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

Good morning. I would like to welcome everyone to Canadian Net REIT's 2026 Second Quarter Earnings Conference Call. [Operator Instructions] I would like to advise everyone that this conference is being recorded. Before we start, I have been asked by Canadian Net REIT to read the following message regarding forward-looking statements and non-IFRS measures. In talking about financial and operating performance and responding to questions today, management may make forward-looking statements, including statements concerning Canadian Net's 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 risks 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 Net's most recent annual information form for the year ended December 31, 2025, and management discussions and analysis for the period ended June 30, 2026, which are available on their website at www.cnetreit.com and on SEDAR+ at www.sedarplus.com. Management will also refer to non-IFRS financial measures today, which are widely used in the Canadian real estate industry, including FFO, Normalized FFO, AFFO and NOI. Management believes these financial measures provide useful information to both management and investors 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 Canadian Net's MD&A for the period ending June 30, 2026. I would now like to turn the conference over to Kevin Henley, Canadian Net REIT's President and CEO. Please go ahead, Mr. Henley.

Thank you, operator, and good morning, everyone. Thank you for joining us today as we walk you through our Q2 2026 results. Q2 2026 was a solid quarter for Canadian Net. FFO per unit grew 3% quarter-over-quarter, and we continued executing on our strategy with the acquisition of a stand-alone Bureau en Gros property before quarter end. The transaction closed at a 7% capitalization rate, features a long-term lease and is situated in a highly strategic location within its market. While the property was broadly marketed, we were able to secure it at a compelling price, a direct reflection of our ability to close quickly and our track record as a reliable counterparty, advantages that consistently differentiate Canadian Net from private buyers. The portfolio continues to perform well. Our focus remains on unlocking capital and deploying it into select accretive opportunities. Transaction activity has been somewhat quieter over the summer, as is typical, but we remain active on multiple fronts, from portfolio optimization to new acquisitions. With interest rates remaining volatile, we will continue to move quickly and decisively when the right opportunity presents itself. Our Staples acquisition is a good example of this, having gone from first contact to closing in just 35 days. On the leasing front, 2026 is now 100% renewed. Of the 14 leases scheduled to mature, representing approximately $3.47 million in NOI, all 14 have been renewed at an average rental increase of 6.5%. For 2027, we have 19 leases maturing, representing approximately $2.4 million in NOI, of which six have already been renewed at an average increase of 6.8% and representing 34.3% of the expiring NOI. We expect the remainder to be addressed over the coming quarters. Our weighted average lease term stands at 5.7 years with 100% occupancy as of June 30, 2026. We're optimistic about our capital deployment outlook and we remain focused on driving value through acquisitions, lease renewals, property refinancings, and selective disposition where appropriate. I'll now hand over the call to Benoit Gazith, Canadian Net's Chief Financial Officer, for a detailed review of our financial results.

Thank you, Kevin. We had a solid quarter. For the 6-month period ended June 30, 2026, we generated FFO per unit of $0.337 compared to $0.33 for the same period in 2025, which represents an increase of 2%. FFO for the period ended June 30, 2026, increased to $6.9 million compared to $6.8 million for the same 6-month period last year. FFO was impacted by higher rental income from property acquisitions and increases in rent on certain existing properties as well as lower interest charges on credit facilities and convertible debentures. During the same period, NOI was $10.1 million, up 1% from $10 million for the same period in 2025. NOI was impacted by increases in rental revenue due to the additions of new properties and increases in rent on certain existing properties. Property rental income was $14.1 million, an increase of 2% compared to $13.7 million for the same period last year and was impacted largely by the same elements as NOI, but was also impacted by adjustments to recoverable additional rents. 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 $348.3 million as of June 30, 2026, compared to $340.8 million a year earlier. The increase is primarily due to a property acquisition at the end of the second quarter of 2026 as well as a fair value adjustment to investment properties. 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 56% as of the same time last year. Excluding convertible debentures, debt to gross assets was 53% as of Q2 2026 compared to 54% as of Q2 2025. Our FFO payout ratio for the period ended June 30, 2026, was 52%, consistent with the FFO payout ratio a year earlier. Our properties are typically financed with fixed rate amortizing mortgages. As of June 30, 2026, the REIT's exposure to variable rate debt is limited to its credit facilities and a mortgage on one property. We have $6.1 million of mortgages rolling over in 2026, excluding mortgages in our JVs, and the rest of our debt ladder remains well structured. The current average term to maturity on our mortgages is 3.1 years. That summarizes our key results for the quarter. We will now open the lines for any questions. Operator?

[Operator Instructions] And there appear to be no questions in the queue at this time. Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation, and you may now disconnect.