Plaza Retail REIT

Thank you operator, good morning, and thank you for joining us on our Q1 2021 results conference call. We are legally obliged to tell you that today’s discussion includes forward-looking statements.

We’d like to caution you, that such statements are based on management’s assumptions and beliefs. Please refer to Plaza’s public filings for discussion of these risk factors.

Our outlook continues to be very positive. Our portfolio of essential needs and value retail, open air centers located in primary and strong secondary markets across a wide geography are performing well.

We had excellent collection results once again in the quarter. We can highlight several factors for this success.

Our open air properties leased to essential needs and value retailers, our geography with assets in suburban primary markets and strong secondary markets, combined with the significant exposure to Atlantic Canada, our people, our culture of collaborating with our retailers. As a development oriented REIT, we’ve grown through doing multiple deals with our retailers across our geography.

You cannot do this successfully unless you figured out how to collaborate with your tenants. Leasing activity continues to improve.

In the first quarter, we leased over 444,000 square feet of space, 382,000 square feet of renewals, 35,000 square feet in newly created space and 28,000 square feet of backfill leasing of vacant space. We’re seeing a definite uptick in opportunities.

We continue to see demand from dollar and grocery stores, pet retailers, value retailers, cannabis retail, and fast food players for pizza, chicken, burgers, Mexican food. Please refer to the Q1 2021 presentation that is now posted on our website for an update of our top 30 tenants, our collection numbers and photos of projects under construction and recent store openings.

Our construction department is managing more tenant related projects than they were at this time in 2019 pre-pandemic, which points to near-term revenue growth. Rising construction costs remain a factor, and we’re looking to offset their effect with higher rents and lower financing costs.

It is not always possible to move rents higher, but we are benefiting from lower interest rates and cap rates that help us to maintain our net development margins. It’s interesting to note that we’re seeing four different categories of retailers, the retailers – one, the retailers who never slow down and never stop looking at new opportunities over the last year; two, retailers that were slowed down during the pandemic, but are now looking past the short-term challenges facing their business and are looking at new opportunities; three, retailers that want to open stores, but are on hold as they cannot easily tour markets without dealing with travel restrictions; and four, retailers that have been severely impacted by the pandemic and are not looking at new opportunities.

This fourth category of retailers is a source of some of new opportunities that we were looking at. These retailers have generally populated the enclosed mall, and we are seeing very interesting enclosed mall to open air center conversion opportunities, as well as empty box store to multi-tenant strip transformation deals.

We are seeing lower cap rates for most essential needs, retail properties. There is little or no demand for enclosed mall retail.

There is likely a strong opportunity to acquire and close mall retail at a very deep discount. Although there’s a lot of potential upside for this property type, plaza is not structured to acquire enclosed malls, unless it has a clear plan to transform the property into an open air style center.

We are therefore focused on using enclosed malls that have the required physical and location characteristics that suit a complete redevelopment. We continue to pursue ways of creating unitholder value through redevelopments and new developments in primary and strong secondary markets through non-core property dispositions and accretive financings.

We have a solid business plan to deliver real per unit growth going forward. We believe that there is an Atlantic Canada store here that is being overlooked or underestimated by investors.

We have an important exposure to growing markets in Atlantic Canada, such as Halifax, Moncton or Charlottetown. The Atlantic region has had the most success in Canada in navigating through the pandemic and Plaza clearly benefits from this success.

Our very strong collection rates combined with decreasing payout ratios ensures the sustainability of our future distributions. We are very confident in our future prospects as we benefit from our highly engaged management team’s capability to execute its business plan, our leasing and developments team’s, ability to lease and develop high quality projects, our core portfolio of pharmacies, grocery stores, dollar stores, and other essential new tenants that have performed exceptionally well over the last year.

Our value retailers who have shown that they can prosper in our open air retail centers during difficult times, our large network of properties that are important part of any retailer strategy to sell products through multiple channels and our strategy of being diversified across a wide geography with open air properties that often dominate within their community. As a small-cap REIT, we are nimble enough to adjust to changing market conditions.

We are managing and allocating our capital carefully. We build what we lease often in multiple phases and are rewarded on our development program with attractive yields.

We are successfully selling non-core assets well over IFRS values. We are observing real demand from investors for quality grocery, pharmacy, and dollar store, open air centers or strategically located single-use sites.

This demand should eventually translate into higher IFRS values for our assets. Retail properties are still very much alive and kicking and we look forward to continue to successfully grow as we take advantage of improving business conditions.

I will now turn the call over to Jim Drake, Plaza’s CFO. Jim?

Thanks, Michael. Despite the ongoing pandemic, our results for Q1 were strong.

This is due to the strength of our tenants, our team and our portfolio. Rent collections remain high at almost 99% in Q1 and 98% for April to date.

We also continue to collect the vast majority of deferred rent in accordance with the agreed repayment schedules. During Q1 there were only nominal deferrals and abatements granted, and we took a $440,000 bad debt provision.

FFO and AFFO per unit for the quarter, which benefited from minor insurance proceeds, decreased administrative expenses and finance costs were $9.30 and $8.40 respectively up 6% and 12% over last year. Our liquidity at quarter end totaled $48 million, including cash, operating line availability and unused development and construction facilities.

We also had unencumbered assets with a value of approximately $17 million. For long-term debt, we placed $20 million of mortgages during the quarter at a weighted average interest rate of 2.58% and we continue to refinance at very low rates.

We have $35 of long-term mortgages rolling for the remainder of 2021, 40% of which relate to grocery or pharmacy-anchored properties. And with an overall loan-to-value of approximately 40%, we are confident we will refi these mortgages.

Subsequent quarter end, we issued a $12 million convertible debenture via private placement. Demand for the issue was very strong.

The proceeds will be used to repay maturing debentures in May and June of this year, enhanced liquidity and fund our development program. Under our development program, during the quarter, we opened a Loblaw Grocery Store at our Hogan Court development in Halifax and delivered a few pads across the portfolio.

We also remain very active on the development front and have advanced a number of projects across our geography. For asset sales, we sold a few non-core QSRs and the parcel of excess land during the quarter for net proceeds of $2.7 million.

We are seeing very strong demand for our small non-core assets at attractive pricing. Our capital recycling program remains a very efficient source of capital, allowing us to reinvest the proceeds in new developments and redevelopments, which are often grocery-anchored strips, had healthy spreads over the hurdle rates on the sales.

Finally, on fair value, we recorded a $3 million gain on investment properties during the quarter. As a result of some minor cap rate compression and appraisals obtained during the quarter.

Our weighted average cap rate is now at 7.17%, and we anticipate further compression of that cap rate and fair value appreciation going forward. Those are the key points relating to our results for the quarter.

We will now open the lines for any questions. Operator?

Thanks. Good morning guys.

Good morning.

Are you be able to remind us what’s included in the other income line and maybe if, what was reported this quarter is a good run rate. I mean, it looks like that number has been a little bit elevated over the last two quarters?

So generally that includes fees build the partners on co-own developments. In this quarter we had about 300,000 of insurance proceeds, which runs through that line.

So it’s a little higher than our normal run rate this quarter.

Okay, perfect. And then, so in your disclosure, you referenced seeing new opportunities for development and redevelopment across your geographies.

I’m just wondering if you could provide a bit more color on that and then maybe, what exactly kind of what development projects, you’d be looking at completing?

So if you look at our lists in our MD&A, so we have a list of projects presently under construction, and then a list of in-planning and development. So number of in-planning and development projects will be launched this year.

Exact timing is very difficult to pin down today. There obviously is there is a pandemic-related stall on, some of this stuff of getting permits and getting through planning.

But you’ll see us, we’ll be building in Sault Ste. Marie, we’ll be building in Cambridge this year.

We’ll be building in Oshawa. We’ll be doing some, some building in Falls, continued to build in Halifax and other places in Atlantic Canada and, as well, some continued projects in Quebec.

We have some projects under construction present in Quebec, in Sherbrooke, in Montmagny so those will continue. And we’ll contribute obviously in a meaningful way as they come on stream.

Okay, thanks. And, you mentioned you had a good quarter on the leasing front.

Is the demand you’re seeing, is that broadly across your portfolio or, would you say it’s more specific to a certain geography or asset type?

No, I think, it’s pretty broad obviously. It’s the open air centers there we’re having, a good success in our leasing efforts.

There’s certainly a lot more activity today than, last year. We’re seeing a lot of positive signs about leasing.

Okay, perfect. And just the last one for me, you mentioned some of the mortgage refinancing you’ve been doing over the balance of this year, do you expect to be able to up finance maybe any of those maturing mortgages and, just to further enhance liquidity and then fund future development?

We will. So, as I mentioned, the maturing loan value is about 40%, so we will upward refi certainly those mortgages to do exactly that.

Okay, perfect. That’s it for me.

I’ll turn it back. Thanks.

Thank you.

Thank you

Thanks. Good morning, everyone.

Good morning.

Good morning.

Michael, you mentioned that you would be sort of in a more disciplined way exploring opportunities to acquire enclosed malls, unless it has a clear vision for transforming them. So is there anything you’re currently exploring that meets these criteria and could come to fruition in the near term?

Yes. We’re very active in looking at these opportunities and making proposals so that, hopefully we’ll see some new activity, in the mall to open air center, transformation business.

Yes. But clearly those opportunities are there and it’s all about you have to buy it.

Right. We’ve talked about this in past calls, if you don’t, buy it right.

It becomes a very difficult and if you buy it right, well, you can definitely be successful. These are not easy undertakings.

We have a lot of experience though. So we really like this type of business.

It certainly distinguishes us from the market. And it’s really exciting when you have a, for example, a grocery-anchored enclosed mall that nobody wants, and you’ve created a grocery-anchored strip and all of a sudden that’s what everybody wants.

So I think that’s a, it’s a very worthwhile process. So we’re that’s a priority for us.

Right. and then the second category of retailers you mentioned were those that slow down, but looking to move past short-term challenges, just wondering what kind of retail falls into this category?

It’s more the – I would classify it as value retail than anything else. There’s some specialty mixed into that.

So again, some of these people who would not have had any interaction or very length interaction in 2020, they were just on the sidelines and trying to work their way through the pandemic. Now, all of a sudden, they are open for business.

So again, that’s very reassuring for us, as a development and growth oriented, read that all of a sudden we’re seeing not just the pure essential needs people. And we’re seeing some of the, value in specialty retailers looking for new opportunities.

All right. And just, lastly, I wanted to get an update on how discussions are going on your enclosed mall renewals in terms of rent and lease terms that you’re seeing?

Well, it’s obviously very challenging on the enclosed mall front and we’ll continue to be challenging. That’s, quite clear, fashion has been terribly impacted and, it’s going to take some time.

So we’re battling to maintain occupancy levels and rent in the enclosed mall world. Fortunately, a very small part of our business.

Right? Yes.

Okay. Thanks.

I’ll turn it back.

Thank you.

Thank you.

Well, thank you, Operator.