Plaza Retail REIT

Good morning. I would like to welcome everyone to the Placer Retail REIT third quarter 2025 earnings conference call. At this time, all participants are in lesson-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at the time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to advise everyone that this conference is being recorded. And I'll now turn the conference over to Kim Strange, NASA's General Counsel and Secretary. Ms. Strange, please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us on our Q3 2025 Results Conference Call. Before we begin, we are 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 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 PLASA's most recent annual information form for the year end of December 31st, 2024 and management's discussion and analysis for the third quarter end of September 30th, 2025, which are available on our website at www.plasa.ca. and on Cedar Plus at www.cedarplus.ca. We will also refer to non-GAAP financial measures widely used in the Canadian real estate industry, including FSO, ASFO, EBITDA, Adjusted EBITDA, NOI, and Same Asset NOI. Plazable leaves 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 third quarter ended September 30th, 2025, under the heading explanation of non-GAAP financial measures. I will now turn the call over to Jason Paravano, Plaza's president and CEO. Jason.

Thank you, Kim. Good morning. We appreciate you joining us today as we review our financial performance and key achievements for the third quarter of 2025. Q3 was a milestone quarter for Plaza. delivering our highest quarterly FFO per unit in recent years at 11.1 cents, an 8.8 increase over the same period last year. This performance reflects the strength of our portfolio and the disciplined execution of our strategy, which we have been pursuing for the last year. Our total FFO rose to 12.4 million, up 8.6% year-over-year, driven by higher NOI from same-asset growth, acquisitions, and intensification projects. We stayed on track with strong same property performance with same property NOI increasing 1.7% year-over-year, driven by solid leasing activity and disciplined expense management. Had it not been for bad debt adjustments related to an unforeseen tenant closure, same asset NOI for the nine-month period would have reached 2.3% and 2.7% quarter-over-quarter. Leasing fundamentals remain robust with blended leasing spreads of 14% over the renewal term. Notably, Our leasing spreads on negotiated renewals over the renewal term were just over 18%. This underscores our ability to drive value from the existing portfolio and demonstrates the favorable delta between our in-place and market rents. Our committed occupancy rate remains at an all-time high of 98%. Excluding enclosed malls, our occupancy rate climbs even higher and is near perfect at 99%. These metrics continue to reflect all-time high performance levels, reinforcing sustained tenant demand and the strategic positioning of our portfolio in markets characterized by limited retail supply. As renewals continue to take effect during the year, we expect continued positive impact on same property NOI, complemented by contributions from intensification and optimization projects currently underway across the portfolio. We delivered roughly 70,000 square feet of space to no frills during the quarter at various properties in the portfolio for them to complete their fit-up and construction. Benefits from these projects will have a greater impact at the start of 2026. In the meantime, we continue to work through other leasing and property enhancement projects that will further strengthen performance. AFFO figures are skewed as a result of our optimization initiatives, which are delivering significant FFO growth and value creation. We're currently in the pre-construction or construction phase of approximately 300,000 square feet of intensification, development, and strategic optimization projects that we launched earlier this year. While many of the costs associated with our optimization projects are captured in leasing costs and have a short-term negative impact on AFFO, the resulting incremental NOI validates the investment. These projects are strategically designed to enhance long-term value and operational efficiency across the portfolio. Similar to last quarter, of the reported leasing costs impacting AFFO year-to-date, $2.4 million of that is related to projects which will generate $650K of NOI for Plaza. There remains just under $1 million to spend in leasing costs subsequent to the quarter end to complete said projects. This represents an unlevered return of approximately 20% on these optimization projects alone, compared to the 17% we initially budgeted. Excluding these impacts, leasing costs would have been lower than the prior year. We're looking forward to the opening of these stores as they will add significant traffic and complement the properties and existing tenants alike. As part of our 2025 capital recycling program, we have sold 19 properties at prices in excess of our IFRS values. We have, for the most part, completed our program for this year. As mentioned in prior quarters, strong purchaser demand converted to successful closings. Our capital recycling initiative is aligned with our ongoing efforts to increase the average property size in our portfolio, reduce the average age of the assets, and enhance the overall quality of the portfolio. It also supports capital required to execute our three pillar strategy. As a result of the significant value creation on our optimization projects, our equity requirements are far less than expected, which has allowed us to put proceeds to use in paying down debt, as well as consolidate our ownership position in certain properties. As Pazzo'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're the only REIT on the TSX offering investors access to 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. Further to Jason's comments, we had a busy and successful quarter. On operating results, total NOI was up 4% for the quarter, 3% year to date. Growth is attributed to our optimizations, intensifications, developments, and acquisitions, which have generated $4 million of NOI year to date. Same asset increases from rent escalations and strong lease renewal spreads also delivered growth. The result was the significant FFO per unit increase Jason mentioned. AFFO per unit was impacted by our optimization program, where the required leasing costs have a temporary impact on AFFO, but improves the quality of our assets and will result in increased revenues in the future. On the balance sheet, our debt to assets ratio is down 10 bps versus Q3 last year. at 53.4%, including land leases. Net debt to adjusted EBITDA was 9.2 times, consistent with Q3 last year. We maintain a balanced mortgage maturity ladder, with $13 million of fixed rate mortgages rolling for the remainder of the year, at a rate of average rate of 3.6%, and overall loan-to-value of 48%. We continue to see strong interest in our mortgage offerings, with competitive spreads generally at 170 to 200 bps over GOC bonds. Our liquidity at quarter end was $57 million, including cash, operating line, and available debt facilities. This will allow us to take advantage of upcoming opportunities, including further optimization and intensification projects. Finally, for the fair value of our investment properties, we took a $2.9 million write-down during the quarter, generally due to a change in the development strategy at a property. Our weighted average cap rate is now 6.82%. Those are the key points for the quarter. We will now open the lines for any questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 4 by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star for beta 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Thank you. And your first question comes from the line of Tal Woolley from CIBC Capital Markets. Please go ahead.

Hi. Good morning, everybody. Good morning, Tal. I'm just wondering, you know, obviously you guys are almost full up on occupancy, but, you know, you have been calling out, like, some, you know, tenant failures. Are these just regular sort of run-of-the-mill kind of, like, independent retailers, or are there anything sort of you're seeing as a trend there that's, you know, developing?

No, I think it's essentially one tenant, and it's not a secret out there. It's Toys R Us. So we had one Toys R Us property in the portfolio. They did have term, and they vacated unannounced, I believe, in the month of May.

Okay. And that was the same for last quarter, too?

Well, it would only have affected one month in the last quarter, so the month of June. So this is a full quarter effect.

Okay. Got it. Okay. And then, you know, the incremental leasing costs, you know, you're booking an AFFO. Can you just talk a little bit about the nature of it? Like, is it commissions, CapEx, TIs? Like, what are you really putting into the ground?

We're increasing the quality of tenants in certain locations, and obviously some tenants are much more sophisticated. So HVAC requirements, electric requirements, partly TAs as well, but basically getting buildings down back to an acceptable base building form and the cost associated with that.

Got it. And you're seeing healthy renewal spreads. You know, you sort of talked about how you expect that to filter into your NOI performance going forward. Just wondering, like, you know, if we're thinking about, you know, the next couple years for, say, property NOI, is 2% the right number, or should we be thinking about something a little bit higher? Jim, do you want to take that one?

Sure. You know, I think 2% is safe. As Jason mentioned, we were 1.7% reported this quarter, but it would have been 2.3% without that bad debt. So, I think 2% is certainly achievable and safe. Those renewal spreads, obviously, we're doing renewals, in some cases, six months to a year in advance, so those will filter through into next year and beyond.

Okay. And, you know, on the ongoing sort of push to consolidate your holdings, how much of that activity, you know, should we be expecting next year?

So we're targeting three portfolios within the existing portfolio to try to increase and consolidate our position in the next five quarters in terms of a dollar amount Jim, do you have that handy with you right now?

On the equity side, it might be $8 or $9 million, but I think it really depends on the uptake from the existing investors in those LPs.

Got it. And then finally, just wondering about sort of refinancing rates. Obviously, bonds have been, you know, jumping up and down here. I'm just wondering, you know, where you're sort of seeing your mortgages come in at right now?

So the standard would be call it 170 to 200 BIPs over GOC bonds. We're generally preferring longer, 10 years, but we will do some five-year if it matches lease term. So all in rates today would be mid-fours to five, just over 5%.

Got it.

Perfect. Thanks very much, gentlemen.

Thank you, Tal.

Thank you, ladies and gentlemen. If there are any additional questions at this time, please press star 4.1. As a reminder, if you're using a speakerphone, please lift your handset before pressing any keys. And your next question comes from the line of Mark Rothschild. Please go ahead.

Thanks, and good morning. Jason, can we just talk a little bit? Can you talk a little bit about what you think of the acquisition market and the price and cap rate for any properties that you want to see? And maybe just how has that evolved over the last little while with increasing demand for your property type?

I think seller expectation has had an all-time high, which goes well for us. We haven't really seen a compression in our IFRS cap rates. just based on the third-party cap rates that we've been provided with. But actual transaction activity, I think, is getting done at cap rates which are lower than what we're valuing our portfolio at. Everyone is chasing grocery-anchored retail real estate right now. That has become, again, the hottest asset class in Canada.

And when you say bode well, I assume you don't mean for your ability to actually complete acquisitions.

Correct. Our strategy is not – well, look, we're always looking at potential third-party acquisitions. We have – $1.8 billion in assets under management. Of that, $1.2 to $1.3 billion would be considered our share of those properties. That means we have $600 million of properties, low-hanging fruit, that we already own a piece of that would be great targets for us to consolidate our ownership position in and own more of what we like.

And are you saying that you're able to... get access to that at IFRS or at market, or how should we think about the pricing on that?

It's a case-by-case basis, but typically we're buying that at market values, at IFRS values.

Okay, thanks. I'll leave it at that.

Thanks, Mark. Thank you. Mr. Fardavano, there are no further questions at this time. Please proceed.

Thank you all for joining us today and your continued support and trust. Remain committed to creating long-term value for our unit holders, our tenants, and the communities they serve. We appreciate your time and look forward to the journey ahead. Take care and talk soon.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.