from Sam Damiani with TD. Your line is now open.
Thank you and good morning, everyone.
Our next question is just on good morning, just on new investments.
Obviously nice to see the redevelopment of Winkler happening I guess COVID-19 kind of delayed that.
Great you've got a good new tenant coming in as well, but just wondering with the quantity of the new investments relatively low and also the absence of can the entire being involved.
A bit of an anomaly or is this or is this an indication that the growth rate in the trend of new investments is going to be maybe a little bit slower than it was historically further for the near term.
Sure I can take that Sam.
So the pace has certainly slowed over the last quarter or two.
As you know historically this has always ebbed and flowed a little so we seem to be in a bit of an ebb right now.
Obviously happy to have delivered over 800000 square feet of.
New space last year more than half of it in this past quarter or so.
Obviously, we're coming off a big pipeline.
A lot of that new space was delivered for Canadian tire as part of their.
Better connected strategy that we've been.
Part of.
We obviously continue to discuss projects and opportunities with Canadian tire on an ongoing basis.
As we relayed last quarter, though.
There's a number of new projects that have.
Been deferred or delayed given the current environment, which I think is prudent so I think thats, what youre seeing is it triangulates back to our new investment activity.
As I said.
Things ebb and flow in.
At some point I think we'll get there.
Back to our baseline.
Okay. That's helpful and just on the third party acquisition side Thats also been somewhat quiet in recent quarters.
The outlook is for registrants to at least be less volatile and eventually start to moderate a bit.
Seeing better opportunities to make third party acquisitions.
Okay.
Quality assets are still quite expensive relative to cost of funds I think that's what we're seeing.
If there is an expectation.
That will return to the long term average or get closer to it at some point with bond yields potentially going down at some point in the back half of the year.
Maybe maybe that happens sooner than later, but.
At this point.
It's hard to find opportunities based on our cost of funds, we can make sense.
Okay. Thank you I'll turn it back.
Thank you.
Thank you one moment for our next question.
Okay.
And our next question comes from Lorne Kalmar was Hey, Jordan. Your line is now open.
Thanks, Good morning, everybody.
Okay.
I was young and AG and it looked like the.
Construction on the corner there looks to be getting close to completion I was wondering if you.
Do you have any more clarity in terms of the timing I can square given the progress.
That little note there.
Yes, as an occupant of the candidates for office complex here, it's great to have the intersection reopen and.
Some of the staging removed.
Unfortunately, I'm not sure below ground it's.
Achieving the same level of progress we have no specific further updates.
From from the consortium or related to the <unk>.
And our hope and I think what they've sort of communicated is.
Maybe by the end of the year so.
Nothing new to say specifically.
On our ability to actually progressed with redevelopment.
Okay.
And then maybe just sticking with Canada square I know there was some de leasing going on there and some leases that may or may not have been renewed or we through the majority of that the leasing or do you guys expect there to be a little bit of a hit on NOI as we progressed through 2024.
Lawrence Leslie.
The vast majority of all of that has gone through there there will be I would say a few odds and solids going through Theres. A few tenants that we were able to keep four set of month to month on a little bit longer.
The project delays, but I would say that.
The de leasing of the last little bit of the 22 to 100 bed building, particularly question Yonge Eglinton.
It's fairly immaterial to the overall scheme.
Scheme of things.
Okay Lovely I will turn it back thank you.
Thanks.
Thank you.
As there are no further questions at this time.
I'll turn the call back over to Kevin Salzburg, President and CEO for closing remarks.
Thank you operator, and thank you all for joining us today.
We look forward to speaking with you again in May after we release, our Q1 results.
Yes.
Thank you. This concludes today's call you may now disconnect.
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