Primaris Real Estate Investment Trust

Thank you, Nadia. During this call, management of Primaris REIT may make statements containing forward-looking information within the meaning of applicable securities legislation.

Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Primaris REIT's control. That could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information.

Additional information about these assumptions, risks and uncertainties are contained in Primaris REIT's filings with securities regulators. These filings are also available on Primaris REIT's website at www.primarisreit.com.

I'll now turn the call over to Alex Avery, Primaris REIT, Chief Executive Officer.

Good morning. Thanks, Claire, and thanks for joining the Primaris REIT fourth quarter 2023 conference call.

Here with me today are Patrick Sullivan, President and Chief Operating Officer; Rags Davloor, Chief Financial Officer; Leslie Buist, Senior Vice President Finance; Morde Bobrowsky, Senior Vice President at Legal; Graham Procter, Senior Vice President Asset Management; and Claire Mahaney, VP Investor Relations and ESG. As is evident in our results, our business continues to deliver very attractive growth.

We've been driving strong same property NOI growth across our portfolio through raising occupancy to stabilize levels and converting leases back to standard terms. The scale of this opportunity continues to be very large, and we expect it to drive above average same property NOI growth over the next few years and potentially longer as we find further opportunities in the portfolio and acquire new properties where we believe we can surface growth.

Turning to capital investment, capital allocation and capital recycling, we continue to be highly active pursuing acquisitions and dispositions, following our $400 million unsecured bond offering in November, and the upsizing of our undrawn $600 million unsecured credit facility. We have robust liquidity and are finding lots of attractive opportunities.

We have capacity for more than $1.5 billion of acquisitions and require no financing conditions in our deals. The direct property market transaction activity has picked up in our property type as confidence in enclosed shopping centers continues to build.

Recently, we've begun to see the bid ask spread on enclosed malls narrow as more transactions have begun to take place. In fact, we saw 11 Canadian enclosed shopping center transactions in 2023 totaling $2 billion of volume, of which only two involved prime REIT.

Buyers are both institutional and private investors with asset transactions occurring in both major and mid-size markets. These transactions give us further confidence in our IFRS cap rates and the valuations at which we are transacting on acquisitions and dispositions.

I'll now turn the call over to Pat to discuss operating and leasing results, followed by Rags who will discuss our financial results.

Thank you, Alex, and good morning. In November, we closed on the acquisition of the Halifax Shopping Center Complex.

This property exemplifies the quality and market leading nature of the types of acquisitions primes is pursuing. The center is extremely well located in central Halifax, adjacent to Halifax Transits Mumford Turnable, and at the gateway to the Halifax Peninsula with a market leading position in one of Canada's fastest growing mid-size population centers.

With very strong sales performance, this acquisition enhances the REITs portfolio value proposition with retailers, and offers significant income growth opportunity consistent with the growth we see ahead for existing assets. Opportunities for this property include the reduction of the 20,000 square feet of vacancy and replacement of short-term temporary tendencies with long-term tenants in the mall and continue the Phase 1 master planning application process for approximately 1800 residential units on excess lands at the annex.

The $54 million redevelopment of the former Sears space at Halifax was substantially completed prior to our acquisition. The redevelopment includes a 56,000 square foot Simons, a 38,000 square foot Winners, 13,000 square foot Dollarama, and a 15,000 square foot PetSmart, all of which are expected to open by the end of March.

This is our eighth property acquisition in the last two years, including the hoop properties. The integration of these assets into our platform has been smooth as we are also acquiring the local site teams, who have a lot of tenure and history at the properties and are able to adapt quickly to the primaries platform.

As a result of the successful execution of our strategy of acquiring leading shopping centers in high growth mid-size Canadian markets, including acquiring two of Canada's top 15 most productive malls. We are now the largest owner and manager of enclosed Shopping Centers in Canada, measured by mall count.

The growth in our platform, natural footprint and asset quality has increased our relevance with retailers and allowed us to build relationships with tenants new to our portfolio. We are having a very productive conversations as retailers look to service, Canadian consumer and gain access to our markets.

Our NOI growth outperformance in the fourth quarter is supported by both the strong fundamentals we're experiencing, low supply, rising sales population growth, and increasing tenant demand for quality space as well as our national full service platform and team. Specifically, growth is coming from a number of sources including rising occupancy, re-merchandising a former anchor premises, increasing sales following non recovery …in sales, falling nonrecoverable expenses and improving recovery ratios.

As a result same property cash NOI was up 5.7% for the quarter and 5.4% for the year. In 2023 portfolio in place occupancy rose to 92.4% and we have good visibility to reach stabilized occupancy above 95% over the next few years.

During the year, occupancy was impacted by the pending demolition of the 185,000 square foot former Sears space at Devonshire Mall in Windsor, Ontario, which has been removed from our available space and portfolio denominator. Excluding the remeasure of GLA in place occupancy would've been 91% at the end of 2023.

We are disclosing a few important nude operating metrics. We have begun reporting long-term occupancy, which stood at 89% and which includes only tenants with standard lease forms with term exceeding one year.

We're also introducing short term occupancy of 3.4%, which includes tenant leases of less than one year and specialty leasing. As you will note, the sum of these two numbers is our in place occupancy.

By providing more transparency around occupancy, we believe it will give the investment community better information to understand our unique business as the only enclosed shopping center REIT in Canada. Same property, same store sales productivity is at an all-time high of $624 per square foot and including Conestoga and Halifax productivity it rises to $672 per square foot.

We are starting to see sales for some tenants stabilize year over year although tenant sales continue to be very strong and our lease negotiations with tenants on new leases and renewals are very robust. Overall renewal rents have increased 1.5% over previous in-place rents during the quarter and 4.6% for the full year.

With tenant sales having risen considerably over the past 24 months and growing occupancy, we anticipate continued positive momentum in rental growth. During the quarter, we signed 30 new deals, which helped drive our committed occupancy up 1.9% or approximately 230,000 square feet to 94.2%.

We anticipate a portion of the committed space to open over the next, over the course of the next 12 months, including over 100,000 square feet at Halifax Shopping Center. Not captured by our renewal leasing spreads is conversion of leases with preferred rental terms such as percentage rent and lieu of base rent back to net leases.

The implication being there are additional rental gains beyond those that are captured by the traditional net to net leasing spread analysis and are leasing spreads understate the growth we are experiencing. At year end, approximately 11% of our tenant base was on preferred rental structures compared to 12% in Q3 and 15% at the beginning of 2023.

With a number of other leases completed and commencing later in the year this figure will continue to decline during the balance of the year, which will have a significant positive impact on our NOI for 2024 and beyond. In 2024, we have 1.4 million square feet maturing of which over 1 million square feet of that is CRU.

These leases, on average are expiring at rents below our CRU weighted average net rent, creating opportunity for future strong leasing spreads. Our leasing team is well advanced in discussions with tenants occupying more than 50% of the GLA due to expire in 2024.

And with that, I'll turn the call over to Rags to discuss our financial results.

Thanks Pat, and good morning, everyone. Strategically, we continue to focus on our differentiated financial model represented by low leverage, low payout ratio, and significant free cash flow, which we believe is a major strategic advantage for Primaris REIT.

--- for primary suite. Keeping in line with best practice and transparency and reflecting strong results to date and the strength of our business.

We are reiterating our 2024 guidance and have added cash NOI for the year of $263 million to $268 million. For the details of our 2024 guidance can be found in section four of the MD&A titled Current Business Environment and Outlook.

With regards to dispositions, we are currently targeting approximately a 100 million and are in advanced discussion more than half of this asset pool. We added a new disclosure during the quarter including breaking out CRU in large format, in place occupancy and long term occupancy and short term in place occupancy, which Pat has already discussed.

In December, we published our inaugural annual ESG report providing relevant and important disclosures that address our key ESG factors and strategy, enabling our financial stakeholders to assess our progress strategy and impact. Our operating and financial results for the quarter and year end remain very strong.

Tenant health is strong across our portfolio and now many operating metrics are continuing to improve capturing growth. FFO per diluted unit for the quarter and year end was $40.20 and a $1.59 respectively.

AFFO per diluted unit for the quarter near end was $24.09 and a $1.13 respectively. We had a couple of onetime items impacting FFO and AFFO including a $0.02 one-time charge relating to the sublease of our office space on Wellington Street.

We will realize $750,000 in annual -G&A savings beginning in 2024 as a result of the sublet deal. Secondly, there was a $0.01 impact from upsizing the credit facility relating to amortized fees in connection with the previous facility.

Note that these items have skewed the normal seasonality, investors should expect in our Q4 results, though neither impacted NOI, which more accurately demonstrates the seasonality. The unsecured syndicated revolving term facility was upsized to 600 million from 400 million, significantly increasing liquidity.

We're in the process of refinancing two joint venture assets and expect to have cash on hand of in excess of a 100 million by quarter. Our exposure to floating rate debt is zero.

During the quarter, we incurred an unfavorable fair value adjustment of approximately 36 million, primarily driven by Duffin Grove. Given the wide bid as spread on development land, we thought it was prudent to have Duffin Grove externally appraised and took a $33 million impairment.

Despite the write down, there's tremendous amount of value at this property, which will continue to hold until the timing is right to monetize. Unsecured debt now comprises 80% of our total debt with unencumbered assets of 3.4 billion, $150 million mortgage maturing in 2024 and full availability of our $600 million operating line and significant cash on hand.

We are well positioned with reduced refinancing risk and access to ample liquidity. Primaris has been in the market to continuously repurchasing units since March 9th, 2022 under the MCIB.

As of yesterday, we have purchased for cancellation 8.5 million units at an average value per unit of approximately 13.82 or an approximate 35.8% discount to NAV. This program is very accretive to Unitholders given the current discount to our NAV of 2154.

Maintaining a conservative financial model in generating free cash flow after distributions and CapEx is a core focus tool we will not – With that, I'll turn the call back to Alex.

Thanks Regs. As Rags mentioned, our differentiated financial model has allowed us to continue to execute on our corporate strategy, delivering significant growth in value for our unit holders.

This growth in value can be seen as follows. Firstly, the NAV of a Primaris’ unit of 2154 has remained very stable over the first eight quarters since Primaris' spinoff transaction with each of the quarters remaining within 3% of the starting value of $22.11 per unit at December 31st, 2021.

So if this NAV is so stable, where's the growth that I just referenced? Our remarkably stable NAV per unit masks two significant dynamics.

The first is the sharp increase in interest rates over the past two years and associated downward pressure on property values that results from upward pressure on capitalization rates. And the second is the REITs value creation activities spanning stabilization of property operating and financial performance as well as the impact of the REITs differentiated financial model of low leverage and a low payout ratio.

The valuation metrics used in valuing our portfolio, discount rates, terminal cap rates, and going in cap rates have all moved substantially over the past eight quarters based on market pricing provided by independent third party appraisals and moved significantly more than those reported by our peers. Over the first eight quarters of reporting, the discount rate employed in the REITs AV rose 71 basis points, which is equal to an approximate $400 million reduction in portfolio value holding all other factors unchanged.

This substantial negative impact was almost completely offset in the NAV per unit by the REITs value creation activities. Strong same property cash NOI growth, retained free cash flow and unit repurchases.

Looking at the next few years, we believe that the headwinds of rising interest rates and valuation metrics are likely behind us, while the tailwinds of value creation continue to offer significant growth for Primaris unit holders. As a result, we expect to see NAV per unit grow over the next few years driven by internal growth reinvestment of excess free cash flow and stable valuation metrics.

Secondly, similar to the NAV per unit, the REITs stable FFO per unit in 2023 compared to 2022 masks the underlying dynamics of rising interest rates and strong internal growth. Between 2022 and 2023, higher interest expense reduced FFO per unit by approximately $0.12 per unit.

Having delivered $1.58 per unit in 2022 and $1.59 in 2023. The modest 0.5% growth per unit would have been a 5.5% increase in FFO per unit reaching $1.71 in 2023, excluding the impact of higher interest expenses.

There is a silver lining to having seen otherwise strong FFO per unit growth offset by a sharp increase in interest expense. Silver lining is Primaris' weighted average interest rate of 5.1%, the highest amongst our peers by a wide margin regardless of the path of interest rates in the near future, the impact of refinancing on FFO will be either less negative or more positive for primes than for our peers during refinancings over the next few years, this will have the effect of further elevating the REITs FFO per unit growth, otherwise driven by same property, NOI growth, rising occupancy, and retained free cash flow this quarter.

We added or expanded disclosure around the positive impact our unit repurchases have had on both NAV per unit and FFO per unit. I won't get into it now, but it's worth exploring and it's a tool that we can use on an ongoing basis because of our low leverage and low payout ratio.

To conclude, we spend a lot of time talking about the differentiated financial model because of the very significant advantages it offers to our unit holders, including superior FFO and NAD per unit growth, as well as the financial flexibility to execute on the REITs corporate strategy to grow the scale and quality of our business. We'd now be pleased to answer any questions from the call participants.

Operator, please open the line for questions.

Alex, on the -- you mentioned the $1.5 billion of acquisition capacity, but given where leverage is, would it be fair to assume that you guys would need to undertake some dispositions before adding some more malls to portfolio?

It's a multifactor discussion. We have a lot of liquidity but you're right.

We are very mindful of our leverage and a big factor in the financial capacity or the acquisition capacity that we have is the deal structure. The last two deals included a significant vendor take back equity component.

And so, we've positioned ourselves to be in the most opportune spot that we can to do more of these transactions by ensuring that we have the undrawn credit facility, cash balances and capacity to execute on that front without financing conditions. That you're right dispositions are a priority for us and we're moving on that front.

I think about $90 million of assets held for sale at Q4. And it's quite conceivable that over the course of 2024, there could be further assets moved into that bucket.

And then maybe just as my follow-up for the assets you are targeting for disposition, what does the buyer profile look like, Pat?

I think, the target, the assets we're targeting for sale right now are really our non-core assets. And so I think you're looking at more a lot of private buyers versus institutional,

That seems to be the general trend that we've been seeing lately.

Well, I guess sticking with the acquisition theme and the reference to the mall trades that happened last year, specifically with the nine malls that did not involve the REIT. I guess I'm just curious to get a REIT through on those transactions as it relates to primaries in terms of any REIT through on valuation or the type of malls or the buyer profiles that would've been participating in those deals.

Just curious to -- I guess, to get a little bit more color on how that could be a good read through for Primaris or not. Thank you.

Thanks, Brad. It's a pretty diverse bucket of transactions.

We've seen some transactions where you had buyers that wanted to keep a mall as a mall. High performing malls, the transaction at Vaughan Mills would be a good example, a very strong mall, I guess, good pricing.

And I think that's one end of the spectrum. At the other end of the spectrum, you've got smaller malls, some that are the second or third mall in their market where the buyer had more of a residential redevelopment or sort of mixed use vision for the property.

From Vaughan Mills all the way down to some of the smaller secondary markets quite a cross section of buyers. In the case of Vaughan Mills, it was a Asian capital partner and JLL who were the buyer there.

And then all the way down to some small private syndicators at the other end of the spectrum. It's a full cross section from sort of sovereign wealth funds all the way down to private syndicators, all of the pricing that we've seen.

We spend a decent amount of time making sure that we're comfortable with our valuations with our third party appraisers. All of the transactions that we're concluded in 2023, our transactions that are included in the the background for the appraisals that we get on our portfolio.

So they are all supportive of where our IFRS and NAV is today.

And from the SaaS perspective, I guess it's going to be a mix too of, I guess, rebalancing considerations, but also maybe selling non-core assets that have maybe a different use to the buyer.

I'm sorry, I didn't quite understand the question.

I guess I'm just trying to understand the motivation from the sellers perspective would be I guess in line with some of your previous discussion points in terms of it being rebalancing discussions of real estate holdings and maybe I guess, just what would there be any other driving forces on the seller's behalf?

Yes, it's a good point and there are been some developments on that front I would say. Previously, we've highlighted that some of the vendors are looking to rebalance their portfolios, 10 years ago, 15 years ago most pension funds didn't own a lot of multi-residential, data centers and cell towers and life sciences office weren't really big property type categories are deeply investible, and that's changed over the last decade.

And so there's a definitely an appetite from institutional investors to increase industrial multi-residential cell towers, data centers, et cetera. The other thing that's been quite interesting is that large institutions have asset allocation committees and the committees are generally consistent with the mandate that the pension funds have, which is a long-term mandate.

They look to balance their portfolios of various different investment categories, and try to be relatively consistent over time. But when you have something like what we've had in the last 24 months in terms of a material change, in the interest rate environment, the inflation environment asset pricing, you do tend to see a little bit more activity from asset allocation committees.

I can't point to any committee in particular, but I would say the dialogue that we have with a lot of these groups suggests that there's more activity in terms of rebalancing asset class weightings. Bond values have come down as interest rates have gone up.

Equity, depending on what part of the equity market you're either down or materially up if you're in the magnificent seven. But there has been a lot of movement there and I think that's part of the driver.

Just wanted to get into the property performance a bit. Notice the NOI was pretty healthy from the acquisitions.

And at the same time you mentioned there was a number of tenants opening up early in 2024. So is the NOI from Halifax going to be growing as those tenants open up, or was the sort of 30 days that we saw in Q4 a pretty good run rate for Halifax.

The NOI from Halifax is going to benefit in 2024 from the tenants opening in the former Sears premises. There's about a hundred thousand square feet of tenancy that's due to open towards the end of March.

In addition, there's some other tenants due to open, but there's a significant driver from that event alone. I was just going to say, as you know, 30 days is a pretty small sample.

So, annualizing 30 days is fraught with a little bit of risk, but we're very pleased with the performance of the assets so far.

Are you not advising that we do that annualizing?

We're generally cautious in providing guidance. Recall that December has the high sales with percent rent.

They just got to be a little bit, but there is a big offset because of the tenant opening. So when you annualize it, just recognize that you are dealing with December.

And last question for me, just on the guidance, does include some occupancy gain targets. Is that in place or committed?

And how does that sort of metric stack in terms of your priorities amongst the various metrics that are included in your guidance?

We do have a fair amount of committed space that's due to come on this year, including what I've mentioned previous, the space at Halifax. We expect to do a lot more leasing this year.

There's a lot of leasing in the queue, some of which will actually open in 2024 as well that we haven't captured in any of our stats right now. And some of it will open into 2025, but, we're very confident that our occupancy targets what we laid out are going to be met.

And, you know, your question is just in place a committee? It would be both would be looking for the 80 to a 100 basis points uptick.

Hey, thanks. Good morning, everyone.

So my question is, outside of your tenant discussions, are there any leading macroeconomic indicators that you pay attention to that may provide insight on the future occupancy trend of your portfolio? And how sensitive do you think that your portfolio occupancy is to a hard landing?

We really pay a lot of attention to our sales reports and what goes on with the, at the overall level of the mall. But we really drilled down tenant by tenant.

I mean, the reality is, a lot of the tenants have had a really good run, but everyone's had different kind of sales growth since the pandemic ended. There's been some that really did well right out of the pandemic.

And there's some that have lagged. For instance, our food courts took the longest to rebound, and that was driven, that was partly due to our traffic levels, and the dwell time in the malls being one of the last things to return back to normal.

And that happened about six to to 10 months ago. So that's the primary driver in terms of what happens, you know, if there's, if there's a hard landing in the economy.

Our malls are much more diversified than they ever were before. We have a lot more necessity based users.

We're a lot less exposed to fashion. And the fashion users we have are generally very solid in terms of their financial covenant.

And we have a lot of long-term leases in place. Retailers rarely look at these events in the short term.

They look at, they build out their stores, with a lot of capital and they look at things over the long term. So our sales reports right now are still showing strength amongst our retailers and their sales level are generally higher than they've been at any point in the last five years.

Okay. Makes sense.

Thanks. And my other question is, so we realized that you removed the 25% to 35% debt to asset target for ‘24.

Is there a specific reason why you stopped disclosing it?

Yeah, there is and it's because that's not really the way that we look at leverage. We're very focused on debt to EBITDA and one of the challenges with loan to value is that it's a function of value.

And what we try to consistently do is avoid creating conflicts of interest. And for the same reason, we don't include loan to value or NAV per unit in our compensation performance metrics, because if you do your incentivizing bias in your IFRS fair values, and that's something that we don't want.

So we're going to continue to report loan to value, but we just don't emphasize it because we're trying to avoid, you know, undue influence on our IFRS NAV. We want it to be meaningful and for it to be meaningful, it needs to be accurate, dynamic, and objective.

Just a quick question on the NCIB, now you've been very active over the past couple of years, buying back 8.5 million units. Looking forward, how are you balancing future NCIB activity and thinking about it from the perspective of market liquidity for the units themselves?

It's a good question, Gaurav, and it's something that we talk a lot about. If you look at [Seti], you will notice that we ran at about 30,000 units a day for the last four months of 2023.

And when we rolled over into 2024, we had to go into our automatic unit purchase plan during the blackout that started December 31st. And since then we've been buying back at 2,500 units a day.

So a materially reduced volume, and that's not a reflection of any change in our opinion of the value that is available by buying back the units today. It's more a function of our I guess caution from a capital structure perspective.

We did a similar reduction in our NCIB activity ahead of the announcement of the Conestoga transaction. As we're approaching potential transactions, we like to make sure that we've got as much wiggle room as possible from a financing and capital structure perspective.

But to your point about the impact on trading liquidity, the way that we have designed or approached the NCIB is that we're going to execute the NCIB subject to two conditions. One is that we're not changing the capital structure of the business, and so that means that we can only fund NCIB out of excess free cash flow or proceeds from dispositions.

We don't want to be shrinking the business. When we buy back units, we're not actually shrinking the float of the company.

We're buying back relatively few units and the equity base of the business is staying the same, which means that the value of the the float is the same, it's just fewer units. So we're doing it at a snail's pace.

But it isn't shrinking the trading liquidity or the float. It's just increasing the value per unit.

First I just wanted to ask about noting there are some nuances to your leasing spreads disclosure, but would you have a sense of how much of your leases are gross versus on a net rent basis? And of the gross bucket includes leases beyond the 11% on the preferred brand structure.

The 11% actually includes percentage rent in lieu and gross rent as well. That's down from the 15% at the start of last year, but that includes all those variable rent deals.

And then Pat, you noted in your commentary that you have about over a million square feet of CRU space expiring well below market. What would be the approximate spread between in place and market rents currently?

It's about at a macro level we're talking about 10% below market.

10% for the CRU space.

I just wanted to get into some tenant risk. Everyone we're seeing lot sorts of headlines about job losses and whatnot with the sort of still pretty cloudy macro outlook, are you seeing any increase in the size of your list of tenants on the watch list?

Versus last quarter perhaps? Some retailers like the Source and Body Shop have been in the news over the last little while.

Sam, I don't know. We've got a risk list more than a watch list.

I think there's a number of tenants that we -- because we get the sales reported to us, we can see who's becoming, I'll call it less relevant or hasn't rebounded in terms of where their sales are compared to their peers from the pandemic. Body Shop has been on that list and we've been actively trying to reduce or waiting with them.

However, we have had no discussion with them about them wanting to close stores or reduce their rent. I think we're just taking a proactive approach to some tenants.

The source was an interesting deal. They did a license agreement with Best Buy to rebranding a number of stores.

We had some stores in our portfolio that will close as a result, but they were generally due to expire this year, and we had anticipated them closing anyway. So, we're keeping quite a few of the store stores.

They're going to invest a consider amount of capital in those stores. And we're actually renegotiating longer term leases with the stores that are remaining.

And we've managed to get higher rents on those renewals, much higher rents. But overall, our watch list hasn't grown.

We do our variety on the same tenants I would suggest we had our eye on six months ago in terms of reducing our exposure over time.

And Alex, I guess for you, just versus a month or two ago, how confident are you in Primaris announcing another significant mall acquisition?

Sorry, compared to a month or two ago?

Yes.

I would say, there's probably been no real change, as has been the case pretty much since October 27th, 2021. We have a lot of discussions ongoing.

They are in various stages of the process and I'm -- I would say optimistic that we will be able to complete significant acquisitions this year.

We do, I mean Alex is trying to be cautious, but we do have a lot more transactions that we're underwriting. Let me put it that way.

So, where we may have had, call it $500 million to $600 million of assets that we were underwriting three, four months ago. We're well through a billion dollars of assets that we're looking at.

They're all at various stages of underwriting and discussions of possible vendors we are. The level of activity has definitely picked up since the announcement of Halifax.

Just one quick follow-up on the lease expires for ‘24. I think he said in the opening remarks that, I think 50% of the space is under various stages of discussion.

Just wanted to get any thoughts on expectations for these fires this year in terms of retention rate with tenants and leasing spreads? Would it be pretty similar to what the REIT achieved in ‘23?

Thanks.

Right now, our priority is our prioritization is driving NOI higher, and until we get our occupancy much higher, I think we're going to focus on retaining tenants, even if that means that we're going to have a reduced overall renewal rent or a lower overall renewal rent. It was only a handful of tenants that resulted in our renewal rent being as low as it was in this last quarter.

In fact, it was two tenants that brought it down considerably that we just chose to keep, because it was positive for NOI as opposed to driving a statistic that's really not that important at the moment. NOI is the priority.

It's a little bit of a frustration for us internally to try and clearly communicate around leasing spreads and what's happening. And the -- in a few conversations in the last 24 hours we've been discussing one of the ways to look at it is if you take the change in place occupancy or in place occupied space over the last 12 months, and then you layer in the leasing spreads on renewals.

You don't get anywhere near 5.4% same property NOI growth. And that's what isn't being captured in the way that our statistics are reported.

And we've talked about it before, but the leasing spreads are exclusively net lease to net lease spreads. And where we're delivering all of this extra same property, NOI growth is the conversion of pandemic error leases from percentage rent and lue or gross rent, or the greater of, I mean, there's a dozen or more variations on these leases, but they don't get properly captured in our leasing spreads.

So I think in another way to frame your question, how do we expect to be reporting leasing spreads over the next year or two? They will probably continue to be a little bit lumpy up and down mid single digits would be probably the right proximity for them.

But they will continue to structurally under represent the growth that we're seeing in the portfolio. You'll see that in the margin, and you'll see that in the same property NOI growth, which our guidance for 2024 is 3% to 4%.

If things go well, it could reach the high end of that range or possibly beyond.

Maybe just following up on something you discussed it, I asked in regards to converting leases, you've mentioned this a couple of times. He give a little more information on the financial impact of this and how this should impact your numbers and how we should think about this.

It's again, this is part of the frustration that we have. It's very difficult to characterize them, because they are all very different and sometimes you convert a gross lease to a net lease and there's no impact.

Sometimes there's a 100% percent lift. It is idiosyncratic across all of them.

But I think if you wanted to try and characterize it, one way to think about it is in the percentage rent in lie leases, which are the largest component of that 11% that Pat referenced, a lot of those deals were 8% or 10% of sales. And our rock ratio that we target would be 14%.

So 14 on 8 or 10 is the right ballpark to think about the lifts that are possible on these lease conversions.

Where you see markets, where you see the impact or can measure the impact is if you look at the margin, the gross margin, you do see this steady tick up in gross margin on the portfolio. That's how it's sort of coming through.

Don't fully understand, but at least I hear the answer. Maybe just one more.

When you look at buying assets and issuing units to vendors, how do you think about that in terms of increasing liquidity, knowing that most of the time they're not likely to sell for a period of time? Just curious how you think about that and is that something you would like to do more of going forward?

Is it something that you only do in situations where it's the only way to get a deal done?

There's a lot of embedded questions in there. I would say.

We have two separate and distinct objectives. One is to execute on our business plan, which is we characterize it as becoming the first call for retailers.

And that involves acquiring market leading shopping centers, growing the relevance of the Primaris platform to retailers and then separate and distinct from that. I think, we can all acknowledge that trading liquidity at Primaris or in Primaris units is less than what a lot of larger institutions would love before they build a position.

And we would like to see that improve. But we're also very disciplined around what we're willing to do to get that there.

If we're going to do acquisitions, the hurdle for us is that we try to make them FFO neutral and at the same time we want them to be additive to portfolio scale, portfolio quality. At the end of the day, when we execute an acquisition, we want our unit holders, which all of us are included to be better off neutral at worst, but ideally better off from a value and business strategy perspective.

And we do try to anchor to an FFO neutral position. It would be great to have more trading liquidity.

At the end of the day, I think, some of that will resolve if our units trade higher as they trade higher, there's the possibility that some of the vendors who have taken back units will sell those units.

Just a quick follow-up on that line of acquisitions that you're looking to underwrite. Would be fair to say that vendors are now more receptive to the fact that they're looking at cash and stock as a financing mix versus just outright cash in this environment?

Well, when we do these acquisitions, we're not borrowing. So, there is no sort of impact from that perspective.

However, we've been able to -- we draw down on our offline and then we sort of term it out to the unsecured market. So that increase, so those if you look at the research around the unsecured, they do view these acquisitions extremely positive from a leverage perspective as, and they view them as very credit friendly.

So we have seen a significant tightening in our spreads on our unsecured. So today, just to sort of measure the quotes we're getting, if you did sort of a three year unsecured would be 165 to 170 back on a three year deal.

And the mortgage that we're just about to put in place, which is a three year mortgage, is sort of priced at around 155. Now we're sort of getting into the 10 to 15 basis points differential between secured debt and unsecured, which is a huge improvement from where we were a year ago.

That spread differential was around a hundred basis points. So I think lenders do view these more the unsecured lenders view this program from a very positive perspective.

And it definitely helps. And just in case you said vendor, not lender, on the vendor side, the groups that we're dealing with, I think as a general rule are more knowledgeable about what our deal structure looks like in part because of the execution of the Conestoga transaction and the Halifax transaction.

And I think vendors in general are looking for cash when they sell things. So there's a little bit of -- there's a discussion that goes on about what the composition of the consideration is.

And as we're talking through that, we have constraints from a leverage perspective and you know, total pricing. So it's a multi-variable discussion.

But I would say as a general statement, there is greater acceptance of the type of transaction that we're doing, primarily because we've now done two of them. And people see how they work and, you know, understand it a little bit more.

And to contrast that prior to announcing the Conestoga transaction, especially the first calls with some of these groups, we were a little bit out there. It was a little bit hard to explain what we were up to.

But with, you know, the transactions executed, you know, I think there's been, uh, a growing acceptance.

Fantastic. Thank you for the color.

I'll turn it back.

Thank you, Maria. With no further questions we'll close today's call.

On behalf of the Primaris team, we thank you all for participating in today's call and we look forward to speaking with you again on our next call. Thank you.