Q1 2024 Choice Properties Real Estate Investment Trust Earnings Call

Okay.

Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Choice Properties Real Estate Investment Trust first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Ladies and gentlemen, thank you for standing by.

Shelby: My name is Shelby and I will be your conference operator today.

Shelby: At this time I would like to welcome everyone to the choice properties Real estate investment Trust first quarter 'twenty 'twenty four earnings conference call.

Shelby: All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session.

Operator: And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. Thank you. And I would now like to turn the conference over to Erin Johnston, Senior Vice President of Finance. You may begin.

Shelby: If you would like to ask a question during that time simply press the star key followed by the number one on your telephone keypad.

Shelby: If you would like to withdraw your question Press Star one a second time.

Shelby: Thank you and I would now like to turn the conference over to Aaron Johnson Senior Vice President of Finance you may begin.

Erin Johnston: Thank you good morning, and welcome to the choice properties Q1, 'twenty 'twenty four conference call I'm joined here. This morning by real Diamonds, President and Chief Executive Officer, Mario <unk>, Chief Financial Officer, and now Collins Chief operating officer.

Erin Johnston: Okay, I will start the call today by providing a brief recap of our first quarter performance and provide an update on our transaction and development activity in the quarter.

Rael Lee Diamond: Now I will discuss our operational results followed by Mario who will conclude the call with a review of our financial results before we open the lines for Q&A.

Speaker Change: Before we begin today's call I would like to remind you that by discussing our financial and operating performance and then responding to your questions. We may make forward looking statements, including statements regarding choice properties objectives shattered strategies to achieve those objectives as well as statements with respect to management's beliefs plans estimates.

Erin Johnston: Thank you. Good morning, and welcome to the Choice Properties Q1 2024 conference call. I'm joined here this morning by Rael Diamond, President and Chief Executive Officer, Mario Barrafato, Chief Financial Officer, and Niall Collins, Chief Operating Officer. Rael will start the call today by providing a brief recap of our first quarter performance and providing an update on our transaction and development activity during the quarter. Niall will discuss our operational results, followed by Mario, who will conclude the call with a review of our financial results before we open the lines for Q&A.

Speaker Change: Pension outlook and similar statements concerning anticipated future events results circumstances performance or exceptions that are not historical fact these statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions and these.

Rael Lee Diamond: We're looking statements.

Erin Johnston: Additional information on the material risks that can impact our financial results and estimates on the assumptions that were made and applied in making these statements can be found in our recently filed Q1, 'twenty 'twenty four financial statements and management's discussion and analysis, which are available on our website and on SEDAR and with that I will turn the call.

Ralph: Over to Ralph.

Ralph: Thank you Aaron and good morning, everyone and thank you for joining us today.

Ralph: Overall, we had a very positive start to the year.

Ralph: Portfolio maintained near full occupancy at 97, 9%, we achieved solid same asset cash NOI growth of two 4%.

Ralph: Impressive renewal spreads of 22, 9% and strong <unk> growth of six 1%.

Ralph: Last quarter, we discussed the need for strong balance sheet as we continue to face significantly high borrowing costs and overall uncertainty due to market volatility and recession xps.

Erin Johnston: Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding choice properties, objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook, and similar statements concerning anticipated future events, results, circumstances, performance, or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements.

Speaker Change: Well there are a lot of market participants that are hoping that interest rates will abate. This has not come to fruition.

Speaker Change: 10 year bond is 18 basis points higher than it was when we release results in February and 65 basis points higher than the start of 2024, we remain committed to our prudent approach to financial management and believe that our industry, leading balance sheet combined with the strong underlying fundamentals in each of.

Speaker Change: By asset classes will continue to be a real differentiator in this environment.

Speaker Change: We will weather this volatility better than most.

Speaker Change: This past quarter, our business once again demonstrated resilience and our team remained focused on executing our strategic framework.

Speaker Change: Despite continued interest rate pressures the investment market is still active on a local level for quality assets with strong fundamentals during the first quarter, we completed approximately $61 million in total real estate transactions, including approximately $38 million of acquisitions and $23 million of dispositions.

Speaker Change: We continued to buy high quality assets from Loblaw and during the quarter, we acquired a retail property located at Bathurst I think led to Ron for purchase price of approximately $38 million.

Erin Johnston: Additional information on the material risks that can impact our financial results and estimates and the assumptions that were made in applying and making these statements can be found in the recently filed Q1 2024 Financial Statements and Management Discussion and Analysis, which are available on our website and on CDAR. And with that, I will turn the call over to Rael.

Speaker Change: With a lease term of 15 years and annual rent increases of 2.25%. This property is a high performing global store totaling approximately 75000 feet and he's a great addition to our portfolio.

Speaker Change: The asset is exceptionally well located in the heart of Midtown Toronto and benefits from current and future densification in the surrounding node as well as direct access to public transit.

Speaker Change: Transaction is another example of the benefits of our relationship with Loblaw.

Speaker Change: As retail assets of this quality really come to market.

Speaker Change: In terms of dispositions, we sold an industrial property located at three seven non or underwriting Brampton for approximately $60 million and a retail property located in Edmonton for Proximately 7 billion.

Rael Lee Diamond: Thank you, Erin. Good morning, everyone, and thank you for joining us today. Overall, we had a very positive start to the year. Our portfolio maintained near-full occupancy at 97.9%. We achieved solid same-asset cash annual growth of 2.4%, impressive renewal spreads of 22.9%, and strong FFO growth of 6.1%. Last quarter, we discussed the need for a strong balance sheet as we continue to face significantly high borrowing costs and overall uncertainty due to market volatility and recessionary fears. While there are a lot of market participants that are hoping that interest rates will abate, this has not come to fruition.

Speaker Change: Advanced our development path on the Q1.

Speaker Change: Completing approximate approximately 75 million of development projects at a weighted average yield of five 1%.

Speaker Change: In addition to a retail development in Georgetown, Ontario, which consisted of an expansion of an existing lease to a national retailer with a cost of 8% and a yield of eight 8%. We also transferred a residential development at Mount Pleasant village in Brampton, Ontario in which we are in a 50% interest.

Speaker Change: This development offers unique rental community in the house of brands and consisting of 302 residential units.

Speaker Change: The building is currently 58% leased and is expected to stabilize over the next 12 months.

Speaker Change: In addition to developing the rental building to a stabilized yield of four 7%.

Speaker Change: We have developed a 142 condominium units, which are expected to generate 7 million share of total condominium profits of which $6 6 million has been recognized to date.

Speaker Change: Only 12 units remaining which are expected to close in the second quarter.

Speaker Change: As we look at our development activity for the remainder of 2024. Our teams are on track to complete the first phase of our industrial development in Caledon, Ontario. In addition to delivering an additional 120000 square feet of retail space.

Speaker Change: I hand, it over to <unk> I want to take a minute to acknowledge the release of our 'twenty to 'twenty three environmental social and governance report. This year's report summarizes many of choices successes over the last year and truly showcases our commitment to ESG and the great work being done by our teams.

Rael Lee Diamond: The 10-year bond is 18 basis points higher than it was when we released results in February and 65 basis points higher than the start of 2024. We remain committed to our prudent approach to financial management and believe that our industry-leading balance sheet, combined with the strong underlying fundamentals in each of our asset classes, will continue to be a real differentiator in this environment. We will weather this volatility better than most.

Speaker Change: Cost of the business. The report can be found in the sustainability section of our website.

Speaker Change: I encourage you to take a week.

Speaker Change: With that I'll pass it over to now to provide more color on our operational results as you. All here operating performance was strong across our portfolio. We observed strong tenant demand from a necessity based properties. Additionally, industrial both targa experienced significant rental rate increases.

Speaker Change: On lease renewals.

Speaker Change: <unk>.

unknown: Thank you Earl and good morning, everyone as Rob mentioned, we delivered strong operational results for the quarter. We continued to see strong demand across our three asset classes and remain at near full occupancy ending the quarter at 97, 9% a slight decrease of 10 basis points compared to the last quarter.

Rael Lee Diamond: This past quarter, our business once again demonstrated resilience, and our team remained focused on executing our strategic framework. Despite continued interest rate pressures, the investment market is still active on a local level for quality assets with strong fundamentals. During the first quarter, we completed approximately $61 million in total real estate transactions, including approximately $38 million of acquisitions and $23 million of dispositions. We continued to buy high-quality assets from Loblaw and, during the quarter, we acquired a retail property located at Bathurst in St. Clair, Toronto, for a purchase price of approximately $38 million, with a lease term of 15 years and annual rent increases of two and a quarter percent.

unknown: Overall during the quarter, we had approximately 700000 square feet of lease Expiries with.

unknown: With 71% retention and renewals at a half a million square feet at average rent spreads of 22, 9% and 130000 square feet of new leasing that commenced in the quarter.

unknown: This activity resulted in negative absorption of 71000 square feet, which was mainly driven by two industrial property vacancies parts of Ontario.

unknown: Occupancy in our necessity based retail portfolio remains stable at 97, 7% with retention of 84%.

unknown: During the quarter, we had 399000 square feet of expiring and completed 335000 square feet of lease renewals with rent spreads of 10, 1% above expiring.

unknown: Our Q1 renewals continued strong rental growth in certain categories, such as fashion large pharma fitness.

unknown: Valeo retailers uncertainty.

unknown: Patients.

unknown: In the quarter, we also completed 31000 square feet of new retail leasing.

unknown: Vacancies in the quarter from underperforming tenants have been replaced with stronger covenant tenants focusing on grocery pharmacy banks stronger restaurant brands reach.

unknown: Retail demand for our space continues to be strong for.

unknown: For example tenants are seeking out forward looking deals to get ahead of the market are quickly taking space from breakeven tests.

unknown: With this context for the automotive retail space, becoming increasingly hard to find and reinforces our competitive advantage choices retail did very well located well anchored has desirable co tenancies is of.

Rael Lee Diamond: This property is a high-performing Loblaw store turning approximately 75,000 feet and is a great addition to our portfolio. The asset is exceptionally well located in the heart of Midtown Toronto and benefits from current and future densification in the surrounding node, as well as direct access to public transit. This transaction is another example of the benefits of our relationship with Loblaw, as retail assets of this quality rarely come to market.

unknown: Superior quality.

unknown: While demand is strong the current economic environment is putting pressure on certain tenant categories. These at risk tenants represent a very small part of our portfolio and we do not anticipate a significant impact on our 24 proposals.

unknown: For the remainder of 2024, we are confident in our niche for newer pipeline and expect to see.

unknown: Rent renewals right in line with our Q1 results.

unknown: In addition to our leasing activity in Q1, we generated $2 $5 million in lease surrender revenue related to a partial surrender loblaw grocery store market material.

unknown: The grocery store underwent the size optimization surrendered space was backfill by new tenants with higher rental rates.

unknown: This is our second store optimization with logos.

unknown: Another example of how our team continues to optimize the portfolio collaborate with level.

unknown: Our industrial portfolio occupancy decreased slightly by 20 bps to 98, 8%.

Rael Lee Diamond: In terms of dispositions, we sold an industrial property located at 379 Arenda Road in Brampton for approximately $16 million and a retail property located in Edmonton for approximately $7 million. We advanced our development pipeline in Q1. Completing approximately 75 million in development projects at a weighted average yield of 5.1%. In addition to a retail development in Georgetown, Ontario, which consisted of an expansion of an existing lease to a national retailer with a cost of 8% and a yield of 8.8%, we also transferred a residential development at Mount Pleasant Village in Brampton, Ontario, in which we own a 50% interest.

unknown: 295000 square feet of lease Expiries in the quarter.

unknown: And renewed a 158000 square feet with strong rent renewals spreads, averaging 67% above expiring and tenant retention of 53, 6%.

unknown: The lower tenant retention was primarily driven by known vacancies.

unknown: And industrial warehouse property in Ontario, and distribution properties in Alberta.

unknown: We also completed 89000 square feet of new leasing with 41000 square feet in Ontario.

unknown: 48000 square feet in west in the western portfolio.

unknown: Looking at the industrial asset class our teams are seeing an overall leveling off in the market.

unknown: With different impacts across regions and asset types, mainly in large payoffs as rents continue to trend upwards of small to medium base sizes.

unknown: In terms of our portfolio, we still have a significant embedded rent growth with an average in place rental rate of 19 of $9 16.

unknown: We expect industrial occupancy remained stable for the remainder of 2024.

unknown: To achieve strong rental rate growth on our renewals, particularly in Ontario, and the Atlantic regions.

unknown: I'll now pass it over to Mario to discuss our financial performance.

Mario: Thank you Dale and good morning, everyone.

Mario: We're pleased with our financial performance in the first quarter of 2024 are.

Mario: Our business remains strong operationally and we continue to deliver high occupancy and strong same asset NOI and <unk> growth.

Mario: Our reported funds from operations for the first quarter was $187 2 million or $25 nine per unit.

Mario: In the quarter, we had net onetime items of $4 5 million, including $2 5 million of lease termination income related to the right sizing of the La bus tour in Markham that Niall mentioned.

Rael Lee Diamond: This development offers a unique rental community in the heart of Brampton, consisting of 302 residential units. The building is currently 58% leased and is expected to stabilize over the next 12 months. In addition to developing the rental building to a stabilized yield of 4.7%, we have developed 142 condominium units, which are expected to generate $7 million a share of total condominium profits, of which $6.6 million has been recognized to date. There are only 12 units remaining, which are expected to close in the second quarter.

Mario: And then come up $2 million related to our Mount Pleasant village development, where we sold our ownership interest in a 36 condominium units.

Mario: On a per unit diluted basis, our total for the first quarter was $25 nine.

Mario: An increase of approximately six 1% for the first quarter of 2023.

Mario: This was driven by strong NOI growth.

Mario: Surrender revenue condo gains and higher interest income, partially offset by higher interest expense.

Mario: Leasing activity contributed to overall say massive cash NOI growth of $5 6 million or two 4% compared to the first quarter of 2023.

Mario: Retail same asset cash NOI increased by $4 6 million or two 5%. The increase was primarily driven by higher base rent on renewals, new leasing and contractual rent steps and higher capital and operating recoveries.

Mario: Industrial same asset cash NOI increased by approximately $1 1 million or two 8%.

Rael Lee Diamond: As we look at our development acceleration for the remainder of 2024, our teams are on track to complete the first phase of our industrial development in Caledon, Ontario, in addition to delivering an additional 120,000 square feet of retail space. Before I hand it over to Niall, I want to take a minute to acknowledge the release of our 2023 Environmental, Social, and Governance Report. This year's report summarizes many of Choice's successes over the last year and truly showcases our commitment to ESG and the great work being done by teams across the business. The report can be found in the sustainability section of our website, and I encourage you to take a read.

Mario: This increase was primarily due to higher rental rates and higher capital recoveries.

Mario: The year over year growth was muted this quarter due to lower volume and rent free fixed rate periods.

Mario: But the remainder of the year, we should see industrial see massive cash NOI revert back to the high single digit growth experienced last year.

Mario: Now turning to our balance sheet, our xpress NAV for the quarter was $13 69 per unit, an increase of $14 4 million over the last quarter.

Mario: Our NAV growth was driven by a contribution of $45 7 million from operations, which was partially offset by fair value losses of $3 $6 billion on our investment properties.

Mario: In $2009 6 million and our investment in Allied properties, where we required Thunder I for us to Mark to market. This investment to its trading price at each period end.

Mario: Our fair value loss on investment properties in the quarter is largely driven by a 20 basis point cap rate expansion in our industrial portfolio, resulting in overall portfolio cap rate expansion of four basis points.

Mario: In our retail portfolio, we recorded a fair value gain related to cash flow growth and cap rate adjustments in our industrial.

Mario: Portfolio, we recorded a fair value loss, primarily due to cap rate expansion on certain properties with longer term leases. This was partially offset by gains from our cash flow growth as leases rollover to market levels.

Rael Lee Diamond: With that, I'll pass it over to Niall to provide more color on our operational results. As you'll hear, our operating performance was strong, and across our portfolio, we observed strong tenant demand from our necessity-based properties. Additionally, our industrial portfolio experienced significant rental rate increases on lease renewals. Niall? Thank you, Rael, and good morning, everyone. As Rael mentioned, we deliver.

Mario: And our mixed use and residential portfolio recorded a gain in the quarter driven by cash flow growth on a recently completed element residential property that continues to lease up as long as rental rate growth and the remainder of our residential portfolio.

Mario: Turning to our financing activities. Once again, we ended the quarter in solid financial position with strong debt metrics and ample liquidity.

Mario: We repaid our 200 million series B debenture at $4, 293% upon maturity with friends from the repayment of the promissory note during the fourth quarter of 2023.

Mario: We further lowered our long term debt repaid $50 million of mortgages upon maturity in the first quarter.

Mario: Our debt to EBITDA ratio net of cash was six nine times and we have $1 5 billion available on our facility. This is further supported by approximately $12 9 billion of unencumbered properties.

Niall Collins: Thank you, Rael, and good morning, everyone. As Rael mentioned, we delivered strong operational results for the quarter. We continue to see strong demand across our three asset classes and remain at near full occupancy, ending the quarter at 97.9%, a slight decrease of 10 basis points compared to the last quarter. Overall, during the quarter, we had approximately 700,000 square feet of lease expiries. 71% for retention and renewals of a half a million square feet at average run spreads of 22.9% and 130,000 square feet of new leasing that commenced in the quarter. This activity resulted in negative absorption of 71,000 square feet, which was mainly driven by two industrial property vacancies in Alberta and Ontario.

Mario: So overall, our business is strong with the strength of our balance sheet and the stability of our portfolio. We are well positioned to deliver on our 2020 for outlook and with that rail now Aaron and I will be glad to answer your questions.

Speaker Change: Thank you.

Speaker Change: We will now begin the question and answer session.

Speaker Change: If you have dialed in and then we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.

Speaker Change: I would like to withdraw your question Press Star one a second time.

Speaker Change: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Again, it is star one if you would like to ask a question on joined the queue.

Speaker Change: And we will take our first question from Mark Rothschild with Canaccord. Your line is open.

Mark Rothschild: Thanks, Dan Good morning.

Mark Rothschild: You started off talking about how rates don't appear to be coming down or haven't come down like some expected are.

Mark Rothschild: Are you seeing this impact at all.

Mark Rothschild: Properties being offered for sale in the market transactions and maybe.

Mark Rothschild: Values as well how does this leads the way people were looking at cap rates or yields on properties.

Speaker Change: Look I think.

Speaker Change: So firstly how are you.

Speaker Change: I think what we've been seeing over the last call. It 18 months is more and more groups are.

Speaker Change: If we go back 18 months ago groups are saying look im comfortable with negative leverage because this is all going to reverse itself today.

Speaker Change: People need to see.

Speaker Change: A E deposits up leverage or the ability to see positive leverage in a very very short period of time, so they're not going to wait is call. It three to five years with negative carry and the asset class is that all.

Niall Collins: Occupancy in our necessity-based retail portfolio remains stable at 97.7%, with retention of 84%. During the quarter, we had 399,000 square feet of expiries and completed 335,000 square feet of lease renewals with rent spreads of 10.1% above expiry. Our Q1 renewals conclude strong rental growth in certain categories, such as fashion, large firm, and fitness. Value Retailers in Certain Beer and Liquor Locations

Speaker Change: We're getting.

Speaker Change: Impact that would be call. It the lower cap rate assets, obviously first and then the second thing is financing availability. So groups are definitely more cautious.

Speaker Change: Looking at investments to make sure that they have.

Speaker Change: They have the capital available.

Speaker Change: And can get bank financing so.

Speaker Change: <unk> seen it clearly a slowdown in the volume of transactions.

Speaker Change: We think it has impacted and we've adjusted our cap rates.

Speaker Change: Thats 18 months accordingly, as we've seen market transactions.

Speaker Change: Okay, Great maybe just connected on that point you have a large bank of <unk>.

Speaker Change: Development projects, some that are longer term with very large projects.

Speaker Change: Does this maybe pushed some of them out even further or just take more off the table for what you would start in the near term.

Speaker Change: Yes look so rather we focus very much so on commercial and then trying to hopefully get residential commenced.

Niall Collins: In the quarter, we also completed 31,000 square feet of new retail space. Vacancies in the quarter from underperforming tenants have been replaced with stronger covenant tenants, focusing on grocery, pharmacy, banks, and stronger restaurant brands. Retail demand for our space continues to be strong. For example, tenants are seeking forward-looking deals to get ahead of the market or quickly taking space from brick-having tenants. In this context, available retail space is becoming increasingly hard to find, and it reinforces our competitive advantage that Choices Retail is very well located, well anchored, has desirable co-tenancies, and is of superior quality.

Speaker Change: Our real focus at the moment on development is more on the industrial side. So for US. We don't believe there is a change.

Speaker Change: But look we can have to monitor when the market saw before we commence any new construction.

Speaker Change: Okay, Great and maybe just one last question regarding guidance.

Speaker Change: Is there any expectation for the industrial space that was vacant to be leased during the year.

Speaker Change: And getting to your guidance or is that more just based on rent growth that you expect to see.

Speaker Change: It's a combination of both Mark yes, we do expect there would be strong rental rate growth and would you expect the vacancy in Q1 to be leased up later in the year that's correct.

Speaker Change: Okay, great. Thanks, so much.

Speaker Change: And we will take our next question from Mike <unk> with BMO capital markets. Your line is open.

Mike: Thank you operator, good morning, everybody.

Mike: <unk> talked about.

Mike: Just the dynamics youre seeing in the market on the back of Mark Rothschild question.

Mike: I think last quarter, you had talked about.

Mike: Maybe being optimistic I don't know if you had actually seen evidence of this but optimistic that perhaps industrial land that was transacted at a peak pricing back in 'twenty, one or maybe early 2022 that maybe just given the slowdown in the market, particularly on the big box side that there might be some opportunities to shake some shakes something loose there is that still the case or have you would that be.

Niall Collins: While demand is strong, the current economic environment is putting pressure on certain tenant categories. However, these at-risk tenants represent a very small part of our portfolio, and we do not anticipate a significant impact on our 24 performers. For the remainder of 2024, we are confident in our lease renewal pipeline and expect to see rent renewals rise in line with our Q1 results. In addition to our leasing activity in Q1, we generated $2.5 million in lease surrender revenue related to a partial surrender of a Loblaws grocery store in Markham, Ontario.

Mike: Sufficient comment in terms of reasons for optimism on that side for your industrial portfolio.

Speaker Change: Yes look I think I think we are optimistic on two fronts. So firstly groups that are well capitalized.

Mike: Should be able to to hopefully pick up great quality assets that otherwise may not trade.

Mike: Yes.

Mike: <unk> with weaker balance sheets can't hold on to those assets and you clearly are seeing.

Mike: <unk>.

Mike: I don't call. It distressed we clearly are seeing cracks on residential that are definitely on the industrial land.

Mike: The second reason were optimistic is because we have a very low debt cost and we never underwrote with significant rental rate increases continuing so we so for us as you could so last quarter I think we announced two quarters ago, We announced another building on our calendar.

Mike: Project and.

Mike: If rents are at that level, even slightly below that level, we can continue to grow whereas those groups.

Mike: Both led that.

Niall Collins: The grocery store underwent a size optimization, and the surrendered space was backfilled by a new tenant at a higher rent. This is our second store optimization with Loblaws and another example of how our team continues to optimize the portfolio to collaborate with Loblaws.

Mike: $3 million an acre there was that serviced.

Mike: They need low $20 rents to make the economics pencil out so I think from our point of view. We just think we are well positioned a we can be opportunistic and with a great product to bot and B. We can continue to build out our development pipeline just given the our land cost base and we think other groups are going to be stuck so theres lots of.

Mike: And now maybe now can comment theres lots of pending supply coming on the industrial side. We just don't think all of us going to come to fruition just given some of the groups that cost.

Niall Collins: Industrial portfolio occupancy decreased slightly by 20 basis points to 98.8%. We had 295,000 square feet of lease expiry in the quarter and renewed 158,000 square feet with strong rent renewal spreads averaging 67% above expiry and tenant retention of 53.6%. The lower tenant retention was primarily driven by known vacancies, including an industrial warehouse property in Ontario and distribution properties in Alberta. We also completed 89,000 square feet of new leasing, with 41,000 square feet in Ontario and 48,000 square feet in the Western Portfolio.

Mike: We're seeing where we're seeing a lot of asking rents are north of 20 as you mentioned in construction costs haven't come down quick enough. So they are pro forma as art lighting up so we're in a very good position.

Speaker Change: Got it thanks for the color.

Speaker Change: Small in here, a little granular, but did catch my eye just on the sale of the <unk>.

Speaker Change: Property, the industrial property on a render it looks like the basis is pretty low relative to what we've seen on different comps. So is there anything specific to that asset.

Speaker Change: That would yield the one I think it was $1 46 per square foot on the sale price.

Speaker Change: Yeah look it's a low cost per foot, but what what the color is that essentially the existing tenant.

Speaker Change: Has very low rents for another 20 years, so you couldnt ready to capture that market rent growth and then also the building configuration is not it used to be an old Weston foods bakery.

Speaker Change: A typical industrial buildings, so provide quite a view a very low growth.

Speaker Change: Top cap rate.

Speaker Change: And we can redeploy that capital elsewhere.

Speaker Change: Got it okay and this is a.

Speaker Change: A bit of a hail Mary from my side, but I'll give it a shot anyways I guess recently, there's been a little bit of excitement about the potential or at least the government's desire to get a new international grocery into the fold here in Canada. Just curious on your thoughts on that if a given the retail real estate situation in Canada, that's even possible.

Niall Collins: Looking at the industrial asset class, our teams are seeing an overall levelling off in the market, with different impacts across regions and asset types, mainly in large day assets, while rents continue to trend upwards on small or medium base sizes. In terms of our portfolio, we still have significant embedded rental growth with an average in-place rental rate of $9.16. We expect industrial occupancy to remain stable for the remainder of 2024 and continue to achieve strong rental rate growth on our renewals, particularly in Ontario and the Atlantic region. I'll now pass it over to Mario to discuss our finances. Thank you, Niall, and good morning, everyone.

Speaker Change: If it was would that be a good or bad thing for choice properties.

Speaker Change: Okay, I think we can't comment on.

Speaker Change: Other grocers come into the country, obviously, but we are open to lease space to groups that are willing to to lease space robust.

Speaker Change: Okay. That's fair thanks, very much I'll turn it back.

Speaker Change: Yes.

Speaker Change: And we will take our next question from Lorne Kalmar with Desjardin. Your line is open.

Lorne Kalmar: Thanks, Good morning, everybody.

Lorne Kalmar: Just.

Lorne Kalmar: On the wallboard side with the recent announcements to the.

Lorne Kalmar: The immigration policy.

Lorne Kalmar: Based on your communication with them is that impacted their expansion plans or where they never kind of assuming a 3% population growth in perpetuity.

Lorne Kalmar: Look we recently they announced.

Lorne Kalmar: <unk> is designed to keep expanding the footprint.

Lorne Kalmar: And based on conversations with them, we continue to see that.

Lorne Kalmar: <unk> more <unk> more space and.

Lorne Kalmar: In full space.

Speaker Change: Okay and then.

Lorne Kalmar: On the acquisition you guys did at Bathurst in St. Clair.

Mario Barrafato: We're pleased with our financial performance in the first quarter of 2024. Our business remains strong operationally, and we continue to deliver high occupancy and strong same asset NOI and FFO growth. Our reported funds from operations for the first quarter were $187.2 million, or $0.259 per unit.

Lorne Kalmar: Just wondering if you could at least give us maybe an idea of the cap rate just to get sort of.

Lorne Kalmar: A range on it.

Lorne Kalmar: These types of assets are trading.

Lorne Kalmar: In this current market.

Lorne Kalmar: Okay.

Speaker Change: Look it's a unique transaction given.

Speaker Change: Obviously at Gd transaction given.

Lorne Kalmar: Given the asset both has been income producing.

Lorne Kalmar: Income producing components, and then long term development potential, particularly the Joe fresh as.

Lorne Kalmar: It's approximately a six cap, but we do share in the development upside with loblaw win.

Mario Barrafato: In the quarter, we had net one-time items of $4.5 million, including $2.5 million of lease termination income related to the right-sizing of the Loblaw store in Markham that Niall mentioned, and income of $2 million related to our Mount Pleasant Village development, where we sold our ownership interest in 36 condominiums. On a per unit diluted basis, our FFO for the first quarter was $0.259, an increase of approximately 6.1% from the first quarter of 2023.

Lorne Kalmar: When any such intensified so it's a slightly unique transaction from that point of view.

Lorne Kalmar: Okay.

Lorne Kalmar: And then just to kind of a ticky-tacky one I think it was on building age of Calvert and I think the least area came down a little bit it was 100% last quarter and now down to about $64 65.

Speaker Change: Can you give any color on what happened there.

Speaker Change: Yes.

Speaker Change: Essentially I'm going may get the numbers slightly wrong, but call. It the buildings to 101000 feet in total.

Speaker Change: The tenancy initially taking 600000 feet with an option to expand to the 900000 feet. We only building 600000 feet. Initially so the part that we building is 100% leased but if you look at the entire footprint of the building that lease percentage when they exercised the expansion rockwood built the remaining footage.

Speaker Change: Okay I got it so youre still a fact, so I think last quarter that included the option. This quarter, we excuse me the option.

Speaker Change: Okay got it and then just last one for me just wondering if you guys had any updated thoughts on what youre going to do with the Allied properties units.

Mario Barrafato: This was driven by strong same-asset NOI growth, high lease-surrender revenue, condo gains, and higher interest income, partially offset by higher interest expense. Leasing activity contributed to overall St. Massachusetts and Hawaii growth of $5.6 million, or 2.4% compared to the first quarter of 2023. Retail Same Asset Cash in Hawaii increased by $4.6 million, or 2.5%. The increase was primarily driven by higher base rent on renewals, new leasing and contractual rent steps, and higher capital and operating recovery. Industrial Same Asset Cash in Hawaii increased by approximately 1.1 million, or 2.8%.

Speaker Change: Okay.

Speaker Change: Change will continue to be patient.

Speaker Change: And monitor.

Speaker Change: We are monitoring the investment and then monetize it when we need the capital.

Speaker Change: Yes.

Speaker Change: Okay. Thanks, so much that's all from me.

Speaker Change: We will take our next question from Himanshu Gupta with Scotiabank. Your line is open.

Himanshu Gupta: Thank you and good morning.

Himanshu Gupta: So just on the seems to NOI industrial a bit.

Himanshu Gupta: Late in Q1, but you would expect to get back to high single digit for the rest of the year.

Himanshu Gupta: Are you assuming any further occupancy slippage for the rest of the year.

Himanshu Gupta: Maybe can you elaborate on the industrial leasing environment in general.

Himanshu Gupta: So.

Speaker Change: Yes, So I mean Q1, clearly was just based on low volumes.

Himanshu Gupta: And in some extreme periods. So yes, right now we aren't expecting any slippage we have some leases that are coming due later in the year. So you will see it get back to a normal run rate and has now set the spreads are still strong and activity is still strong.

Himanshu Gupta: And just on the pipeline, we have about a half a million square feet to do for the balance of the year.

Himanshu Gupta: Two transactions represented about 50% took that are well underway or under negotiation and we feel good about them.

Speaker Change: Got it thank you and maybe you are.

Mario Barrafato: This increase was primarily due to higher rental rates and higher capital recovery. However, year-over-year growth was muted this quarter due to lower volume and rent-free fixturing periods. For the remainder of the year, we should see industrial same asset cash NOI revert back to the high single-digit growth it experienced last year.

Himanshu Gupta: If I look at the broker reports.

Himanshu Gupta: Absorption was.

Himanshu Gupta: A lot weaker in Q1 across Canada.

Himanshu Gupta: Are you also seeing that.

Himanshu Gupta: Can you just speak to the tenants.

Himanshu Gupta: And are you seeing any sub leasing activity as well in the industrial landscape.

Himanshu Gupta: Vacancies are still over a 10 year timeline, so very low and theres still a lot of demand driving like for good assets in good locations. So we're not seeing any falloff a rent spreads are actually we're hoping to do even a little better than Q1. So for our assets. We feel confident that we're going to be able to maintain the spreads and the demand for those asset.

Mario Barrafato: Our fair value loss on investment properties in the quarter was largely driven by a 20 basis point cap rate expansion within our industrial portfolio, resulting in an overall portfolio cap rate expansion of four basis points. In our retail portfolio, we reported a fair value gain related to cash flow growth and a cap rate adjustment. In our industrial portfolio, we recorded a fair value loss primarily due to cap rate expansion on certain properties with longer-term leases.

Himanshu Gupta: It's strong.

Himanshu Gupta: And as I mentioned, we don't have any significant sublease activity in our portfolio.

Speaker Change: Okay. Okay. Thank you.

Speaker Change: And maybe just on the balance sheet my real I think $515 million unsecured debenture due in September so any thoughts where the financing rate today I know <unk> been quite volatile.

Speaker Change: Yes. So it comes due September you had the rates have been volatile.

Speaker Change: Focus on lately.

Speaker Change: Just another source of the capital so right.

Speaker Change: Right now our spread for unsecured.

Speaker Change: Relative to others is pretty low so about 190 basis points.

Speaker Change: We've been doing other financing on the mortgage side, the commercial mortgage side, we'd actually be able to get financing at spreads that are either.

Speaker Change: As good as guests at current or even tighter and so that's been our focus now finding patches.

Mario Barrafato: We repaid our $200 million Series E debenture at 4.293% upon maturity with funds from the repayment of the Allied Promissory Note during the fourth quarter of 2023. We further lowered our long-term debt balance by repaying $50 million of mortgages upon maturity in the first quarter.

Speaker Change: Our financing that are better than the <unk>.

Speaker Change: Current benchmark for the unsecured.

Speaker Change: As far as the 550 goes again, we have time.

Speaker Change: And we'll go to market later in the year.

Speaker Change: When the when the when the time is right, but right now there is a bit too much volatility. So it's not our first priority.

Speaker Change: Got it.

Speaker Change: Is the unsecured debt still tighter than the secured late just clarifying that.

Speaker Change: Okay.

Speaker Change: It depends it depends I mean, the unsecured rate again with our with our credit rating our pricing, it's pretty it's tighter relative to others.

Speaker Change: Different lenders have different spreads. So we're just finding pockets, where we cannot take advantage of it but.

Speaker Change: But it just depends on the lender.

Mario Barrafato: So overall, our business is strong. With the strength of our balance sheet and the stability of our portfolio, we are well positioned to deliver on our 2024 outlook. And with that, Rael, Niall, Erin, and I will be glad to answer your questions.

Speaker Change: Okay. Thank you.

Speaker Change: Last question is on the retail leasing environment I mean last time, we spoke about today these call.

Speaker Change: Is it still the same or any cracks or any changes in any major category.

Speaker Change: Overall, our retail are necessity based retail is very strong.

Speaker Change: I think its the discretionary goods, where we're seeing weakness, but overall our tenants are.

Speaker Change: Alright.

Speaker Change: Any challenges and we don't hear any worries the kind of thing.

Speaker Change: Nothing material.

Speaker Change: And anything on the watch list any tenants you're watching one thing in particular.

Operator: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And we will take our first question from Mark Rothschild on Canaccord. Your line is open.

Speaker Change: It's a very very small proportion of our portfolio.

Speaker Change: Okay fair enough well, maybe I'll turn it back thank you guys.

Speaker Change: Thank you.

Speaker Change: And we will take our next question from Paul <unk> with RBC capital markets. Your line is open.

Paul: Thanks, Good morning.

Paul: Just coming back to the St. Clair retail acquisition I think you mentioned, 2.25% rent step in that lease term.

Paul: Was that unique.

Paul: Again to that specific site or is this maybe.

Paul: Something we may see more of on.

Paul: Some of the <unk> leases.

Paul: Over the last year, we've generally been getting more than one 5%, but we.

unknown: is a combination of both Mark. Yeah, we do expect there to be strong rental rate growth, and we do expect

Paul: We just at the end that we work with <unk> to figure out what's the best starting rent.

Paul: What value makes sense, what's the right growth rate. So I would say, it's a little more bespoke on each transaction, but generally we're became more than one 5%.

Operator: And we will take our next question from Mike Markidis with BMO Capital Markets. Your line is open.

Paul: On vendors over the last call it 12 months or so.

Speaker Change: Got it.

Speaker Change: Coming back to that Mark can store right sizing again.

Speaker Change: Can you maybe just talk about how much space given up there.

Michael Markidis: Thank you, operator. Good morning, everybody.

Speaker Change: And that you released.

Speaker Change: Then there.

Speaker Change: Other parts of the portfolio that where we might see some more of this.

Rael Lee Diamond: Rael, you talked about... Maybe being optimistic, I don't know if you had actually seen evidence of this, but optimistic that perhaps industrial land that was transacted at a peak price back in 21 or maybe early 2022, that maybe just given the slowdown in the market, particularly on the big box side, there might be some opportunities to shake something loose there. Is that still the case, or would that be a sufficient comment in terms of reasons for optimism on that side for your industrial portfolio?

Speaker Change: Yes, so firstly from a macro point of view, we'd be working with loblaw, where we are.

Speaker Change: Leasing team has strong tenant demand for our sites and lateral is in the process of potentially investing capital to refresh they still wanted to win win.

Speaker Change: We refresh the install and we can find.

Speaker Change: And adjacent tenant, which is complementary to loblaw and pesos higher rent in the Boston one in particular, it was about 35000 feet and the rents were about 7% higher than what loblaw was paid.

Speaker Change: And Thats, a fitness user good fitness yourself.

Speaker Change: Got it and then.

Speaker Change: Okay.

Speaker Change: Maybe just for me.

Speaker Change: Actually just come back to the industrial commentary.

Speaker Change: And maybe just thinking again about the development pipeline and Calvert, and then east Greenland Barry.

unknown: And the second reason we are optimistic is that we have a very low land cost.

Speaker Change: Can you maybe just talk about the appetite for.

Speaker Change: Additional development there.

Speaker Change: What are you seeing any imbalance any change.

unknown: Yeah, look, it's a low price per foot, but what the color is that, essentially, the existing tenant will have very low rents for another 20 years. So you couldn't really capture that market rent growth. And then also, the building configuration is not; it used to be an old Western Foods bakery. So it's not a typical industrial building. So from our point of view, very low growth, and a very tight cap rate. And we can redeploy their capital elsewhere. Got it.

Speaker Change: We are feeling inquiries and continuing to respond to rfps. So there is activity given the location.

Speaker Change: The size varies and their strong user group. So yes, we are getting inquiries.

Speaker Change: But I think it's fair to say.

Speaker Change: All inquiries in Caledon East <unk> currently using the land.

Speaker Change: To complete some of the work for Loblaw. So it's not really available yet to lease will be starting to market start to market. It shortly.

Speaker Change: And then just in terms of the broader economic picture and I guess the expectation at some point, we may see some rate cuts is that influencing some of the tenant decision, making any timelines in industrial in terms of leasing.

Speaker Change: Just curious if theres any changes on that side.

Speaker Change: Look I think deals are taking a little bit longer people are pausing and then looking at the economy overall.

unknown: Got it. Okay. And this is a bit of a Hail Mary from my side, but I'll give it a shot. Anyways, I guess recently there's been a little bit of excitement about the potential, or at least the government.

Speaker Change: At the same time, a lot of Rfps, we're seeing our consolidations from older space looking for newer space with different efficiencies and objectives around out so it's taken a little longer but the cough with goals.

Speaker Change: Still the same for these users.

Speaker Change: Thanks for that Okay last one for me just from a transaction standpoint can you maybe talk about what's in the pipeline for.

Speaker Change: For acquisitions at this stage and then from a disposition standpoint as well.

unknown: Thanks.

unknown: Given the asset both has the income-producing component and then long-term development potential, particularly where Joe Fresh is, it's approximately a six-cap, but we do share in the development upside with Loblaw when and if it's intensified. So it's a slightly unique transaction from that point of view.

Speaker Change: Yes, so from an acquisition point of view about again going back about a year ago level announced their plan to dispose of assets.

Speaker Change: Three to five year period.

Speaker Change: So there are some.

Speaker Change: Vending assets that we continue to look at a very high quality similar quantity to what we just purchased this past quarter.

Speaker Change: From a dispositions point of view.

Speaker Change: We always sell we've always been active on the capital recycling point of view I think over the last five years or so 60 days I'll say, we've done about $4 five.

unknown: Okay. And then just to kind of a ticky tacky one, I think it was on Building H at Caledon. I think the leased area came down a little bit. It was 100% last quarter and now down to about 64, 65. Can you give any color on what happened there?

Speaker Change: Transactions, both buying and selling.

Speaker Change: And we just adding a few smaller assets generally.

Speaker Change: Call It more power center type assets.

Speaker Change: But we would transact in our bonds at a slight premium to book value and.

Speaker Change: Not bad assets, they're good assets. They just have a lower growth profile than the rest of our portfolio.

Speaker Change: Andy there.

Speaker Change: Major market assets or in terms of the disposition to ore.

Speaker Change: Kind of scattered.

unknown: Okay, thanks so much, that's all for me.

Speaker Change: If you have no more major markets.

Speaker Change: But the rest are scattered.

Speaker Change: Okay.

Speaker Change: Thanks, very much I'll turn it back.

unknown: are eager, We're not seeing any challenges, and we don't hear any worries from Canada.

Speaker Change: And we will take our next question from Sam Damiani with TD Securities. Your line is open.

Sam Damiani: Thank you.

Sam Damiani: I think most of my questions have been answered, but just going back to the same property NOI growth on the retail portfolio. The pieces did tick down a little bit in Q1 I'm. Just wondering if that is indicative of a trend you're expecting for the rest of 2024 and just on that on that point you kept your <unk>.

unknown: It's a very, very small proportion of our overall portfolio.

unknown: And then just in terms of the broader economic picture, and I guess the expectation that at some point we may see some rate cuts, is that influencing some of the tenant decision making timelines in terms of industrial leasing? Just curious if there's any changes to that.

Speaker Change: <unk> intact, but are you are you biased to a little bit sort of lower point within that guidance range given the Q1 print.

Speaker Change: Yes, so Sam for the retail I mean, it's still perform as well as just coming off a high base and that's why it just percentage wise, it's lower than we've seen in the last year, but it's still pretty strong.

unknown: Yes, so from an acquisition point of view, but again, going back about a year ago, Lovelaw announced their plan to disclose assets over, call it a three to five year period. So there are some vending assets that we continue to look at that are very high quality, similar quality to what we just purchased this past quarter. And then from a dispositions point of view, we've always been active from the capital recycling point of view. I think over the last five years or so, six years or so, we've done about four and a half.

Speaker Change: Remember our target has always been one 5% to 2% for retail so it is performing well.

Speaker Change: The core business right now if you look at the results in Q1.

Speaker Change: It takes us to the lower end of our.

Speaker Change: Of our range. So we think thats why the outlook is intact and then as we go through the rest of the year.

Speaker Change: As we see potentially upside we can get to the higher range, but right now the core business is set up to hit the low range without a lot of risk.

Speaker Change: Okay. That's helpful. And then just on the on the industrial has been talked about a bit but.

Speaker Change: Like his choice more hesitant to start the next project on spec maybe.

Speaker Change: Maybe a little bit more interested in waiting for.

Speaker Change: Pre leasing before starting construction how are you thinking about that and is there a view to expanding that the industrial development strategy into other markets across Canada.

unknown: Yeah, look, firstly, from a market point of view, we've actually been building in Alberta, we built in Vancouver last year, and in the GTA. So we will continue to build in each of the markets we are active in. You know, there's actually a lot of work, the main side is the calendar; there's a lot of work going on, which is, you know, finishing the Loblaw deliverables, building the building for that national tenant, which we spoke about earlier, and then all the site work and the internal road work.

Speaker Change: Yeah look firstly on from a market point of view, we've actually been building, but we built who make coover last year.

Speaker Change: And then the GTA. So so we will continue to build.

Speaker Change: In each of the markets we are active in.

Speaker Change: Yes.

Speaker Change: Actually a lot of work. The main site is counted as a lot of work coming on which is finishing the lot more deliverables.

Speaker Change: Building the building for that national tenants.

Speaker Change: Which we spoke about earlier and then all the software can they total road work. So there's a lot of work going on.

unknown: So there's a lot of work going on. You know, the earliest we could actually start vertical construction on a spec building would be late Q1 or Q2 next year. And we'll have to assess where things stand. But right now, as we spoke about earlier, we just feel we're in a very good competitive position relative to our, you know, relative to the other options in the market. And we expect to continue to build so we can attract tenants on our side.

Speaker Change: Earliest we could actually start vertical construction on a spec building would be call. It.

Speaker Change: Late Q1, or Q2 next year, and we'll have to assess where things stand, but right now we as we spoke about earlier, we just feel.

Speaker Change: Very good competitive.

Speaker Change: Relative to our.

Speaker Change: Relative to the out of the options in the market and.

Speaker Change: And we expect to continue to build so we can attract tenants on our sites.

Speaker Change: Okay. That's helpful. And then just back to Lauren's question about the.

Speaker Change: The tenant has an option for an extra 300000 square feet was the change in disclosure in any way linked to I guess, a little less probability in your minds that the option will be exercised.

Speaker Change: No. We do believe the option will be exercised but the reality is that it's not least right now.

unknown: Okay, that's helpful. And just back to Lorne's question about the, I guess, the tenant that has an option for an extra 300,000 square feet. Was the change in disclosure in any way linked to, I guess, a little less probability in your mind that the option would be exercised?

Speaker Change: And.

Speaker Change: Sure.

Speaker Change: We just clarify the option got you. Okay. That's helpful. I'll turn it back thank you.

Speaker Change: Okay.

Speaker Change: We will take our next question comes from ISI Anne with CIBC. Your line is open.

Anne: Thanks, Good morning, so staying with the industrial theme it sounds like things are going well and holding in and the disclosures there was a bit of commentary around <unk>.

Anne: Turnover and some free rent was that specific to a lease.

Operator: And we will take our next question from Sumayya Syed with CIBC. Your line is open.

Anne: And has there been a change in the.

Anne: The average free rent period associated with your industrial leasing.

Speaker Change: I wouldn't say anything out of the ordinary it's typical for the markets. We are operating in but it's more just timing.

unknown: At the moment, we've no plans to push ahead with a density development. There is some activity locally, and we're going to keep an eye on it and see how the market performs. But it's not an immediate development project.

Speaker Change: Okay great.

Anne: Great.

Anne: And then on the Bathurst and Sinclair acquisition, I'm, just wondering where that falls on your development later on if there's near term plans for rezoning and any expectations of density at the side you would have at this point in time.

Anne: At the moment, we have no plans to push ahead with the development density. There is there is some activity locally and we're going to keep and either then see how the market performs but it's not an immediate term development project.

unknown: Yeah, you can use it, Sumayya, but I would increase it a bit. I can follow up with you offline. It came down because of projects coming online late last year and in Q1. But as we continue to service Caledon, we'll come back up a little.

Anne: Okay.

Anne: Lastly, just a modeling question looking at the capitalized interest came down a bit is it fair enough to use the Q1 number as a run rate going forward.

Anne: Okay.

Speaker Change: Yes, you can use it tomorrow, but I would increase would have been I can follow up with you offline. It came down because of projects coming online late last year and in Q1, but as we continue to service call. It in and we will come back up a little bit.

Speaker Change: Okay, Great. That's all I had thank you.

unknown: Okay, great. That's all I had. Thank you.

Speaker Change: As a reminder, if you would like to ask a question press Star one.

Operator: Thank you, Abby, and thank you everyone for joining us this morning. Our Annual General Meeting will follow at 11 o'clock this morning, and we hope you can join us. Thank you.

Speaker Change: And there are no further questions at this time, so I will now turn the conference back over to Mr. Rael Diamond for closing remarks.

Rael Lee Diamond: Thank you Abbe and thank you everyone for joining us. This morning, our annual General meeting will follow at 11 o'clock. This morning, and we hope you can join us. Thank you.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

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