Canadian Net Real Estate Investment Trust (NETUN) Earnings Call Transcript & Summary

[Foreign Language]

Dear fellow unitholders and guests, thank you for taking the time to be with us today for our Annual General Meeting. I'm delighted to share our achievements and experiences throughout the past year. 2022 has been an eventful year for Canadian Net REIT. We commenced the year with great enthusiasm, making several strategic acquisitions that bolstered our portfolio of triple net and management-free retail properties across Canada. By the end of the year, the value of our adjusted investment properties was up 9%, while our NOI was up 28%. These acquisitions were a testament to our commitment to growth and our confidence in the resilience of our niche in the real estate market. However, as the year progressed, we faced a changing landscape. Interest rates began to rise and market dynamics became more uncertain. We recognized the need to exercise caution and adapt our approach accordingly. Despite the prevailing challenges faced by the industry, I'm proud to announce that 2022 was indeed a solid year for Canadian Net REIT as demonstrated by our FFO per unit growth of 9% and our conservative payout ratio of 53%. Our ability to navigate these changes can be attributed to our robust business model. At December 31, 2022, we still had -- we had and still have 100% occupancy in the portfolio due to our necessity-based focus, we had a weighted average lease term of 6.9 years and an average mortgage term of 5 years. We remain committed to acquiring high-quality properties that continue to generate steady and reliable income streams. Our focus on triple net and management-free retail properties has proven to be a sound strategy, allowing us to weather the storm and deliver consistent value to our unitholders. As a reminder, our unique model enables us to directly pass on operating expenses to tenants, alleviating any concerns regarding inflationary pressures. While the industry encountered various pains throughout the year, we have remained resilient and agile. Our team worked diligently to optimize our portfolio, renew leases ahead of time and enhanced tenant relationships while simultaneously managing our pipeline of potential opportunities. Looking ahead, we will continue to monitor market conditions and adjust our acquisition criteria accordingly. The fragmented nature of our asset class continues to present numerous prospects for CNET. Our vision is to ensure that Canadian Net REIT remains the leader in the triple net space in Canada, providing attractive returns and delivering value for esteemed unitholders. I'm pleased to share with you the strategic acquisitions made by Canadian Net REIT in the year 2022. We successfully acquired a total of 10 properties, including 1 development, further enhancing our robust portfolio. Among the properties, all 10 fall under the necessity-based space, reflecting our strategic focus on essential retail sectors. These properties serve as crucial destination for everyday needs, providing stability and resilience to our portfolio. I'm delighted to announce that our tenant mix has been enriched with the addition of well-known brands such as Brunet, National Bank, Giant Tiger and Midas. These prominent tenants not only strengthen the diversification of our tenant base, but also contribute to the sustainable income generation of the trust. Furthermore, I would like to extend a special mention to the addition of RONA, which marks our first hardware store property. This is an exciting milestone for Canadian Net REIT as we venture into a new segment of the necessity retail market. RONA is a well-established and renowned brand, and we are confident in the success and long-term potential of this addition in our portfolio. Moving on to 2023. As previously mentioned, the pace of our deal process experienced a slowdown due to the disparity between the expectations of sellers and purchasers in the market. Additionally, there exists a notable gap between the value at which REITs are currently trading on the public market compared to the prices being paid in the private market. During the course of 2023, we successfully completed the disposition of a QSR property located in Timmins, Ontario. Total consideration paid for this transaction amounted to $1.3 million, representing a capitalization rate of approximately 6.2% or a 19% premium to our IFRS cap rate. It is important to note that while this property was not considered a core asset to the REIT, its sale highlights the significant discrepancy between the stock price and the price observed in the private market. These developments underscore the challenge we face in aligned market expectations and valuation across both public and private markets. As we move forward, we expect interest rates and capitalization rates to stabilize, translating into a more favorable environment. With this, our [ opportunity ] now consists of 100 properties across 4 provinces in various growing and stable markets. I would now like to open the line for questions.

[Foreign Language]