Choice Properties Real Estate Investment Trust (CHPUN) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Choice Properties Real Estate Investment Trust Annual Meeting of Unitholders. Please be advised that today's meeting is being recorded. I would now like to hand the meeting over to your speaker today, Gordon Currie. Thank you. Please go ahead.

Good morning, and welcome to the 2024 Annual Meeting of Unitholders of Choice Properties Real Estate Investment Trust. I'm Gordon Currie and I serve as Chair of the Board of Trustees. It is my pleasure to welcome you to our Annual Meeting of Unitholders. For this year's virtual AGM, our goal is to once again approximate the experience of a meeting held in-person, including the opportunity to participate in the meeting and for unitholders and proxy holders to vote and ask questions. I'm joined on the webcast today by Rael Diamond, our President and Chief Executive Officer and a member of the Board; Mario Barrafato, our Chief Financial Officer; Niall Collins, our Chief Operating Officer; and Simone Cole, our Vice President, General Counsel and Secretary. Other members of the Board of Trustees and senior management team are also attending remotely. I would now like to call to order this Annual Meeting of Unitholders. I will begin today's meeting by outlining how voting and questions will be addressed. Voting during today's meeting will be conducted through the online platform. When we are ready to table an item of business for a vote, you will see voting options appear on your screen. Usually, and this year is no exception, the majority of unitholders have submitted their proxies or voting instructions in advance of the meeting. I wish to thank all those unitholders who exercised their right to vote in advance. If you've voted in advance of the meeting by submitting a proxy and do not wish to revoke your vote, then you do not need to do anything. The scrutineers will tabulate all the votes cast during the meeting, and we will report on the results of each resolution at the end of the meeting. If you wish to submit a question in writing, select the messaging tab on the top of your screen to ask a verbal question quick on the request to speak icon beneath the broadcast. When submitting the question, please identify whether it relates to a motion being considered as part of the formal business of the meeting or whether it is general in nature. We will address questions directly related to a particular motion at the appropriate time of the meeting and save general questions until after the formal business has been completed. Simone Cole, our Corporate Secretary, will receive and read the submitted questions and either I or a member of the management team will respond. If you are logged into the meeting as a guest, you will be able to listen to the meeting, but you will not be able to vote or ask questions as only registered unitholders and duly registered proxy holders may do so. I will now proceed with the formal part of the meeting. I would ask Simone Cole to act as Secretary of the meeting. TSX Trust Company is acting as scrutineer of the meeting by way of its representatives, Emma McKenzie and Lori Grinton. Only unitholders of record at the close of business on March 11, 2024 or their duly appointed proxies are entitled to take part in and vote at this meeting. To make the best use of our time, certain unitholders have been asked to move and second the motions, which are called for in the notice of meeting. A copy of the notice of the meeting and proof of its mailing have been filed with the records of this meeting. The scrutineers' report indicates that a quorum is present. I now declare that this annual meeting has been properly called and is duly constituted for the transaction of the business for which it has been called. Today's agenda will begin with remarks from the Choice Properties management team. These will be followed by the submission of the 2023 annual financial statements, followed by 3 resolutions: first, to elect the Board of Trustees; second, to appoint Choice Properties external auditor for fiscal 2024 and to authorize the trustees to fix the external auditor's remuneration; and third, to consider an advisory resolution on Choice Properties' approach to executive compensation. At the conclusion of the formal items of business, we will move to our general question-and-answer period and the announcement of voting results. I would now like to bring your attention to the notice appearing on the screen. On behalf of those speaking today, I would like to note that today's remarks may include forward-looking statements and references to non-GAAP financial measures. Actual results could differ materially from the forecast, projections and conclusions in the forward-looking statements. Details regarding forward-looking statements and non-GAAP measures can be found in Choice Properties 2023 annual report as updated in the 2024 first quarter report to unitholders. I should also note that during the meeting, we may pause from time to time to review messages from the Secretary. Thank you in advance for your patience as we do so. Before I hand things over to Rael, I'd like to take a moment to reflect on 2023 and acknowledge the efforts of the team at Choice Properties over the past year. 2023 was another year of positive momentum for our business as we significantly advanced our strategic agenda, continue to demonstrate the stability of our portfolio and strength of our balance sheet, made meaningful progress on our transformational development pipeline and adopted ambitious yet achievable targets in relation to our ESG program. As Board Chair, I'm proud of our ability to deliver strong financial and operating performance and progress on our commitments to all stakeholders. I am confident in the team at Choice Properties and look forward to building on our positive momentum in 2024. I would now like to call upon Real, Mario and Niall to present an update on the business.

Thank you, Gord. Good morning, everyone. Mario, Niall and I are pleased to welcome you to our 2024 Annual Meeting. We always welcome the opportunity to engage with you, our unitholders. 2023 was a great year for Choice. In addition to delivering another strong year of financial and operating performance, we also hit a milestone in celebrating Choice's 10-year anniversary. Reflecting on the last decade, it is truly remarkable how Choice has transformed into Canada's leading REIT. Choice has grown from a real estate entity with 425 properties and a fair value of [ $7 million ] to a real estate entity with over 700 properties and a fair value of $16.6 billion across 3 strategic asset classes, supported by a leading operating platform, a robust development pipeline and a highly talented and diverse team. Where we've continued to grow our business, we've also remained focused on ensuring Choice's set up to deliver stable and consistent returns for unitholders. Over the last 10 years, Choice has delivered a 9% return to our unitholders meeting the TSX index by 3% over the same time horizon. This past year, our portfolio in tenants once again demonstrated their resilience in an uncertain economic environment, and our team continued to execute on our strategic framework. At the beginning of the year, we reinforced our 3 key financial goals of preservation of capital, generating stable and growing cash flow and delivering net asset value appreciation and distribution growth over time. To deliver on these 3 goals, our team is focused on executing on our 3 strategic priorities of maintaining a market-leading portfolio, sustaining operational excellence and delivering on our development pipeline. In addition, we continue to strengthen our foundation, which provides a competitive advantage, including our industry-leading balance sheet, our commitment to ESG, our strategic relationship with our largest tenant Loblaw and our talented team. This past year, we completed over $600 million of transactions, including $284 million on acquisitions and $335 million of dispositions. Part of our capital recycling program, we completed our exit from office as an asset class. As you may recall, we made the decision to exit office in 2022, a strategic decision to allow our teams to focus on those asset classes where we have or can have scale. This was a significant milestone for us as the dispositions were completed in a very challenging transaction environment. Supporting our portfolio of tenants, our team provided the best-in-class property management and leasing and tenant engagement. Leasing activities across our 3 asset classes remained healthy, supported by the strength of our tenant base, and we maintained near full occupancy in 2023. Beyond our leading income-producing portfolio, our teams demonstrated their ability to execute and advance on our development pipeline. In 2023, we delivered 1.8 million square feet of new commercial, retail and industrial space and 126 units of residential space. Our investment in these developments of approximately $300 million delivered significant value creation with a fair value of over $425 million and an average yield of 7.7%. In addition to delivering on our strategic priorities in 2023, we advanced our environmental efforts in fighting climate change and enhanced our social impact by focusing on strengthening communities to prospect our 2 ESG focus areas. Our ESG program remains an integral part of our strategic framework and is fundamental to our ability to support our tenants, strengthen our communities and build resilience throughout the business. We are pleased with our 2023 operating and financial performance. Early in 2023, we outlined our financial framework [indiscernible], and we successfully delivered on it with same property NOI growth of 4.6% and FFO growth of 4% or just over $1 a unit, supported by strong operating performance in 2023 and our solid financial position, we are once again pleased to increase our annual distribution in the first quarter of 2024, demonstrating our commitment to sharing earnings growth with our unitholders. I want to express my thanks to our colleagues and all that we achieved this past year could not have been done without the dedication, collaboration and diverse talent demonstrated by our colleagues every day. I'll now pass it over to Niall, who will provide more color on our existing portfolio and our development program.

Thank you. Good morning. As Rael mentioned, 2023 was a strong year for our business. Our market-leading portfolio focused on essential retail, industrial, mixed-use and residential is an exceptional shape and operated at near full capacity. Throughout 2023, leasing activity across our 3 asset classes remain strong, supported by the location and the quality of our assets, resilience of our operating platform and the depth of our tenant relationships. Our 44.7 million square feet necessity-based retail portfolio continues to be one of the largest and most resilient in Canada and relied stable and consistent cash flow growth. Our national footprint mirrors our largest tenants, which means that our neighborhood centers are in communities where Canadian deliver and work. Our tenants remain resilient with many retailers actively seeking to expand their presence, especially in nonurban markets, which drive robust leasing demand for our neighborhood centers. Our 19.7 million square foot industrial portfolio was exceptionally strong in 2023 and is well positioned to drive cash flow growth based on the significant opportunity to realize higher market rents as leases expire. With limited new supply of industrial properties and robust tenant demand in key markets, we have a tremendous opportunity to drive growth in these segments. We executed our growing mixed-use and residential portfolio, which is now at 1.7 million square feet. We believe the supply fundamentals will continue to support residential rental growth across our residential portfolio. Turning to our developments. As Rael mentioned, we completed a significant number of projects in 2023. In addition to the 205,000 square feet of new retail space, we transferred 3 industrial properties totaling 1.6 million square feet during the year, including approximately 300,000 square feet in Edmonton, which was the final phase of our sixth building master plan at Horizon Business Park, approximately 350,000 square feet at Choice Industrial Central, and approximately 930,000 square feet as the first phase of our Choice EastWay Industrial Center at East Gwillimbury as a land lease to Loblaw. Residential portfolio, we delivered 1 residential development in Ottawa, where we own a 50% interest. This rental project consists of 252 units located in Ottawa's Westboro Village. Our remaining development pipeline is significant and continues to provide us with meaningful opportunity to add high-quality real estate to our portfolio. At the end of 2023, we had 14 active developments comprised of 11 retail, 2 industrial and 1 residential project. In addition, we have a substantial pipeline of few developments with 2 industrial projects totaling 4.2 million square feet and 10.4 million square feet of mixed-use residential at different stages of planning and predevelopment process. I will now turn the floor over to Mario to provide an update of our ESG achievements and on the actions we've taken to maintain our financial position.

Thank you, Niall. As one of Canada's largest real estate companies, we are in a unique position to have an impact on communities, the environment and people. In 2023, we continue to advance our environmental and social sustainability efforts within our pillars of fighting climate change and strengthening communities to prosper. We are proud of what our teams have achieved in these 2 areas. During 2023, we obtained LEED or BOMA BEST certification on 65% of our existing GLA. Our efforts were also recognized by third-party environmental benchmarking firms such as Breathe and Sustainalytics. We also focused on achieving our ambitious net zero targets. Initiatives such as green leases and its property-specific and net zero transition plans were not only developed, but put into action. To further embed social sustainability practices across our business, we created a social impact framework. This framework aligns with our core business and promotes local economic development and social cohesion at the neighborhood level. And of course, choices about our people, we are proud to have developed a culture of philanthropy and good citizenship. One example is calling fundraising as we've raised $610,000 and donated over 1,400 hours of calling time to Canadian charities. In 2023, Choice was also recognized in Globe & Mail's 2024 Report on Business Magazine's Annual Women Lead here at list. This annual benchmark identifies the largest trading corporations with the highest degree of gender diversity among executive ranks. And with efforts such as this and programs around benefit enhancements and mentorship programs, we were also recognized of one of Greater Toronto's top employers. Over the past decade, we've made significant strides and our ongoing commitment to ESG will guide our strategy for decades to come. And with that in mind, I encourage you to read our 2023 ESG report, which is available on our website. Next, I'd like to review our 2023 financial performance. We are extremely pleased that in 2023, we are able to deliver financial metrics that met or exceeded our financial targets reflected in our outlook. We maintained near full occupancy at 98%, reported same-property NOI growth of 4.6% and delivered FFO growth of 4%. We also ended 2023 with strong debt metrics and ample liquidity. Our debt-to-EBITDA ratio, net of cash at the end of the year was 7x. We maintained a strong liquidity position with $1.5 billion available on our credit facility and approximately $12.7 billion of unencumbered properties. We also demonstrated discipline in maintaining our balanced debt maturity ladder and extended our weighted average maturity to 5.7 years at the end of 2023. But overall, our business is strong and has proven to be resilient as we end the year with a better portfolio, a stronger balance sheet and a deeper development pipeline, we are positioned well to deliver on our financial plans. I'd now like to invite Rael back to deliver closing remarks.

Mario and Niall, thank you for sharing your updates. As you've heard today, our business is robust, and we remain encouraged by the underlying fundamentals supporting each of our asset classes. We have a proven strategic framework and our team is well positioned to execute on our strategy in 2024 and beyond. On behalf of Choice Properties, we thank you for your continued support and confidence. I'd like to welcome Gord back to address the meeting. Thank you.

Thank you, Rael, Mario and Niall for those comments. I'd now like to move to the first item of business and submit the annual audited consolidated financial statements of Choice Properties, together with the notes and auditor's report to the unitholders for the year ended December 31, 2023. These are included in the annual report, which was provided to unitholders and can also be retrieved from the Financial Reports section of Choice Properties website or from SEDAR+. Simone, were there any questions or comments submitted in connection with this item?

No, Gord, we have not received any questions related to this item.

Thanks, Simone. We'll now move to the 3 matters to be voted upon at this meeting. Before moving to the nomination and election of trustees, I'd like to take this opportunity to acknowledge the trustee who is not standing for reelection this year. Graeme Eadie is retiring from the Board after having served as a trustee of Choice Properties since its inception in 2013 and is lead independent trustee since 2018. Over the last 11 years, we have been lucky to have benefited from his expertise and guidance. And for me personally, Graeme has been a valuable colleague and friend, helping to guide choice properties through a series of opportunities and challenges for more than a decade. On behalf of the Board and management, I'd like to thank Graeme for his dedicated service. I'm also pleased to report that the Board has decided to appoint Karen Kinsley as the lead independent trustee. Karen has been a trustee of Choice Properties for the past 6 years, having previously been a trustee of CREIT, which Choice acquired in 2018. And she's also been the Chair of our Audit Committee since 2020. We look forward to Karen's leadership in her new role. Your Board is well positioned to help guide the management team over the years to come, and I encourage unitholders to reach out to Karen or me with any comments or questions concerning the role of the Board or Choice Properties performance. There are 10 nominees standing for election at this meeting. All of these nominees are currently trustees of Choice Properties. Our management proxy circular contains detailed biographies setting out the qualifications and background of the nominees. I'm pleased to report that based on proxies received by the scrutineer in advance of the meeting, each trustee nominee received votes in favor from at least 94.5% of the votes cast. Now to facilitate the introduction of the nominees, I refer you to the slide on the webcast. I declare the polls open on all resolutions. Simone were there any questions or comments submitted in connection with the nomination and election of trustees?

No, Gord, we have not received any questions related to this item.

Thanks, Simone. I've taken the liberty of asking certain unitholders to make the motions for the matters to be voted on today. Could I please have a nomination for the election of trustees?

My name is Tina Fleming and I am a unitholder. Mr. Chairman, I nominate the following persons for election as trustees of Choice Properties, the hold office until the next Annual Meeting of Unitholders or until they resign or their successors are duly elected or appointed. L. Jay Cross, Gordon A.M. Currie, Rael L. Diamond, Diane Kazarian, Karenn Kinsley, R. Michael Latimer, Nancy H. O. Lockhart, Dale R. Ponder, Qi Tang, Cornell Wright. My name is [ Angela Kaleta ], and I am a unitholder. Mr. Chairman, I second the motion.

Thank you, Tina and Angela. Choice Properties' declaration of trust requires that nominations of trustees by unitholders be received by the trustees at least 30 days in advance of the meeting in order to be valid. As no further nominations were received prior to the deadline, the nominations are now closed. Tina, could you move a motion to that effect?

Mr. Chairman, I move that nominations.

Mr. Chairman, I second the motion.

Thank you. If you haven't already done so, I would ask unitholders or their appointees to cast their votes through the online portal. As a reminder, if you have already voted or sent in your proxy, there is no need to do anything unless you wish to change your vote. We'll now move to the appointment of the auditor and the authorization of the trustees to fix the auditor's remuneration. Simone, were there any questions or comments submitted in connection with the appointment of the auditor.

No, Gord. We have not received any questions related to this item.

Thank you, Simone. I'll now entertain a motion for the appointment of the auditor and the authorization of the trustees to fix the auditor's remuneration.

Mr. Chairman, I move that PricewaterhouseCoopers LLP be appointed auditor of Choice Properties until the next Annual Meeting of Unitholders of Choice Properties, and that the trustees be authorized to fix the auditor's remuneration for the 2024 fiscal year.

Mr. Chairman, I second the motion.

Thank you. If you have not already done so, I would ask unitholders or their appointees to cast their votes through the online portal. The next item of business is the advisory resolution regarding Choice Properties' approach to executive compensation. The resolution is more fully described on Page 20 of the Management Proxy Circular. Simone, were there any questions or comments submitted in connection with this advisory resolution?

No, Gord. We have not received any questions related to this item.

Thanks, Simone. I will now entertain a motion to approve on an advisory basis, Choice Properties' approach to executive compensation.

Mr. Chairman, I move that the advisory resolution regarding Choice Properties' approach to executive compensation be approved.

Mr. Chairman, I second the motion.

Thank you. If you have not already done so, I would ask unitholders or their appointees to cast their votes through the online portal. This brings us to the end of voting on the items of business before the meeting. I therefore declare the polls closed. Thank you for casting your votes. The scrutineers will tabulate the votes cast, and we will report on the results towards the end of a meeting. I'd now like to open the meeting for any general questions. We'll make every effort to answer all questions. However, in the interest of time, we'll limit the question-and-answer period to 20 minutes. Any unanswered questions will be addressed after the meeting by members of our management team. Simone, have we received any questions?

No Gord. We have not received any questions.

Thank you. So now we can go back to the voting results. We've received the preliminary voting results from the scrutineer on the 3 items of business. On the election of trustees, the voting results show that each trustee nominee received votes in favor from at least 94.5% of votes cast. Accordingly, I declare the proposed trustee nominees have been duly elected to hold office until the next Annual Meeting of Unitholders or until they resign or their successors are duly elected or appointed. On the appointment of the auditor, the voting results show that approximately 99.5% of the votes cast were in favor of the appointment of PwC as the auditor of Choice Properties. I declare that PwC is appointed the auditor of Choice Properties and that the trustees are authorized to fix their remuneration for the 2024 fiscal year. And finally, on the advisory vote on Choice Properties' approach to executive compensation, approximately 95.4% of the votes cast were voted in favor of Choice Properties' approach to executive compensation. I declare this motion to be passed. The final voting results will be available after the meeting and posted to Choice Properties website and to its SEDAR+. As there is no further business, may I have a motion to terminate the meeting.

Mr. Chairman, I move that the meeting terminate.

Mr. Chairman, I second the motion.

Thank you. I now declare the meeting terminated. On behalf of the Board and management, I would like to thank you for taking the time to join us today.

This concludes today's meeting. You may now disconnect. Thank you.