Q1 2025 CT Real Estate Investment Trust Earnings Call
Gigi: Good morning, my name is Gigi, and I'll be your conference operator today. At this time, I would like to welcome everyone to CT Realtz Q1 2025 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise.
Gigi: 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 star 11 on your telephone keypad. To withdraw your question, please press star 11.
Speaker Change: The speakers on the call today are Kevin Salsberg, President and Chief Executive Officer of CTRE. Jodi Shpigel, Senior Vice President, Real Estate, and Lesley Gibson, Chief Financial Officer.
Speaker Change: Today's discussion may include forward-looking statements. Such statements are based on management 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.
Speaker Change: Please see CT Reath Public Filing for a discussion of these risk factors, which are included in their Q1 2025 and annual 2024 management discussion and analysis.
Speaker Change: As well as their 2024 annual information form, all of which can be found on C.T. Reeth website and on Cedar Plus.
Speaker Change: I will now turn the call over to Kevin Salsberg, President and Chief Executive Officer of CT Kevin?
Speaker Change: Thank you, Digi. Good morning, everyone, and thank you for joining us this morning on TD Reads' first quarter investor conference call.
Speaker Change: I am very pleased to report that Q-1 was another strong quarter for CT-Read.
Speaker Change: Our Solid Portfolio continues to provide steady and growing base that underpins our ability to deliver reliable and durable results, even in these challenging macroeconomic times.
Speaker Change: With occupancy stable, again, this quarter at 99.4%, we delivered growth in same-store NOI of 1.5%, which when coupled with our intensification activity over the past year led to growth in the same property NOI of 3.1%.
Speaker Change: NOI overall grew at 4.6% on the back of the same property NOI growth, coupled with growth driven by recently completed acquisitions and developments, as well as a development
Speaker Change: This development fee relates to entitlement work that CT re-completed on behalf of the entire for one of its own properties located in the city of Toronto and Jodi will speak to this a little further in her remarks.
Speaker Change: The robust growth in net operating income drove AFFO per unit growth of 3.9% in Q1, a very strong showing.
Speaker Change: On the back of these positive results, our Board of Trustees approved an increase in our distributions of 2.5% payable with the July 2025 distributions.
Speaker Change: This represents the 12th time since our initial public offering in 2013 that we have to provide our unit holders with such an increase in the monthly amounts they receive from us.
Speaker Change: A unit holder who has been with us since IPO has enjoyed a 45.9% cumulative increase in distributions paid since that time, which represents a 3.3% compound annual growth rate, a track record that we are very proud of.
Speaker Change: When I look back over the last five years, whether we were managing our way through a pandemic, volatility spurred on by rapidly rising interest rates, or the most recent economic turmoil and uncertainty brought about by tariffs.
Speaker Change: C.T. Reed has managed to consistently deliver strong growth in earnings, increase its distributions on an annual basis, and maintain its strong balance sheet and credit metrics.
Speaker Change: I am appreciative of the efforts of our team and our relationship with Canadian Tire which are key drivers of this success and which put us in a great position to continue to navigate our way through these volatile times.
Speaker Change: I will now turn it over to Jodi and Lesley to provide some additional details on the corridor, our results and our leasing and development activities.
Jodi? Thanks, everyone. Thanks, everyone.
Thanks Kevin and good morning everyone.
Speaker Change: As Kevin mentioned, the read earned a development fee from Canadian Tire in the quarter for work completed related to the submission of official plan and loan bylaw amendment applications for a commercially-zoned property owned by CTC in the city of Toronto.
Speaker Change: These applications, which have now been approved, have set to stage to allow for a mix of uses on-site, including residential and retail, and achieved a total density of approximately 900,000 square feet, as well as permissions for approximately 1,050 residential units.
Speaker Change: The read oversaw and managed this process and was successful in achieving these entitlements.
Speaker Change: Neither Canadian Tire nor CT Reats currently have any plans or intentions to redevelop this property.
Speaker Change: We are pleased to report that our own development activities continue to provide tremendous opportunities for us to grow our portfolio of high quality assets.
Speaker Change: For example, early in the quarter, C.P. Reed entered into a groundly agreement with a third party to facilitate construction that is now underway of a new Canadian entire store in Kelowna, British Columbia.
Speaker Change: Upon completion in Q4 2025, this store will add approximately 186,000 square feet of incremental GLA to our portfolio and will be built to Canadian Tires Net Zero Ready prototype which has an energy-efficient design.
and our development pipeline.
Speaker Change: Overall, remains strong with 20 projects at various stages with approximately half of these projects expected to be finished this year and the remainder expected to be completed in 2026 and beyond.
Speaker Change: These developments represent a total committed investment of approximately $331 million upon completion, $112 million of which has already been spent, and $154 million of which we anticipate will be spent in the next 12 months.
Speaker Change: Once built, these projects will add a total incremental GLA of approximately 891,000 square feet to the portfolio, approximately 97% of which has been pre-leased.
Speaker Change: During the quarter, C.T. Reed also completed two Canadian tire store lease extensions, and as at the end of Q1, the weighted average lease term for our portfolio was 7.5 years, which remains one of the longest in the sector.
Speaker Change: As Kevin mentioned earlier, at the end of the quarter, C.T. Reed maintained its 99.4% off-reconcy rate. With that, I will turn it over to Lesley to discuss our financial results. Lesley, thanks Jodi and good morning everyone. As Kevin highlighted, we are pleased with the results delivered by the Reed again this quarter.
Same store NOI grew 1.5% for 1.7 million dollars.
Lesley: Drivers of the same store NOI increase or contractual rent escalations of 1.5 million, primarily being the 1.5% average annual rent escalation, including the knee entire leases.
Lesley: Partially offset by lower CAPEX and interest recoveries, which reduced and a wide by 219,000 in the quarter.
Lesley: Same property and OI grew by 3.1% or 3.5 million compared to the prior year.
Lesley: The sink crease was primarily due to the increase in stain store NOI noted as well as an increase of 1.8 million from the intensification completed in 2024.
Speaker Change: Overall, the fourth quarter and OI grew by a healthy 4.6% or 5.2 million dollars to provide the increase in the same property and OI. It was as well as by acquisition activity, the completion of billment projects in 2024, and the development fee revenue that Kevin and Jodi spoke to earlier.
Lesley: Excluding the development fee revenue and a Y-group by a solid 3.7%.
Lesley: In the first quarter, excluding fair value adjustments, GNA expense as a percentage of property revenue is 2.7%, which is a hundred basis points lower than the same period of the prior year of 3.7%.
Lesley: This decrease will do to the timing of a deferred income tax provision of 1.1 million in 2024.
Lesley: The Fair Value Adjustment of 24.8 million in the quarter was primarily driven by contractual rent increases, as well as leasing activity within the portfolio.
Lesley: In the quarter, diluted FFO per unit was up 3.3% to 34.2 cents, compared to 33.1 cents in the first quarter of 2024.
Lesley: Groten AFFO per unit on a dilated basis was up 32.0 cents, up 3.9% compared to the first quarter of 2024.
Lesley: Cash distributions paid in the quarter increased by 3% compared to the same period in the previous year due to the increase in distributions which became effective with the monthly distributions paid in July 2024.
Lesley: As Kevin mentioned earlier, we're pleased to announce our 12th distribution increase in our IPO, reflecting our financial strength and consistent delivery of strong results, which will become effective with the July 2025 distribution.
Lesley: With growth in AFFO outpacing the growth and distribution, the AFFO payout ratio for Q1 was 72.2% down from 73.1% in the period last year.
Lesley: Now return to the balance sheet, our interest coverage ratio was 3.55 times for the current quarter, which was in line with the 3.57 times in the comparable quarter of 2024.
Lesley: As previously discussed in 2025, we anticipate refinancing certain maturing deaths at a higher interest rate, which will lead to an increased net interest expense compared to the previous year.
Lesley: The interest rate for the 252 million of Class CLP units, but turning at the end of May, has been reset to 4.3, 3.38% for a 5-year term.
Lesley: The indebtedness to evit fair value ratio is 6.55 times for the quarter, lower than last year's ratio of 6.81 times, primarily due to the growth in evit fair value from increased and a wide as well as a slight decrease in total indebtedness.
Lesley: Our deadness ratio was 40.3% for the quarter, which was lower than the indebted ratio from last year of 41.1%, primarily due to an increase in fair value of investment properties and partial repayment of the credit facilities. Our deadness ratio continues to be within our target range.
Lesley: Lastly, with respect to liquidity, we ended Q1 with 3 million cash on hand and 297 million remains available through our committed credit facility. A further 203-2 million is also available on our Uncommitted Facility with the Canadian Tire Corporation.
Lesley: And with that, I'll turn the call back over to the operator for any questions.
Lesley: At this time I would like to remind everyone, in order to ask a question, please press the store then 1-1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Lorne Kalmar from Desjardins Capital Markets.
Lorne Kalmar: Thanks. Good morning, everybody. Just a quick one from me, and I appreciate all the color of the development to your revenue, and I feel like I have a good idea, but just want to confirm, is this something that you expect to be repeatable, or this is sort of a one-off and we might see quarters down the road where we have it and we might not?
Jodi Shpigel: Good morning, Lorne, it's Jodi. It is actually just a one-off. There's possibly more in the future but really it's a one-off.
Speaker Change: Okay, fair enough. And then maybe one last quick one, to the extent that you guys are already looking at the 2026 lease negotiations, just wondering if you give us any update on how those are after seating.
Speaker Change: 18 months out, so we're already in the thick of dealing with 2026.
Speaker Change: I would say those negotiations are progressing well. They mirror probably our performance on
to date, but I think they also take into consideration
Speaker Change: The strength we're seeing in the retail leasing market more broadly in our experience over the last 12 months plus with our third-party tenants as well. So, trying to triangulate all those things to make...
Fair and Balanced Renewals, and also TRIFRIENDS.
Okay, great. Thank you very much.
Speaker Change: Thank you. As a reminder to ask a question, please press star then 1-1 on your telephone keypad.
One moment for our next question.
Moderator: Our next question comes from the line of Gaurav Mathur from Green Street.
Speaker Change: Thank you, and good morning everyone. Just a quick question from me on the parent company now. We've seen connect entire streamline their operations and even you know merge and shut down a couple of
Speaker Change: Has there been any conversation around future intensification opportunities beyond the planning projects that you have covered to the pipeline and how that would be affected?
Alright, your time to read specific sites, Korra? Yes, yes.
There are operating retail stores that are better.
Generally quite profitable for the parent company.
Speaker Change: So we've talked about it in the past but any type of...
Intensification or Redevelopment
Speaker Change: The first thing we'd have to do is solve for what happens to the store, and obviously there's a series of options that could be available in terms of a relocation or...
Speaker Change: Closing down and reopening, but those are all complicated and they take time. So I guess what I would say as well that optionality exists there's no specific plans in place today for any of our locations on an imminent basis.
Speaker Change: Okay, thank you very much. I'll turn back to the operator.
Thank you.
Speaker Change: Thank you. As a reminder in order to ask a question, please press star then 1-1 on your telephone keypad.
One moment for our next question.
Linda Wang: Our next question comes from the line of Linda Wang from TD Securities.
Thank you.
Linda Wang: Hi, this is one of the outstanding members of Sam Damiani, so on the fair value gains that are recognized for five consecutive corners, largely on growing NOI, wallcap and discount rates have remained largely unchanged.
Speaker Change: How are you thinking about the relationship between rising rents and NOI versus the cap and discount rates? And do you expect higher cap rates and discount rates to become more negative offset in determining the risk of out-of-the-game in the future? No.
Speaker Change: Hi, Linda. I can try to take that. I mean, as you know, we have embedded annual rent escalators in our leases with the main tire on average day or 1.5% every year. So, you know, from the Base Portfolio, we're experiencing that rent and NLI lift.
Speaker Change: We triangulate that against what we see in the market in terms of cap rates for comparable assets.
Quite frankly, the investment market over the last-
Speaker Change: Year, year and a half has been a little slower than we would have expected. Retail certainly still a coveted asset class from investors is just not a lot being sold right now, not a lot on the market.
Speaker Change: So, from what we're seeing out there, cap rates for defensive, solidly, you know, solid tenant.
Speaker Change: Credit Retail has remained fairly constant, fairly flat, and obviously to the extent our analyze
Speaker Change: for that estimation of market cap rates against our growing NOI base to come up with our fair value. So I hope that answers your question, but that's how we kind of approach it.
Okay, thank you.
Thank you, one moment for our next question.
Speaker Change: Our next question comes from Alina, Giuliano Thornhill from National Bank.
Giuliano Thornhill: Good morning guys, just had a couple to the extent that you can comment or you wear but the recent involvement might be in the true nurse strategy at the parent.
Giuliano Thornhill: Yeah, so Canadian Tire, this past quarter launched an update of refreshed new transformational strategy they're calling true North. I think, you know, for the reed.
It will probably be not all that different from
Giuliano Thornhill: Their last burden of strategy that they were calling better connected where the store is still central part of the relationship between the company and the customer which is at the heart and focus of what they're trying to do trying to be more consumer. Thank you very much.
Giuliano Thornhill: Centric and the Bricks & Mortar and the Supply Chain obviously play.
Giuliano Thornhill: Key Rolls in that. We have talked over a couple of quarters about the pace at which new store projects have been slowing. Our development pipeline right now we're very happy with it's amongst the largest it's been in some time at almost 900,000 square feet.
Giuliano Thornhill: We'll be delivering hopefully five to six hundred thousand square feet by the end of this year, but I think true North like better connected we'll continue to drive opportunities for us. I'll be at perhaps at a slightly slower pace.
Speaker Change: Okay, thank you. And then just my next one was just on the distribution increase. Like, what are the key kind of inputs to deciding the two and a half versus, you know, 2.7 last year or, you know, before that it was three.
Trisha Lance, Leslie
We definitely look at...
Speaker Change: We're we're forecasting results to be and obviously with a little bit higher headwinds and interest rate we felt that you know our ASSO growth might not have been as high as it is in the past and I think we try to take a balanced approach between you know rewarding unit holders with that and then retaining cash back into our operations so I think those are probably the main factors in coming up the two and a half this year versus three. We're we're we're we're we're we're
Okay. Thank you.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Brad Sturges from Raymond James.
Jodi Shpigel: Kevin Salsberg, Jodi Shpigel, Jodi Shpigel, Jodi Shpigel, Jodi Shpigel, Jodi Shpigel, Jodi Shpigel, Jordan Lin
Hey, good morning.
Jodi Shpigel: Just one question for me, just on the, just looking at your Series B adventure coming to I get some June , just, you know, can you walk through the refinancing options that you're looking at right now and.
Jodi Shpigel: I guess more specifically kind of what's been the movement in the in the credit spread market for unsecured debt in the last
A few weeks since Liberation Day. Thanks.
Jodi Shpigel: Well, as we say, as far as our plans, I mean, we still are focused on the, you know, our-
Jodi Shpigel: of the public markets for our primary source of debt funding.
Jodi Shpigel: with all of our sort of assets, barring sort of one being secured. I really, it's an unsecured balance sheet, so I think that's still our main focus.
Jodi Shpigel: As far as where things have gone in the last number of weeks
I would say, you know, last week's...
Jodi Shpigel: Credit Spreads went up a little bit, and then in the last sort of week and a half I've actually come back down, you know, all in all in rates are still a little bit more expensive than they were sort of eight weeks ago, but really, you know, we've seen
Jodi Shpigel: You know, in the last even two weeks, you know, 10 to 20 basis point change in the all-in so it's they're definitely moving all over the place but I would say last 10 days I've been moving lower this week, lower than last week, a couple weeks bit higher so. Thank you very much.
Jodi Shpigel: Hard really to triangulate and what never knows what news might arrive tomorrow that could change that, so definitely a state of flux.
Jodi Shpigel: Okay, so I add, you know, from a modeling perspective, where would like an all-in-rate key today or roughly speaking?
I would say in like the, you know,
Jodi Shpigel: Around the sort of 430 plus or minus et cetera where things were, but it's for a five year, but again, you know a week before that could have been 10 or 15 points higher and a few weeks before that lower so it's hard to really peg it.
Yeah, okay, make sense. Thank you.
Thanks.
Speaker Change: Thank you. As a reminder to ask a question, please press star then 1-1 on your telephone keypad.
Speaker Change: As there are no further questions at this time, I will turn the call over to Kevin Salsberg, President and CEO for closing remarks.
Kevin Salsberg: Thank you, Gigi. And thank you all for joining us today. We look forward to welcoming you to our annual meeting of unit holders, which we will conduct virtually later this morning at 10 a.m. We hope that you'll be able to listen in and we look forward to speaking with you again in August after we release our Q2 results. Thank you.
This concludes today's call. You may now disconnect.
Thank you for watching!
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