Canadian Net Real Estate Investment Trust

Thank you, operator, and good morning, everyone. Thank you for joining us today as we walk you through our Q2 2025 results.

We're very pleased with the continued growth in FFO per unit this quarter, bringing our 1-year date-to-date FFO per unit growth to 8%. At the start of last year, we set out to recycle capital with the goal of driving organic growth through accretive reinvestments, and that strategy has been delivering, with Q2 2025 being a record quarter for the REIT.

Our portfolio remains exceptionally strong. We maintained a 100% occupancy rate in Q2 as demand continued to outpace supply.

Barriers to entry in our niche remain high due to elevated construction costs and limited well-located land for retail use. This reinforces the value of our necessity-based portfolio strategically located in secondary and tertiary markets, offering below market rents and demonstrating resilience.

Our payout ratio remains conservative at 52%, one of the lowest in the Canadian REIT sector. This provides ample room to absorb our recently announced distribution increase while preserving cash for operations and reinvestments.

Capital markets continue to heavily discount REITs, including CNET, and that makes it even more important for us to generate growth organically. On leasing, we had 6 leases expiring in 2025, representing approximately $2.42 million in NOI.

To date, 5 leases accounting for 97% of expiring rents have been renewed with an average rental spread of 6.8%. Negotiations continue on the final lease representing approximately $63,000 in gross rents.

Looking ahead to 2026, we have 14 leases maturing, representing $3.47 million in NOI. Seven have already been renewed, covering 45% of the expiring NOI with an average increase of 11.5%.

We remain confident in our ability to renew our tenants, and our weighted average lease term stands at 6.1 years. Turning over to development activity.

We are happy to announce that our [ Sainte-Sophie ] property was delivered to our tenants on August 14. Through our 40% stake in the property, we will generate approximately $70,000 in net operating income on an annual basis.

The development was completed at a 7% yield on cost. Turning to the transactional market.

The market is fairly slow. With interest rates still in the high 4s to low 5s range, deals need to be north of a 7% cap rate to meet our return threshold.

While we continue to source opportunities, we're committed to executing only when they are meaningfully accretive to FFO per unit. Our results this quarter reflect that approach.

We remain focused on executing when it makes sense and are confident that waiting for the right deals will create more value in the long run. I'll now hand over the call to Ben Gazith, CNET's Chief Financial Officer, for a detailed review of our financial results.

Thank you.

Thank you, Kevin. We had a great quarter.

For the 6-month period ended June 30, 2025, we generated FFO per unit of $0.33 compared to $0.306 for the same period in 2024, which represents an increase of 8%. FFO for the period ended June 30, 2025, increased to $6.8 million compared to $6.3 million for the same 6-month period last year.

FFO was impacted by higher rental income from property acquisitions and lower interest charges on credit facilities. During the same period, NOI was $10 million, up 4% from $9.6 million for the same period in 2024.

NOI was impacted by increases in rental revenue due to the additions of new properties and increases in rents on certain existing properties. Property rental income was $13.7 million, an increase of 5% compared to $13.1 million for the same period last year and was impacted largely by the same elements as NOI but was also impacted by increases in recoverable additional rents.

For the 6-month period ended June 30, 2025, the trust administrative expenses remained relatively stable compared to the same period in 2024, and we expect the 6-month 2025 admin expenses to be a good run rate for the remainder of the year. The IFRS value of our adjusted investment properties, which is the total of our wholly owned investment properties and our proportionate share of investment properties held in joint ventures, was $340.8 million as at June 30, 2025, compared to $316.9 million a year earlier.

The increase is primarily due to property acquisitions during the last 12 months, as well as fair value adjustments to investment properties, offset by property dispositions during the same period. We continue to maintain a prudent approach with respect to our leverage and our payout ratio, having a debt-to-gross asset ratio of approximately 56% compared to 58% as of the same time last year.

Excluding convertible debentures, debt to gross assets was 54% as at Q2 2025 compared to 55% as of Q2 2024. Our FFO payout ratio for the period ended June 30, 2025, was 52%, a decrease from 56% for the same period last year.

Our properties are typically financed with fixed rate amortizing mortgages. As of June 30, 2025, the REIT's exposure to variable rate debt is limited only to its credit facilities.

We have $6.7 million of mortgages rolling over in 2025, and this excludes mortgages in our JVs, and the rest of our debt ladder remains well struck. The current average term to maturity on our mortgages is 3.6 years.

That summarizes our key results for the quarter. We will now open the line for any questions.

Operator?

Good morning. A large portion of the cash flow per unit growth in the quarter was driven by acquisition activity.

What are you seeing in the market today in terms of acquisition opportunities and the cap rates for pricing?

The market definitely slowed down. I think at the end of Q4 2024, everyone was very excited for 2025.

Rates were coming back down, and so pricing was realistic again. What I would say today is we have very good sourcing, but we need to be patient in order to wait for a certain rate movement.

At the end of the day, activity does not always translate to progress. We want to make sure that when we execute on a deal, it's accretive.

So the opportunities we're looking at now will most likely still be around for us to take in the near future. So transaction market is slower, deals take a lot longer than they used to take.

It's there, it's just not -- it's hard to materialize right now.

Okay. Got it.

And given the strong leasing activity that you mentioned in your prepared remarks, are you expecting an acceleration in same-property NOI growth? Or should it remain steady or around that 1.5% to 2% mark?

It's going to be steady. The reality is our necessity-based portfolio -- those tenants tend to have many options.

And so for us, the good news means those tenants can't leave. They have below market rents, it's very stable.

However, when the options kick in, we don't reset the lease. We tend to go with the options.

And as historically, those increases tend to be between 1% and 2% per year.

I just want to talk about maybe the 2026 maturity profile in the leases. So you guys mentioned almost 50% of the leases, you've already renewed at about an 11.5% spread.

I'm just wondering if there's anything different in terms of maybe in-place rents on the other 50%? Or if you think that average spread would be fairly consistent for the remaining?

Thank you. Great question.

The average spread will be a bit lower. We have a large property with a limited rental increase.

So very stable here, again, below market rents. But as I mentioned on the previous question, for that tenant, in particular, rents remained flat.

So right now, I would say we're about 11.5%. When it's all said and done with the renewals, we would expect closer to, I would say, 6% to 7%, similar to this year.

We don't have many of those that are renewing at same rents, but 2026 has one of them.

Okay. So most of that deceleration in the back half, that's just based on 1 large interest rate option?

Exactly.

Okay. Okay.

Good to know. And then maybe kind of circling back on the transaction front.

I understand the [ verbiage ] is slowing down. Just wondering if maybe you can talk about some quantum, if you're expecting to get more deals done in the back half of this year and maybe your expectation for next year with maybe more rate cuts on the horizon in the near term?

Yes. I mean, I believe that as soon as we see -- to put things in perspective, when we acquired Sobeys in Truro last October, rates were about 50 bps cheaper.

And that opens up the entire market for us in a meaningful way. And so as rates are slightly lower in 2026, it's going to be a completely different story.

At the end of the day -- and I'd like to remind this to every unitholder, like the REIT in his history has acquired about 105 properties. Only two of those were done through marketed process.

So what that means is we have good sourcing. We know where the deals are, and we execute on them when they are accretive.

At the moment, we can't make the math work for the REIT. And again, we're not trying here to turn $1 into 4 quarters.

So we will wait and execute on them. On the back end of the year, it is possible that some deals could happen.

But again, we will remain diligent. So to conclude, yes, if we see decreasing rates, transaction market will reopen in a meaningful way for CNET.