Plaza Retail REIT

Thank you, operator. Good morning, everyone, and thank you for joining us on our Q4 2024 results conference call.

Before we begin today, we are obliged to advise you that in talking about our financial and operating performance and in responding to questions, we may make forward-looking statements, including statements concerning Plaza's objectives and strategies to achieve them, as well as statements with respect to our plans, estimates and intentions or concerning anticipated future events, results, circumstances or performance that are not historical facts. 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 31, 2023 and management's discussion and analysis for the fourth quarter ended December 31, 2024 which are available on our website at www.plaza.ca and on SEDAR+ at www.sedarplus.ca. We will also refer to non-GAAP financial measures widely used in the Canadian real estate industry, including FFO, AFFO, EBITDA, adjusted EBITDA, NOI and same-asset NOI.

Plaza believes these financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the trust. These financial measures do not have any standardized definitions prescribed by IFRS and may not be comparable to similar titled measures reported by other real estate investment trusts or entities.

They should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. For definitions of these financial measures and where to find reconciliations thereof, please refer to Part 7 of our MD&A for the fourth quarter ended December 31, 2024, under the heading Explanation of non-GAAP measures.

With this, I will now turn the call over to Jason Parravano, Plaza's President and CEO. Jason?

Thank you, Kim. Good morning.

We appreciate you joining today as we review our financial performance and some other key metrics and achievements for the fourth quarter of 2024. Our 2024 results reflect record same-asset NOI growth, lease renewal spreads and excellent occupancy rates.

As we reflect on the past year, I'm proud to share the significant strides we have made at Plaza during 2024. Despite the challenges presented by the evolving economic landscape, our commitment to excellence and strategic growth has positioned us for continued success.

Our portfolio, which is comprised of 8.8 million square feet of retail space has demonstrated its resilience and attractiveness this past year. In 2024, we focused on positioning the business for operational excellence, enhancing our portfolio through the completion of a few development projects and the sale of noncore properties.

Our efforts have not only increased our per unit FFO, net of onetime impacts, but also improved the quality and resilience of our properties. We have successfully expanded our footprint in markets we know very well, ensuring that we remain at the forefront of the retail real estate sector in Eastern Canada.

As mentioned, our occupancy rate has achieved record levels and leasing spreads continue to move in the right direction, averaging 7.4% for the average rate over the real term. Excluding the renewal of a theater tenant at a lower base rent, but with the addition of percentage rent, the renewal spread for open-air centers would have been 11.8% using the average rent in the renewal term.

Tenant demand continues to be a driver in our success and the geographic positioning of our asset mix is an advantage. Over the course of the year, our team worked diligently towards the renewal and new leasing of over 1 million square feet of space.

This is a clear demonstration that retail fundamentals in Canada remain strong. It is a testament to our great properties and our team's hard work.

In addition, barriers to entry for retail real estate remain high. As such, we've been able to continually capitalize on this lack of supply with very healthy leasing spreads.

Intensification opportunities have begun to materialize as retailers are coming face-to-face with supply issues. We are in the early days of assessing the benefit from said intensification, but nonetheless, the demand remains promising.

These intensification opportunities include additional development square footage on excess land for which we never attributed any value. Additional opportunities, including converting certain mothball space to GLA as well as other repositioning opportunities within the portfolio also exist.

For the quarter and year-to-date, our same-asset NOI was 4.8% and 3.4%, respectively, which is a direct result of certain asset repositioning and strong leasing spreads. Our 2024 capital recycling program was successful, and it achieved its overall goal to increase the average size of our properties, reduce the average age of our assets and improve the overall quality of the portfolio.

Nondiscretionary retailers are aggressive in seeking new opportunities, where they're opening net new locations or expanding into bigger spaces when available. We launched prior to the end of the year the construction of a new development in the City of Welland, Ontario, anchored by a 35,000 square foot grocery tenant, along with many other of our usual customers.

This project is a great example of our team being able to identify a market which is undersupplied, assemble and entitle land and deliver space to our tenants. When finished, the project will have approximately 100,000 square feet of retail space, and Plaza will retain a 50% interest in the project.

As Plaza's focus has always been retail, we know it very well. We remain focused on being a best-in-class owner and operator of retail properties.

We are the only REIT on the TSX offering investors with access to a pure-play essential needs, value and convenience retail. I will now turn the call over to Jim Drake, our CFO.

Thank you, Jason. Good morning, everyone.

I will expand on a few of Jason's comments and highlight our results. First, for operating results, total NOI for the quarter was up 8.5% over last year with NOI for the year up 6.6%.

Contributing to this growth was recently completed developments and repositioning as well as the same-asset NOI growth that Jason mentioned. During the quarter, we incurred $2.6 million of reorganization costs for severances and write-offs of potential development projects that will not be pursued.

Excluding these costs, FFO per unit for the quarter would have been almost 11% higher than last year, and AFFO would have been 31% higher. On an annual basis, also excluding those reorganization costs, FFO per unit would have been 2% higher versus last year.

AFFO per unit, 6% higher than last year. On the balance sheet, our debt-to-assets ratio is down 30 bps versus last year at 50.6%, excluding land leases.

Net debt to EBITDA, excluding the reorg costs and land leases was 8x down 60 bps versus last year. We maintain a balanced mortgage maturity ladder with $41 million of fixed rate mortgages rolling in 2025 at a weighted average rate of 4% and overall loan-to-value of 49%.

Although Government of Canada bond yields has been a bit volatile lately, we are still seeing strong interest in our mortgage offerings with competitive spreads of 180 to 200 bps over bonds. As Jason mentioned, we have also been active under our capital recycling program with non-core asset sales during the year at a weighted average cap rate of approximately 6%.

That capital recycling and our mortgage refinancing program have enhanced liquidity. We now have $69 million of liquidity available from cash, operating line, development and construction facilities, as well as $7 million of unencumbered assets.

Finally, for the fair value of our investment properties, we took a $1.8 million write-up during the quarter as a result of updated appraisals, bringing the year-to-date write-down to $10.4 million. Our weighted average cap rate is now at 6.87%.

Those are the key points relating to the quarter and year. We will now open the lines for any questions.

Operator?

Thanks. Good morning and congrats on a nice finish to the year here.

Just on the cost savings you expect in G&A from the restructuring, I believe it was a $1.2 million actually hit G&A. Is that expected to occur on a uniform base, i.e., kind of like $300,000 a quarter over 2025?

Hey, Lorne, it's Jim. Yes, that's correct.

Okay. That was easy enough.

And then just turning to the same property NOI side, obviously, a nice finish to the year there. What do you guys think you can do for 2025?

Hey, Lorne. It's Jason here.

Go ahead, Jason.

No go ahead.

We've -- we think we can probably maintain a similar result for 2025. '24 was a great year for same-asset NOI growth.

We might be plus or minus a little bit off of 2024's numbers, but we think we're going to have some incredible same-asset NOI growth in '25 as well based on demand that we're seeing and the leasing spreads that we anticipate.

Hey, Lorne I just to add -- sorry, Lorne, just to add to Jim's point. Through the addition of some of the intensification opportunity within the portfolio on the back end of 2025, those should start to turn into some cash NOI, start to deliver on some of those projects as well.

But also don't forget, 2024, we did have, call it, close to 1 million square feet of renewals, which allowed us to take advantage of those leasing spreads. While 2025 still is a big year, it's below the 1 million square foot mark.

Okay. And then any thoughts on it, like the -- I think a good chunk of the enclosed mall portfolio rules?

I know it's not a huge chunk of the overall portfolio, but would that have any impact on the same top NOI outlook or not material?

So the NOI from our enclosed malls is approximately 3% of the total NOI and the spreads, I think, will probably be similar to the prior year. And hopefully, through some, again, some optimization and leasing of vacant space, we can take advantage of the incremental NOI for some of the properties.

Okay. That's all for me.

Thank you very much.

Thank you, Lorne.

Thank you.

Thank you, and good morning. Just given the recent restructuring, we were wondering if there is any strips in the strategy moving forward.

Good morning, Zach. So I guess our message, I think, prior quarter still holds true.

So we've shifted away from the greenfield development projects, and again, we really want to focus on optimizing, intensifying the existing portfolio. So as such, like all businesses do, you got to look at the staff you have and the resources you have available and pair those resources with the work required.

So that's the result of our restructuring program that we completed in Q4, and we believe we have the resources needed to achieve our strategy of optimizing the current portfolio going forward with the resources we have available now.

Thank you. That's excellent color.

Thanks and good morning. So, Jason, just in regards to cap allocation of latest and more asset sales funding development.

Can you just maybe expand a little more on what would push you to sell more assets over the next year? Is this something you're really working on?

And does it connect at all to how much you would anticipate spending on new development?

So I think our capital recycling program of '25, we're in the process of finalizing it. We have commenced some listings.

I don't think it will be material in the sense of the word, it won't be hundreds of millions of dollars, but a few tens of millions of dollars looking to fund some intensification or additional property or partnership buyouts. So as you may have seen earlier in January, we purchased a 50% interest in a property that we previously owned only 50% of.

So we consolidated our ownership position there that required approximately $6 million of equity to complete. So the goal of our capital recycling program, whether it's $20 million or close to $20 million or $30 million, will be to fund those additional opportunities to take out or consolidate our ownership positions.

While I do believe that on the intensification side, so building or expanding existing properties, the shift from greenfield development to focus on intensification is done because we have value that can be unlocked within the existing portfolio and value creation that will allow us to fund those intensifications through additional debt with no required equity for very little required equity.

Okay. Great.

Thanks so much.

You're welcome.

Thank you all for joining us today and for your continued support and trust. We're proud of the progress we've made and excited for the opportunities that 2025 have to offer.

We remain committed to creating long-term value for our unitholders, our tenants, and the communities they serve. We appreciate your time and look forward to the journey ahead.

Take care. We'll talk soon.

Thank you.