Plaza Retail REIT

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00:43 Thank you, operator. Good morning, everyone, and thank you for joining us on our Q3 twenty twenty one results conference call.

Before we begin today, we are legally obliged to advise you that in talking about our financial and operating performance, and in responding to questions today, we may make forward looking statements, including statements concerning Plaza’s objectives and strategies to achieve those objectives, as well as statements with respect to our plans, estimates, and intentions, or concerning anticipated future events, results, circumstances, or performance, which are not historical facts. 01:21 These statements are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward looking statements.

Additional information on the risks that could impact our actual results and the expectations and assumptions we applied in making these forward looking statements can be found in Plaza’s most recent annual information form for the year ended December thirty one, twenty twenty, and management's discussion and analysis for the period ended September thirty, twenty twenty one, which are available on our website at www.plaza.ca and on SEDAR at www.sedar.com. 02:05 I will now turn the call over to Michael Zakuta, Plaza’s President and CEO.

Michael?

02:11 Thank you, Kim. We are very pleased with our solid Q3 results.

Our portfolio dominated by essential needs value and convenience retailers continues to deliver solid results. Our operating environment has rebounded to pre-pandemic levels.

We are very optimistic about our future as leasing activity for new developments, redevelopments, and existing centers is strong, especially with essential needs and value retailers, as well as quick service restaurants. 02:40 Year to date, we released over nine hundred and thirty five thousand square feet of space, seven hundred and fifty four thousand square feet of renewals, one hundred and six thousand square feet for new projects, and seventy five thousand square feet for backfilling of vacant space.

02:56 Our current development and redevelopment projects are progressing well. Our development pipeline has grown largely due to new demand from our core retailers and the availability of redevelopment opportunities.

Sales performance for the majority of our tenants is at or above pre-pandemic levels. 03:17 The attrition of weaker retailers and the resulting decrease in occupancy that we experienced in twenty twenty and early twenty twenty one is largely complete as we have moved back occupancy over ninety six percent.

We continue to finance our new projects and refinance our existing properties at historically low long term interest rates. 03:38 We are being opportunistic as we sell non-core assets at robust prices and recycle the sales proceeds into much higher yielding new projects.

Our liquidity is stronger than ever. There is still instability in the market that we expect will be resolved over time, namely construction pricing is volatile and construction material delivery dates remain in flux, requiring us to carry higher than typical contingencies.

04:08 Our retailers are challenged by staffing issues and product delivery that impact the timing of new store openings. There remains some travel hesitancy, which is delaying retailer site visits therefore affecting the timing of some new deals.

04:24 The market for essential needs assets is very tight. There's strong demand for this asset tight and prices are very high.

We benefit from the ability to source and develop or redevelop essential need assets. In public markets, this makes us a rare species.

Investors want to acquire and own essential needs assets, but very few can create this product. 04:49 The only way to make superior returns is to create your product.

Plaza has consistently demonstrated its ability to do so as we develop or redevelop high quality essential needs assets across Atlantic Canada, Quebec, and Ontario. We are very excited about the future of our business of developing, redeveloping, and owning open air retail in primary and strong secondary markets.

05:14 Our solid portfolio and growing pipeline supported by our entrepreneurial, value-add business strategy will continue to generate solid results and future growth. 05:24 I will now turn the call over to Jim Drake, Plaza’s, CFO.

Jim?

05:29 Thank you, Michael. Our operating environment has continued to improve and although the pandemic may not be completely behind us yet, as Michael mentioned, we are effectively operating at pre-pandemic levels.

Our rent collections remain one of the highest in the retail industry, had over ninety nine percent in Q3 and October to date. 05:51 During the quarter, they were only nominal deferrals granted, and we took a small eighty thousand dollars bad debt provision.

Same asset NOI is up three point five percent for the quarter and two point one percent year to date. 06:06 Excluding the impact of lease buyout, bad debt, and pandemic related provisions, same asset NOI for the quarter would have been consistent with last year.

FFO and AFFO per unit for the quarter, which benefited from growth from same assets and developments, lower admin expenses and finance costs were zero point one one dollars and zero point zero nine two dollars respectively, up twenty one percent and fourteen percent over last year. 06:35 Year to date, excluding the impact of lease buyouts, bad debt, and pandemic related provisions, FFO and AFFO per unit were up eight percent and one percent respectively over last year.

And our payout ratios have improved significantly as well with year to date at sixty four percent of FFO and seventy four percent of AFFO. 06:58 Our liquidity at quarter-end totaled fifty seven million, including cash operating line and unused development and construction financing facilities.

We are exiting the pandemic with liquidity stronger than ever. 07:13 For long term debt, we placed forty one million of mortgages year to date at a weighted average interest rate of two point seven five percent and we continue to place debt at very attractive rates.

07:26 At September thirty, we had sixteen million of long-term mortgages rolling for the remainder of the year and subsequent to quarter-end, we refinanced fourteen million of those mortgages with the final two million underway. 07:41 Under our development program, during the quarter, we advanced a number of our projects and started construction on a few redevelopments in Ontario, and are also actively pursuing numerous other opportunities across our geography.

07:56 On asset sales, we sold a few QSR’s during the quarter, bringing our net proceeds year to date to thirteen million. We are seeing very strong demand for our small non-core assets at very attractive pricing.

08:11 Our capital recycling program remains a very efficient source of equity, allowing us to reinvest the proceeds in new projects, which are generally grocery-anchored strips at very healthy spreads over the hurdle rates on sales. 08:26 Finally, on fair value, we recorded a sixteen million dollar gain on investment properties during the quarter as a result of cap rate compression and appraisals obtained.

Our weighted average cap rate is now six point nine nine percent, which we believe remains conservative. 08:44 As retail cap rates continue to stabilize, we anticipate further fair value appreciation going forward.

Those are the key points relating to our results for the quarter. 08:54 So, now we’ll open the lines for any questions.

Operator?

09:37 Hi. Good afternoon.

09:39 Good afternoon.

09:40 Just a quick question from me, well, it's actually a two-pronged question. So, regarding acquisitions, it looks like some of your peers might further dispose a retail assets, could this translate into acquisition opportunities for Plaza?

And I was wondering if you can comment on any opportunities for you guys in regards to potential non-core retail assets that could come to the market subsequent to the commoner deal from one of the acquirers?

10:07 Okay. For the first part of the question, I believe that there are opportunities for us to acquire certain assets that are part of some of the disposal campaigns of larger, either REITs or institutions.

So, yes, we're on that. 10:30 You have to understand that we're more focused on value add opportunities.

So, if it's finished product, we don't spend any time on it. That's not what we do.

So, if there's some vacancy and some other challenges or some opportunities to redevelop or add value, that's obvious of interest to us. 10:50 I don't see any opportunities in the Cominar REIT portfolio.

There are some assets that will probably be sold, but I think some of the acquirers will look to do their own value add. I don't think, we looked at it carefully, and I don't think that there are opportunities for us.

That's our conclusion to date, but I guess we'll wait and see how that transaction unfolds before seeing anything definitive.

11:21 That's great. Thank you so much.

That’s it for me. I’ll turn it back.

Thanks.

11:59 Hi. Good afternoon.

12:00 Hi, Jenny.

12:01 Hi Jenny. Congrats on a strong quarter.

I just have some quick questions on the capital structures, you got a couple of small mortgage bonds coming due shortly. And I'm just wondering if there's any view of just refinancing them with lower cost secured data of if there's a specific reason why these pieces are structured as such?

12:28 I’ll let Jim answer that. Yeah.

12:30 Thank you, Michael. We've used those mortgage bonds in the past because although the coupon may be slightly higher, the transaction costs are nominal.

So, the hauling cost for us is very similar to secured debt. 12:45 We will do something on those bonds that are coming up early next year.

Whether we roll them or refinance them, hopefully at a slightly lower rate, but again, the all-in cost for us as [more expenses] [ph] is very similar to secure debt.

13:02 Can you maybe expand on that just because I think the delta looks on the surface to be quite wide. So, what am I missing in terms of understanding how that squares up?

13:13 We did the mortgage bonds interest only. So, there's no principal paydown.

So, from a cash flow perspective, the confidence is actually lower than secured debt. And on closing costs, we're generally placing these ourselves.

13:25 So, we have next to nothing for closing costs versus a conventional secured mortgage, we’re spending a little bit of money on legal, fees, the lender, etcetera.

13:35 Okay. Okay.

Got you.

13:36 And Jenny, there's like a mass component in the mortgage bonds because we put them, we can deploy them in ninety percent of cost. I think Jim, correct me if I'm wrong.

And so there's a mezzanine component there. So, it's replacing equity for some redevelopment projects and then when the project is finished obviously, we're typically able to then finance at market value and then recycle that money.

So, recycle that mezzanine piece.

14:07 Okay, okay. That makes a lot more sense now.

That's definitely helpful. And then maybe Jim, can you comment on what indicated mortgage rates you’re seeing in the market as of late?

I mean, it sounds like the two seventy five that you've got, your data is quite attractive, but have you seen that move quite a bit already recently?

14:26 It's moved a bit with bond yields obviously. We generally prefer longer-term, always with a view of staggering our debt maturities and matching lease terms whenever possible.

So, we'll generally on the side of longer term. 14:43 We're seeing rates in low to mid possibly high threes depending on the product and depending on how long we go?

14:51 Low mid to high threes, okay. Great.

That's all for me. Thanks for that.

14:58 Thanks, Jenny.

15:18 Well, thank you for joining us this afternoon and thank you, operator.