Canadian Net Real Estate Investment Trust

Good morning. I would like to welcome everyone to Canadian NetWeed's 2024 Third Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. Following the presentation, we will conduct a question-and-answer session, and instructions will be provided at that time. To ask a question during the conference, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. I would like to advise everyone that this conference is being recorded. Before we start, I've been asked by CanadianNet to read the following message regarding forward-looking statements and non-IFRS measures. In talking about financial and operating performance and in responding to questions today, management make forward-looking statements, including statements concerning CanadianNet objectives and strategies to achieve them. as well as statements with respect to plans, estimates, and intentions, or concerning anticipated future events, results, circumstances, or performance, which are not historical facts. These statements are based on current expectations and assumptions and are subject to risk and uncertainties that could cause actual results to differ materially from the conclusion in these forward-looking statements. Additional information on the risks that could impact actual results and expectations and assumptions management applied in making these forward-looking statements can be found in Canadian NED's most recent annual information forum for the year ended December 31, 2023, and management discussion and analysis for the period ended September 30, 2024, which are available on our website at www.cnedread.com. and or Cedar Plus at www.cedarplus.com. Management will also refer to non-IFRS financial measures today, which are widely used in the Canadian bullshit industry, including FFO, normalized FFO, AFFO, and NOI. Management believes these financial measures provide useful information to both management and investment in measuring the financial performance and financial condition of Canadian net These financial measures do not have any standardized definitions prescribed by IFRS and may not be comparable to similarly titled measures reported by other entities. For more information, please refer to the section Non-IFRS Financial Measures of our MD&A for the period ending September 30, 2024. I would now like to turn the conference over to Kevin Henley, Canadian NetSuite's President and CEO. Please go ahead, Mr. Henley.

Thank you, operator, and good morning, everyone. Our portfolio continued to perform very well during Q3. We maintained 100% occupancy and completed our 2024 capital recycling program, disposing of four additional properties in Q3 for a grand total this year of approximately $12.8 million. These properties, all service stations operated by independent operators, created new opportunities for the REIT. We promptly redeployed part of that capital into a $9 million grocery store acquisition in Nova Scotia shortly after quarter end. This property is immediately accretive to the trust, acquired at a 7% capitalization rate. As we highlighted in previous quarter, the return of healthy spreads between capitalization rates and interest rates remains evident. For this transaction, we secured financing at approximately 4.5%, making the deal highly accretive despite spreads being slightly lower than historical norms. We will further benefit as rates continue to decline. On the development front, our Bennion co-location in Belleuil opened on October 1st, right after the quarter end. This addition will contribute approximately $68,000 in annual NOI to the REIT. Our niche in necessity-based retail continues to thrive, and we foresee increasing opportunities. Grocers and quick service restaurants are executing ambitious growth plans and CNET has strategically positioned itself to capitalize on this momentum. We reported a 4% decline in normalized FFO per unit, which Ben will detail shortly. This decline aligns with prior quarters and is primarily driven by higher interest expenses from mortgages renewed in 2023, and for Q3 especially, higher straight line rent impact due to property sales. While we are currently absorbing this impact, CNET is positioned to resume growth in 2025. Turning to lease renewals, as of the last quarter, all 2024 leases have been renewed. For 2025, we have five leases expiring, representing approximately 2.35 million of NOI. Of these, three leases, accounting for 1.83 million, or 78% of expiring rents, have been renewed. We expect a roughly 5% increase in expiring rents, as one of the leases remains under negotiation. The MNNR asset class remains robust, and the properties with expiring leases hold strong market position with rents currently below market rates. As the year progresses, we anticipate renewing more of the 2025 leases. Our weighted average lease term remains steady at 6.2 years. As this is our final earnings call for 2024, I'd like to take a moment to reflect on the progress we've made this year. We began 2024 knowing it would be impacted by the many mortgages renewed in 2023 during peak interest rates. Despite this, We successfully managed the impact, resulting in a 4% decline in normalized FFO year-to-date. As rates continue to decrease, refinancing will not have a material impact on the trust, while acquisitions are becoming more and more attractive. Beyond rates, we executed several strategic moves, including the well-timed sale of five non-core properties just as the market opened. This enabled us to acquire high-quality, nationally tenanted assets and maintain sufficient liquidity to fund additional accretive projects. In summary, we navigated higher rates, realized value from existing properties, redeployed capital for 2025 growth, and furthered and enhanced the portfolio. Looking ahead, we're excited about what's to come in 2025 and beyond. I'll now hand the call over to Ben Gezis, CNET's CFO, for a detailed review of our financial results. Ben?

Thank you, Kevin. For the nine-month period ended September 30th, 2024, we generated normalized FFO per unit 45.3 cents, down 4% compared to 47.3 cents for the same period in 2023. Normalized FFO for the same period ended September 30th, 2024, decreased to 9.3 million compared to 9.7 million for the same nine month period last year. Normalized FFO was impacted by higher interest charges on mortgage renewals, decreases in rental income due to property dispositions and straight line rent adjustments associated with the property disposition. partially offset by lower interest charges on credit facilities and mortgages associated with these property dispositions. During the same period, NOI was $14.2 million, down 3% from $14.5 million for the same period in 2023. NOI was impacted by decreases in rental revenue from property dispositions and straight-line rent adjustments associated with the property disposition, partially offset by increases in base rents of certain existing properties. Property rental income was $19.3 million, consistent with the same period last year, and was impacted largely by the same elements as NOI, but was also impacted by increases in recoverable additional rents. For the nine-month period ended September 30th, 2024, the trust administrative expenses increased to $960,487 compared to $761,767 for the same period in 2023. This increase is largely due to a one-time sales tax expense of $117,187 relating to previously claimed input tax credits, as well as related interest and penalties, which were added back to FFO. Administrative expenses were also impacted by higher legal and professional fees. We expect Q3 2024 to be a good run rate for admin expenses for the remainder of the year and for 2025 after adjusting for this one-time sales tax expense and about $35,000 of professional fees recorded during the quarter relating to this sales tax work. The IFRS value of our adjusted investment properties, which is the total of our wholly owned investment properties and our proportionate share of investment properties held in joint ventures was 317 million as of September 30th, 2024, compared to 331 million a year. 54% compared to 57%. So just to back up, we continue to maintain a prudent approach with respect to our leverage and our payout ratio, having a debt to gross assets ratio of approximately 54% compared to 57% as at the same time last year. Excluding convertible debentures, debt to gross assets was 53% as at Q3 2024 compared to 54% as at Q3 2023. Our normalized FFO payout ratio for the period ended September 30th, 2024 was 57%, a slight increase from 55% for the same period last year. Our properties are typically financed with fixed-rate amortizing mortgages. As of September 30, 2024, the REIT's exposure to variable-rate debt is limited only to its credit facility. We have $4 million in mortgages rolling over in 2024, including mortgages in our JVs, which was renewed shortly after quarter-end, and the rest of our debt ladder remains well-structured. The current average term to maturity on our mortgages is 4.1 years. That summarizes our key results for the quarter. We will now open the line for any questions. Operator?