Thank you. Good morning and welcome to Choice Properties Q3 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 third quarter performance as well as our transaction and development activity in 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. 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. 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 Q3 2024 financial statements and management discussion and analysis, which are available on the website and on CDAR.

And with that, I will turn the call over to Rael.

Thank you, Erin, and good morning, everyone, and welcome to our Q3 conference call. We are pleased with our third quarter results, once again delivering strong operational and financial results driven by increasing demand from retail tenants, by necessity-based neighborhood sensors, and strong leasing spreads in our industrial portfolio.

Our occupancy remained high at 97.7%, we achieved strong leasing spreads of 15.3%, and delivered same asset cash NOI growth of 3%. As expected, FFO growth of 3.2% for the quarter was impacted by the timing of lease termination income and certain one-time costs related to our continued focus on operational efficiency, which we spoke about last quarter.

Our results reflect the quality of our portfolio and our team's ability to consistently deliver on our strategic priorities. Fundamentals across our asset classes remain strong.

Our leasing team is seeing strong demand for retail space across the country, a trend we expect to continue, especially from necessity-based and discount-focused tenants. These tenants are actively seeking opportunities to expand their store networks across the country.

Our extensive footprints of grocery anchored neighborhood centers is ideally positioned to support their growth plans. In our industrial portfolio, we continue to benefit from leasing spreads as our low in-place rents adjust to market rents.

Despite the industrial market undergoing a period of adjustment, our portfolio, centered on high-quality generic industrial assets, remains attractive to a diverse range of tenants. In addition, we're seeing strong leasing interests for the future phases of our development at Choice Caledon Business Park.

Thanks to our location, competitive land cost, and access to services including power. This quarter, we saw long-term bond yields fall and stabilize, creating more certainty over asset valuations, which led to renewed optimism and an increase in transaction activity.

However, the recent rise in long-term rates highlights ongoing market volatility. Irrespective of the environment, we remain on track to deliver on our balanced capital recycling program for the year.

In the quarter, we completed $172 million in total real estate transactions, which included approximately $130 million of acquisitions and $42 million of dispositions. Our most significant transaction in the quarter was the acquisition of a three-building portfolio from Loblaw for approximately $129 million at our 50% share.

The acquisition was completed as part of a 50-50 joint venture with Crestpoint. Choice will act as the property manager of the portfolio, which includes one distribution center and two retail properties.

The distribution center is a 711,000-square-foot Shoppers Drug Mart facility located in Mississauga, Ontario. The two retail assets include a real Canadian superstore in Winnipeg and a strata title interest in the lower floors of 60 Carlton Street in Toronto, formerly Maple Leaf Gardens.

Originally constructed in 1931, this iconic building was the home of the Toronto Maple Leafs until 1999, but now houses 95,000-square-feet of retail space, including a flagship Loblaw grocery store, an LCBO outlet, a Joe Fresh location, and 150 underground parking spaces. Toronto Metropolitan University retains its ownership of the top level of the property, which houses the Mattamy Athletic Center.

The two Toronto assets, including the distribution center and retail store, represent approximately 85% of the rent of the three property portfolio acquisition. Concurrent with the transaction, the properties were leased back to Loblaw with lease terms between 15 and 20 years with 2% annual growth.

This transaction not only adds three high-quality assets to our portfolio, but also demonstrates the benefit of our strategic relationship with Loblaw and the strength of our relationships with our third-party partners. Our disposition activity for the quarter included the sale of two retail assets, a power center in Quebec City and another retail asset adjacent to Choices Power Center in Mississauga for total proceeds of approximately $42 million.

Our team also continued to advance a development pipeline in the quarter. We transferred approximately 41,000-square-feet of commercial GLA through retail intensifications.

These projects focus on adding at-grade retail density to existing neighborhood centers. We expect our retail intensification pipeline to continue to add value to our retail portfolio and provide steady cash flow growth.

For industrial development, we remain on track to deliver the first phase of Choice Caledon Business Park in the fourth quarter of this year, with cash rent commencing in the first quarter of 2025. In addition, during the quarter, we broke ground on the second phase of this development, which includes a fulfillment facility leased to a national logistics provider.

Before I turn the call over to Niall, I want to acknowledge our recent announcement that Mario will be retiring in early 2025. As you know, Mario is one of the most trusted and respected CFOs in Canadian real estate.

He's been at the helm with me for many years and played an important part in shaping our business. Mario was instrumental in building and maintaining our industry-leading balance sheet and a first-class finance function.

His commitment, strategic insights, and leadership have helped propel Choice into an industry leader. As part of a thoughtful succession plan, we are pleased to announce that Erin Johnston will be promoted to Chief Financial Officer effective March 1 of 2025.

Over the last few years, Erin has demonstrated her strong financial and strategic capabilities and has made a significant positive impact on our organization. She's a very capable Executive and is the full support of our leadership team and our board as she prepares to succeed Mario in the CFO role.

Erin and Mario have worked closely over the past three years and this partnership will continue in the months ahead as Mario formally transitions his responsibilities to Erin. With that, I'll pass the call over to Niall to discuss our operational results.

Niall?

Thank you, Rael. Good morning, everyone.

As Rael mentioned, our portfolio continued to deliver stable and consistent cash flow growth. We ended the third quarter with stable occupancy at 97.7%.

During the quarter, we had approximately 4 million square feet of these expiries. We renewed 3.8 million square feet, achieving 94% tenant retention.

These renewals were completed on an average rent spread of 15.3%. We also completed 79,000 square feet of new leasing, which offset negative absorption of 178,000 square feet, mainly driven by 153,000 square feet of vacancies in the industrial segment.

In our retail portfolio, occupancy remained stable at 97.6%. During the quarter, 3.2 million square feet expired, of which we renewed 3.1 million square feet for a 97.2% tenant retention rate.

These renewals spreads averaged 7.5% above expiring rents, including 2.7 million square feet of Loblaw renewals. Excluding Loblaw renewals, our leasing spreads averaged 10.7% above expiring rents, with strong rolls across all retail categories.

We also completed 60,000 square feet of new retail leasing in the quarter, with lease conventions in 2025 at an average of 22% higher rents than previous tenants. This largely offsets 88,000 square feet of expiries that did not renew in the quarter.

For the remainder of 2024, we continue to expect strong leasing spreads consistent with the year-to-date. Demand from necessity-based tenants remains strong as retailers continue to seek out space.

Our retail team continues to be proactive in lease negotiations and is working to reposition vacant space across our portfolio to drive growth through new leasing. During the third quarter, we generated $4.9 million in lease surrender revenue.

The majority of this was the continuation of our right-sizing program with Loblaw, generating $4.5 million in lease surrender revenue at our grocery store in Dartmouth, Nova Scotia. These right-sizing opportunities create value for our properties by adding complementary third-party tenants at higher rents while continuing the productivity of the existing grocery store in a smaller footprint.

The remaining $400,000 of surrender revenue came from two isolated retail tenants. We continue to have very few tenants on our watch list, but high demand for retail space and strong occupancy rate.

It's expected that as space becomes available, we can back to a minimal downtime. In our industrial portfolio, occupancy was down 70 bps to 98.1% compared to last quarter.

We had 804,000 square feet of expiry and renewed 635,000 square feet for retention of 79%. Lease renewal spreads remained strong and averaged 92% above expiry.

This was largely driven by 327,000 square feet of renewals in Ontario at spreads of 153.6%. We also completed approximately 16,000 square feet of new leasing.

A small occupancy decline of quarter was expected and was primarily due to 58,000 square feet of vacancies in the GTA and 68,000 square feet in Alberta. Our team is actively working on releasing the space.

We expected industrial occupancy to decline marginally in Q4, with vacant space being released and occupancy improving in 2025. We continue to have embedded rental growth in our industrial portfolio, but average in-place rents of $9.68 at the end of the quarter.

Finally, our mixed-use and retail portfolio is also performing well, but occupancy remaining stable at 94.7%. I will now pass it over to Mario to discuss the financial performance.

Thank you, Niall, and good morning, everyone. We're pleased with our financial performance in the third quarter.

Our business continues to deliver stable and consistent growth. Our reported funds from operations for the third quarter was $186.7 million, or $25.8 per unit.

This was a typical quarter. However, FFO in the quarter was impacted by certain non-repairing items and timing differences year-over-year.

Our third quarter results included lease surrender income of $4.9 million, offset by a $3.3 million temporary increase in G&A, primarily related to our outsource project, which we noted last quarter. These two items account for a positive net impact in the quarter of $1.6 million.

On a per-unit diluted basis, our reported third quarter FFO of $25.8 per unit reflects an increase of approximately 3.2% from the third quarter of 2023. This increase was primarily due to higher same-asset NOI and net FFO contributions from completed developments, partially offset by higher interest costs.

Now turning to our properties, same-asset cash NOI increased by 7 million or 3% compared to the third quarter of 2023 as a result of strong leasing activity. By asset class, retail same-asset cash NOI increased by $2.1 million or 1.2%.This increase was primarily driven by higher base rent from contractual rent steps, renewals, new leasing, and higher recovery income.

The year-over-year growth rate was impacted by negative adjustments in the current year and positive adjustments in the prior year related to final billings. Adjusted for the impact of these timing differences, same-asset cash NOI increased by $3.7 million or 2%.

Industrial same-asset cash NOI increased by approximately $4.6 million or 11.7%. This increase was primarily due to higher base rent from leasing activity, new leasing, and higher capital recoveries.

The mixed use and residential same-asset NOI -- cash NOI increased by approximately $200,000 or 2.6%, largely driven by higher rental rates at our GTA residential assets. Now turning to our balance sheet, our IFRS NAF for the quarter was $14.04 per unit, an increase of $177 million or 1.8% over last quarter.

Our NAF growth was driven by a contribution of $39 million from operations, a fair value gain of $83 million on our investment properties, and a fair value gain of $58 million on our investment in the units of allied properties where we are required and direct for us to mark-to-market desinvestment to its trading price at each quarter period end. Our fair value gain on investment properties in the quarter was primarily driven by cash flow growth and cap rate adjustments in the retail portfolio.

In our retail portfolio, we recorded a fair value gain related to cash flow growth and slight compression in cap rates. The value of our industrial portfolio was relatively flat, as fair value gains generated from cash flow growth as protruding leases rolled the market were largely offset by slight cap rate expansion on certain assets.

Now turning to our financial -- financing activities, we continue to take a prudent approach to capital management and we benefit from the stability provided by our industry-leading balance sheet. We ended the quarter in solid financial position with strong debt metrics and ample liquidity.

Our debt to EBITDA ratio was seven times and we continue to maintain a fully undrawn $1.5 billion corporate facility and this is further supported by approximately $12.9 billion of unencumbered properties. During the quarter, we repaid the $550 million Series K unsecured debenture upon maturity, which was primarily funded by the issuance of the $500 million Series U senior unsecured debenture in May of this year, which had a rate of 5.03% and a term of approximately seven years.

Proceeds from this issuance were invested in a fixed rate GIC earning 5.5% until the proceeds were applied to our Series K in September. As a result, our interest income and interest expense were both higher in the quarter.

Moving to secured finance activity, during the quarter we funded a $43.5 million at-share CMHC insured takeout mortgage at our recently completed Element Development in the Westboro neighborhood of Ottawa. The project qualified for the MLI Select Lending Program and bears interest at 4.02% with a term of 10.2 years.

Additionally, we completed a series of mortgage financings to fund the acquisition of the three properties acquired with Crestpoint. The mortgages totaled approximately $82 million at-share and a weighted average rate of approximately 4.8% and a term of 10 years.

And at the end of Q3, we had one remaining mortgage maturing for the year of approximately $60 million and subsequent to quarter end, we successfully executed our debt financing for total proceeds of $80 million at an all-in rate of 4.7% and a term of 10 years. We have no remaining maturities for 2024 and are well positioned to turn our attention to our 2025 capital requirements.

So overall, this was once again a very solid quarter and given the strength of our performance year to-date, we remain confident in our ability to deliver on our 2024 financial outlooks. And with that, Rael, Niall, Erin, and I would be glad to answer your questions.

Thank you and good morning, everyone. Just want to start off by offering well-deserved congratulations to both Mario and Erin, so all the best, Mario and Erin.

Well done. Maybe first question, just on the population growth, immigration growth curtailment announced a couple of weeks back.

Rael, what's your view on the impact just generally on the market and specifically on Choice's vast pipeline of future residential development here in Toronto?

Sam, look, we still have -- our view that Canada still has a significant housing shortage and short-term supply cannot keep pace with the demand. So our view is that as a long-term owner of real estate, we are going to continue to build residential when the returns make sense and we are hopeful we can commence construction over the next 12 months because we see significant pent-up demand over the long term.

That's helpful. Do you see impact on rents for the types of product that Choice would mostly be involved in building?

Look, I'll say two things. So firstly, we are seeing a slight softening in rents in primarily in the GTA, but it's primarily a result of new condo supply coming online, which is competing against our purpose-built rental.

And then the second thing I would say is that we've always been very conservative in modeling for new developments. And we see lots of pro formas out there where groups would model significant, significant rent increases.

We wouldn't model rent increases that would be much different than inflation when we are running a pro forma. So I would say that we still very bullish on the prospects because we're realistic on our assumptions.

Okay, that makes sense. Thank you.

And last one for me is just on the retail side. Certainly interesting to see cap rates start to come down a little bit.

Curious, what drove that, but sort of bigger picture. Just wondering if, just given the fundamentals that Choice and many others are seeing, is there really becoming an opportunity to build new retail space on SPAC [ph], in some scale?

Is that opportunity starting to come into focus?

Hey, Sam. I'll take the first part.

Right now, a lot of the movements are actually coming from appraisals. They're now more relevant.

Before there wasn't a lot of comps, and so now we're getting new data on market rents, discount rates, terminal cap rates. And so that's what's really reflecting the adjustment.

You also have the built-in step rents. So we're seeing those values go up.

It's been a few quarters in a row now. So that's it on the valuation part.

Well, I'll turn it over to Rael for the second part.

Yes, look, Sam, I would say that we've been adding accurate retail for many, many quarters in addition to call it the anchor. We see ourselves continue to do that.

Our big competitive advantage is that we work closely with Loblaw and try and help them with their store growth plans. And right now, we're working on 26 potential locations with Loblaw.

Some of those would be new ground-up developments. But most of those would be at-grade retail where we're adding a Shopper's Drug Mart or even some instances, actually a new grocery store to an unanchored grocery center.

So, that's what we're working on at the moment, but I think we're going to keep planning with Loblaw and we hopefully can keep adding to that pipeline.

That's great. Thank you.

And I'll turn it back.

Thanks and good morning. Maybe just starting with the guidance for same asset NOI cash basis for the year of 2.5% to 3%.

You've already done over three for the nine-month period. So, is that number just a little conservative or is there something in Q4 that maybe I'm not aware of?

Yes, I think we've said before, Mark, that it will likely be at the higher end of the range. And so, maybe a bit of conservatism, but overall, like I said, with the numbers, we're well in line to be at the higher end of that ranging.

Okay, great. Thanks.

And just maybe one more. Recently in the news, Loblaw was in the press or made a comment about removing restrictive covenants.

Can you comment on how often this actually comes up in your portfolio that you have to turn away, whether it's another grocer or a smaller food store or something? Because of that, is it something that's actually a material issue?

And if so, how do you see this impacting the way you operate?

Yes, look, Mark, we don't see it as a material issue. Removing property controls obviously increases landlords' flexibility to manage its asset and merchandise as it sees fit.

And overall, we see the announcement as positive and we are supportive of Loblaw's position.

Does this ever come up, though? Is this something that you deal with regularly?

Intermediately, not regularly.

Okay. Thank you very much.

Thanks. Good morning.

And just before getting started, I want to echo Sam's comments, congratulating Mario and Erin. Maybe going back to the comment around the change in population growth assumptions, you talked about the multi-use side.

Wondering if you've seen any retailers, Loblaw's obviously included, looking to curb growth plans on the back of that?

Hi, Lauren. This is Niall.

No, we're not seeing any pullback.

Okay.

Maybe just adding to what Niall said, what we are seeing is that many of the retailers we deal with, call it discount-focused retailers and necessity-based retailers, are using Choice because we have that national platform and we're trying to help them with their expansion plans. But we're not seeing them curtail as Mario said.

Okay. And then maybe going over to the acquisition side of things, can you maybe give us a little color on why you decided to go 50-50 on those three assets that you guys acquired during the quarter and also expectation for management fees going forward?

Yes, look, we started this deal earlier in the year. Interest rates were really elevated.

We have a real commitment to a strong balance sheet and we're going to continue to be disciplined about that. And given we weren't exactly sure how we would end up from a capital recycling point of view or disposition, we just thought it was prudent to find a JV partner given the size of the overall portfolio.

The management fees are not significant. They are market fees and I don't know the exact percentage.

Okay. That's fair enough.

And then just last one for me, obviously there's been some noise in the G&A side. And I believe I recall correctly you expect the outsourcing cost to continue through 4Q.

Can you just maybe give us a rough idea of where G&A will be for 2025?

Sure. Hey, Lorne.

You're right. For next quarter, there should be another maybe $2 million as we kind of face down the outsourced implementation.

I think a good run rate if you go above $15 million a quarter, $16 million a quarter as a gross number and then if you net and then when you back up the leasing cost, you get to kind of a $13 million number for FFO.

Okay, perfect. Thank you so much.

Thank you. Good morning, everybody.

I guess the right-sizing opportunity has been somewhat of a recurring theme over the last several quarters. Just curious if you could comment on how much runway you see left in that program?

And then maybe just give us a sense if it's applicable to all formats more specifically, is it possible to do this in a super store?

So we actually have recently done a super store at Western Road. It's applicable to -- it's a loblaw like all formats and we will continue to try and take advantage of it as loblaw identify stores that they want to reinvest in from -- obviously, resetting their footprint and we think it's a true win-win, because we can get an adjacent complementary tenant often at higher rents and then loblaw spends a lot of the capital to reset the footprint.

Okay, great. Thank you for that.

Rael, in your opening comments on Choice Caledon and the increased demand there that you're seeing, I don't know if this was intentional or not, but you did mention one of the attributes being access to power pursuit of data center development that's become very stylish recently amongst industrial players in North America. Is that something that you were referring to or considering at this time?

We're not considering at this time because we actually don't have sufficient power for a data center, but we have enough power to build out our entire site for modern generic large distribution users. But I think I mentioned that on purpose because it's a real differentiator between our site and other sites in the GTA that we can actually meet development timelines of the RFPs out there.

Many sites cannot actually meet those timelines given they don't have access to the right utilities including power.

Okay, got it. I've actually heard that from others that sometimes the municipality will say, thanks, it'll be 24 months before you can get your power.

So thank you for clarifying. And then just lastly, can you just give us a remind us, as part of a loblaw's plan to divest of some assets, what the program was, what your identified potential pipeline was, and now that you've done these, the deal that did in the quarter, what would be left?

So if you go back, I think it was two years ago, so there was about $1.8 billion of real state, which we had identified with by roughly half of it. And I think if you look back at the numbers, we're probably including with our partnership, bought about 6 to 700 million of it, so that should give you a sense of what's remaining, probably 600 million of it.

So there's probably another 300 million remaining approximately.

Okay, thank you. Congrats, Mario and Erin.

Well deserved on many fronts. Thank you.

Thank you, and good morning, everyone. Just one question.

The indebtedness ratio is at about 40% when you compare it to the beginning of the year, it's primarily unchanged. Just how should we think about debt total assets going forward over the next 12 months, and where do you sort of see that panning out to, given all the various capital allocation initiatives that you have?

Yes, so right now, we kind of look at it more at a debt to EBITDA. And we said we're at seven times debt to EBITDA.

That's at the low end of our range. So we see that increasing slightly as we ramp up development spend.

If there's acquisition opportunities, we may be a little more in balance if there's opportunities. But ultimately, our target is 7.5, and we'll still stay well below that range.

Thank you. I'll turn it back to the operator.

Thank you, and good morning. On the industrial occupancy, I mean, it was down in Q3, and I think earlier you mentioned Q4, you expect marginal decline in occupancy as well.

So maybe you can elaborate, how much space are you expecting to come back and how do you back from that?

For the remaining quarter, we're expecting maybe $53,000 to come back. We're working on those deals, so not a lot.

It's very minor. But then it's going to ramp up.

We're expecting in the New Year for that occupancy to be taken back and brought back into operation at IPP.

Okay. And so do you think 25 occupancy to be higher than current levels in that case?

We're expecting it to stay stable.

Okay. I mean, my thought was, if you look at the market vacancy right now is around 5%, and your industrial portfolio vacancies around like 2% to 3%.

So you're already outperforming the broader market. Do you see that continuing next year as well?

We do. We feel our assets in a very good position to maintain that.

Okay. Okay.

Fair enough. And I guess any thoughts on the same asset or same property NOI growth for this asset class next year?

I mean, in the context of, if occupancy were to be flat and you continue to see those rental, that spreads, what can that translate into?

We're expecting to see the same type of spreads, but the overall NOI growth will go down a little based on some of the geographical leasing that's happening across the portfolio.

Okay.

We will, Himanshu, give more color next quarter when we release an outlook for 2025.

Sure. Sure.

That's fair enough. And then, sticking to the asset class, I mean, obviously, you bought this large distribution center in Mississauga.

I think that's the Shoppers Drug Mart tenant on JV. Can you remind us on the pricing?

I mean, anything on the dollar per foot basis or the going in cap rate on that property?

I don't. It was around a six cap.

And I don't, let me see if I have the per foot number, roughly. I don't have the per foot number.

I think it was around $250 to $260 a foot.

Got it. And it also has that 2% escalators you were talking about on this asset as well?

Yes.

Okay, interesting. And the last question will be related to that JV partner.

Do you see doing more such transactions on the JV going forward or this was like one off and then more like 100% balance sheet transactions going forward?

Yes. Look, firstly, the way we think about partners is, the first deal is always tough to do.

And we want partnerships that we can keep growing with and do multiple with. And you've seen that as a recurring theme with our partnerships.

And so this is actually our second JV with Crestpoint, and we hope we can continue. Like second JV with four assets in this one and the other one has a single asset, but we hope we can continue to grow the partnership in the future.

Okay. Thank you.

And then, yes, congratulations to Mario and Erin. Thank you, everyone and I'll turn it back.

Thanks. Good morning.

Just one question from me on the dispositions and the health for sale assets. Just curious about the rationale here.

There was, I think, a power center in the mix. So just wondering if there's a desire to trim power center exposure, and do you have many more that you'd like to work through?

I would say, we don't have many more that we'd like to work through. The power centers that we've been selling, they've been strategic because we've actually been unwinding the partnerships together.

And we've been selling, for example, the one in Quebec City that we just sold. We had three assets with that partner.

We've now sold all the assets. And the one we have sold under contract is I'm not sure exactly in Saskatchewan.

It's the same thing. We're selling all the assets out of that partnership.

Okay, got it. Thank you.

I'll turn it back.

Hey, good morning. Just real quick.

From a modeling perspective, the lease termination fee income, would Q3 be the bulk of what you're expecting at this point, or is there still more that you could receive by the end of the year?

I think we still have one more. I think it's a small number, Brad.

Probably, I think around $2 million comes to mind, so it's not significant compared to the prior quarter.

Okay. And just to follow up on the JV with Crestpoint, obviously you talked about wanting to grow it further, but I guess it would also include standard grow rights on each side?

Yes, we have normal liquidity rights.

Okay. Sounds good.

I'll turn it back.

Thank you, Brianna. Again, I'm very pleased with our results.

Our performance this quarter and our team's ability to advance our strategic priorities is underpinned by our prudent approach to capital and risk management, as well as the strength of our balance sheet. I'm confident that our balance sheet, consistent execution, and focus on long-term growth will enable us to deliver stable cash flow growth, positioning Choice to outperform over the long term.

Thank you for your interest, your investment in Choice, and for joining us this morning.