CT Real Estate Investment Trust (CRTUN) Earnings Call Transcript & Summary

Welcome, everyone, to the CT REIT conference call. My name is Simon, and I'll be your operator. [Operator Instructions] And now I will turn the call over to David Laidley. Please begin.

Thank you, operator. Good morning, everyone, and we apologize for the delay of roughly half an hour in getting this started. This is David Laidley speaking. And as Chairman of CT REIT, it is my pleasure to welcome you and thank you for your patience, and thank you for joining us today for CT REIT's 7th Annual General Meeting. This one is our first virtual AGM necessitated, of course, by the requirement for physical distancing as we all continue to do our part to reduce the spread of COVID-19. I know the other trustees in the CT REIT team join me in expressing our regret that we don't have the opportunity this year to see you in person and thank you for your interest in and support of CT REIT. We do hope that you have been keeping well through this crisis and look forward to the day when the virus is behind us and we can all resume our normal lives. In the meantime, we can only be enormously grateful to those on the front lines who are battling this outbreak on our behalf. Before we commence, I'd like to point out that the discussions during today's meeting may contain forward-looking statements about CT REIT's outlook and objectives and our strategies to achieve them. CT REIT's actual results could differ materially from any expectations discussed. There may also be references to non-GAAP measures. The details of our warning statement regarding forward-looking statements and non-GAAP measures can be found in the REIT's first quarter report to unitholders. Typically, we use this opportunity to review the notable accomplishments and milestones achieved by the REIT in the past year. This current year, of course, is anything but typical, and I will leave it to Ken to discuss the business of the REIT and its prospects in his remarks. Instead, I want to take the opportunity to share with you that your Board has been in close contact with management throughout these unprecedented times, monitoring and discussing the various implications of the crisis on the REIT. Management has been providing regular updates to the Board on the safety and security of our employees, of our tenants and their employees and customers on our risk management, liquidity, operations, capital planning, leasing and development. Management has also developed scenarios and stress tested our financial model to prepare for various potential eventualities. We have also tried to be forward-looking in discussing the implications of the crisis on the REIT strategy and its risks and opportunities in a post-COVID-19 world. We live in a world of constant change, and never has that been more true than now. CT REIT was founded on the premise of delivering reliability, durability and growth to our unitholders. And while we are not immune to the realities of the external environment in which we operate, our fundamental strategic objectives remain intact. I would like to welcome to the meeting Kelly Smith, who was nominated as a trustee of our Board. Kelly's deep background and experience in real estate finance, investment and operations qualifies her well for our Board, and her nomination reflects the Board's ongoing commitment to renewal, depth of talent and experience. I'm just sorry I can't introduce Kelly to you in person. In further Board news, I would also like to take this opportunity to congratulate Greg Hicks on his appointment as President and Chief Executive Officer of Canadian Tire Corporation. Canadian Tire has made a very wise decision in selecting Greg to lead them to continued success. And on behalf of the Board and management, we wish you congratulations, Greg, and all the best in your very challenging new role. And finally, I'd like to thank management for their efforts for, lest we forget, a very successful 2019 and for their leadership through this crisis and whatever comes next. To our unitholders, I would like to thank you more than ever for your confidence and continued support. We look forward to emerging from this crisis and continuing to add to our successful track record and rewarding your confidence in us. With that, I will say thank you for your attention. And it is now my pleasure to invite the CEO of CT REIT -- CT Real Estate Investment Trust, full name, Ken Silver, to say a few words. After Ken's remarks, we will deal with the business of the meeting. And thereafter, we will take questions. Ken? Ken, are you there?

Thank you, David, and I'm sorry for all -- to all for the delay. I want to join you, David in, basically, welcoming our listeners to CT REIT's first virtual AGM, and I want to thank you all for your patience. I've always looked forward to our AGM as an opportunity to share with you, our unitholders, team members, friends and business partners an overview of the REIT's strategies and to highlight our performance and track record and to greet you and thank you personally for your support. I'm sorry, we can't do that last part this year. And I'm sure you, like me, look forward to the day normal life fully resumes. Until then, I know you join me in doing whatever we can to get through this crisis together. Yesterday, we released our 2020 first quarter results, and you may have had the chance by now to read our press release and financial disclosures. Normally, I would spend a few moments reviewing the results with you as well as our 2019 results, all of which were strong and of which we are quite proud. But nothing right now is normal, of course. So instead of pointing out historical financial highlights, I'd like to focus on some themes that are relevant to where we are today and where we're going. As David noted, from the REIT'S inception in 2013, we have consistently described ourselves as reliable, durable and growing. At first, beginning with our IPO road show, I would have described these words as aspirational. But over the past 6.5 years, our focus has remained on them as our strategic foundation and guideposts. A measure of our success over that time is reflected in an unbroken track record of annual distribution increases. So where does that leave us today when the world is facing previously unimaginable challenges? In the simplest terms, the strategic objectives we have pursued from day 1 have put us in a strong position to weather the storm and plan for a post-COVID future. Our reliability is grounded in the large portfolio of primarily single-tenant assets, leased to Canadian Tire Corporation for terms that average at almost 10 years, amongst the longest in the sector, and provide predictable annual rental growth. Our core competitive advantage is our privileged relationship with Canadian Tire, our majority unitholder and most significant tenant. The Canadian Tire brand, nearly 100 years old, has succeeded through the great depression, the Second World War and every economic cycle and business disruption since then, continuing to grow along with Canada, meeting the needs of Canadians from coast to coast and always with a truly local approach that resonates with its customers. I've no doubt that Canadian Tire will emerge stronger than ever from this crisis with a clear understanding as to how to leverage its unparalleled store network and supply chain, its digital properties, including its website, apps and Triangle Rewards loyalty program and consumer credit offering to compete successfully and grow market share. We will continue to benefit from our relationship with Canadian Tire, which provides such a firm foundation to our enterprise. Our durability is grounded in the strength of our balance sheet and our ample liquidity. From the time of our IPO, we have worked to make our balance sheet and financial metrics stronger, reducing leverage, reducing our payout ratio and driving more conservative debt coverage ratios to the point that our financial position coming into the crisis was amongst the best in the Canadian REIT sector. We have an essentially undrawn $300 million credit facility with a term that goes until 2024 and have, in the interest of enhancing liquidity, cut back on our expected capital investment program for the balance of this year. Approximately $200 million of Class C limited partnership units held by Canadian Tire Corporation have had their interest rate reset for a 5-year term to May 2025, leaving CT REIT with no remaining refinancing risk in 2020. We have also taken a conservative approach to development with a relatively small program underway, which is essentially pre-leased and which we can fund in the short term, primarily from retained cash. Over our history, we have delivered attractive growth in adjusted funds from operations per unit and net asset value per unit, both driven by solid organic growth in additions to our portfolio. There is no question that delivering growth in this environment. However long it lasts is a significant challenge. Nevertheless, with over 95% of our revenues derived from investment-grade tenants, we are well positioned. Our rent collections through the crisis so far are amongst the highest of any REIT in the sector across all asset classes. At the same time, we are committed to working with those of our tenants who are truly resting with survival. And as we do in all things, we are taking a long-term and conservative approach to improve the chances of these tenants emerging from the downturn. We genuinely believe in retention is the landlord's best option and are working with our tenants to improve their odds of staying in business. To this point in our history, our deliberate and conservative management of the REIT has succeeded in delivering attractive financial results. It has also positioned us well coming into this unprecedented crisis. Never did we imagine such a deep and global interruption in economic activity. Yet, consistently steering away from acquisitions or developments that were priced to perfection or large relative to the size of our balance sheet, combined with our focus on quality net lease assets leased to investment-grade tenants, we have built-in resiliency. Several years ago, as some in the REIT sector turned to significant programs of mixed-use and high-rise development, we decided to remain on our own path, a path that provides visibility to predictable results in a business model less challenging and risky to execute. We viewed CT REIT with its high-quality assets and investment-grade tenants as Canada's premier net lease REIT, a unique positioning and business model within the sector. CT REIT's core attributes have never been more relevant. For our investors, this means continued focus on leveraging our key competitive advantage, a relationship with Canadian Tire to deliver over time the reliable, durable and growing results that have always been our North Star. And speaking of the Canadian Tire relationship, I'd like to extend my thanks to the many talented people across CTC with whom we work. All are committed to the vision of making Canadian Tire the #1 retail brand in Canada. And we, at CT REIT, are delighted to play an important role in realizing that vision. Thank you also to the dedicated and talented team at CT REIT whose hard work, creativity and commitment have been especially notable and valued during these challenging times. I'm prouder of the growth and development of our team than any of the many accomplishments in our history. I'd finally like to thank our Board of Trustees whose contributions and sound advice have never been more valued than in these trouble times. In addition, I want to join David in congratulating Greg Hicks on his recent appointment to the role of President and CEO of CTC. Greg assumed his new role on the very day that COVID-19 was declared a pandemic. So it's safe to say that he hit the ground running. Having had the privilege of working with Greg on the REIT Board over the last 2 years, I know how well equipped he is to lead the Canadian Tire family of companies to greater heights, and I wish him the very best. Thank you. And with that, I will turn it back to David.

Thank you, Ken. And now we will turn to the formal business of the meeting that I'm sure all of you have been anxiously waiting for. As Chairman of the Board, I will act as Chairman of this meeting, and Kimberley Graham, our Corporate Secretary, will act as Secretary. I appoint Paul Allen and [ Jamie Bazik ] of Computershare Trust Company of Canada to act as our scrutineers. Notice calling this meeting and the accompanying proxy materials or the notice and access notification in respect to this meeting as applicable were mailed on March 27, 2020, to unitholders of the trust of record as of the close of business on March 17, 2020. In addition, an amended notice of meeting was filed on SEDAR by Computershare, and a press release was issued respecting the need to meet virtually. I direct the Secretary to keep a copy of the notice calling the meeting, the notice and access notification, the proof of mailing of such notices and proxy materials and the amended notice of meeting in respect of this meeting with the minutes of this meeting. The scrutineers have provided an initial report on attendance, and I can confirm that a quorum is present. I therefore declare this meeting duly constituted for the transaction of business. I will ask the Secretary to prepare a final report on attendance as soon as practicable after the meeting and to keep a copy of the initial and final scrutineers' reports on attendance with the minutes of the meeting and to provide any unitholder or proxy holder with the details on attendance at this meeting upon request. We have a few guidelines on how the formal business of this meeting will proceed. To facilitate the introduction of motions given that we are limiting the size of group gatherings, I have arranged in advance to have our Corporate Secretary, Kimberley Graham, to move and Bruce Detlor, AVP Finance, to second motions where required. Our Corporate Secretary will now speak to some of the procedural items. Kim? Kim, are you there?

For purposes of the meeting today, voting on all matters will be conducted by a single electronic poll. For those beneficial unitholders who have not submitted their voting instructions in advance or wish to change their vote, please click the Vote Here button on the lower right hand of the screen when prompted. The polls will remain open throughout the meeting until the formal items of business are concluded. At which point, the Chairman will announce that polls have closed. For registered unitholders who wish to vote their units during the meeting, you may vote by following the online or telephone voting instructions outlined on your proxy form at any time during the meeting until the Chairman announces that polls have closed. Only unitholders and their proxy holders are entitled to vote on any motion. The items to be voted on today are the election of trustees and the appointment of CT REIT's auditor. Each item of business will be voted on by ordinary resolution requiring a majority of the votes cast for approval. The final voting results will be available after the meeting. If you are a beneficial unitholder or a duly appointed proxy holder joining this meeting as a participant, by using your control number and you wish to pose a question, you may do so through the online platform. To submit a question, enter your question in the text box provided under the Ask A Question prompt on the lower left-hand side of your screen and then click Submit. We ask that any unitholder or proxy holder wishing to submit a question limit themselves to one question and refrain from asking questions of a personal nature. Questions or comments which have already been answered or that are redundant will not be answered. To ensure your question is received in time, we ask that you submit your questions now or before the unitholder question period begins. When submitting a question, please identify whether it relates to a motion being considered as part of the formal business of the meeting or general in nature. Questions directly related to a particular motion will be addressed once that motion has been introduced, and general questions will be addressed after the formal business has been completed. As we will be receiving questions online, we appreciate your patience. If there are several questions on the same topic, we will group them together. We will endeavor to respond to questions received at the meeting. However, we may not get to all of them as we are operating with limited resources and time. If this is the case, we will endeavor to respond to your questions after the meeting.

Thank you, Kim. We will now proceed with the first item of business being for the unitholders to receive the REIT's audited consolidated financial statements for the year ended December 31, 2019, including the external auditor's report, which were all sent to all registered unitholders, except those who requested that these materials not be sent to them. And they were sent as well to all beneficial unitholders who requested that these materials be sent to them. A copy of the materials was also filed on SEDAR and on our website. The next item of business is the nomination and election of trustees for the trust. The second amended and restated declaration of trust provides that the trust shall have a minimum of 7 and a maximum of 9 trustees. The Board has set the number of trustees at 8. I invite Kim to nominate the 3 Canadian Tire Corporation nominees named in the information circular. Kim?

Mr. Chairman, I nominate Greg Hicks, Dean McCann and Ken Silver for election as trustees of the trust to hold office until the next annual election of trustees or until their successor is elected or appointed.

Thank you, Kim. I will now ask Kim to nominate the remaining 5 trustees named in the information circular.

Mr. Chairman, I nominate Heather Briant, David Laidley, Anna Martini, John O'Bryan and Kelly Smith for election as trustees of the trust to hold office until the next annual election of trustees or until their successor is elected or appointed.

Kim, have we received any questions on the nominations?

Mr. Chairman, we have not received any questions on this item.

Thank you, Kim. I declare that the nominations are closed. Unitholders have been provided with the opportunity to vote for each individual trustee nominee or withhold their vote. I will ask Kim to make a motion to elect the persons nominated.

Mr. Chairman, I move that the persons nominated for election as trustees be elected as trustees of the trust to hold office until the next annual election of trustees or until their successor is elected or appointed.

Thank you, Kim. May I have a seconder?

I second the motion.

Thank you, Bruce. As mentioned at the beginning of the meeting, voting today will be conducted by a single electronic poll. We will, therefore, continue with the next item of business, which is the appointment of the trust's auditors and to set the authority of the trustees to fix the remuneration of the auditor. The trustees of the REIT recommend the appointment of Deloitte LLP chartered professional accountants as the REIT's auditor for the ensuing year. I will now ask Kim to make a motion appointing Deloitte LLP as the auditor of the trust and authorizing the Board of Trustees to set the auditor's compensation.

Mr. Chairman, I move that Deloitte LLP chartered professional accountants be appointed the auditor of the trust to hold office until the next annual meeting of unitholders of the trust with compensation to be fixed by the Board of Trustees, the trustees being hereby authorized to fix such compensation.

Thank you, Kim. May I have a seconder?

I second the motion.

Thank you, Bruce. Have we received any questions on this motion?

Mr. Chairman, we have not received any questions on this motion.

Thank you, Kim. As this concludes the items of business to be considered at today's meeting, meaning we will now pause for a moment to provide beneficial unitholders with an opportunity to complete their electronic ballot by marking their selection on the ballot and clicking Submit and for registered unitholders to submit their votes by following the online or telephone voting instructions outlined on your proxy form. I would remind you that if you have already voted or sent in your proxy, there is no need to do anything unless you wish to change your vote. [Voting]

I will now declare the electronic polls closed. We will proceed to answer questions from our unitholders momentarily. And if you have not yet submitted a question, wish to do so, please submit your questions now. Before we proceed to questions, I will ask Kim to report on the preliminary voting results. Kim?

Thank you, Mr. Chairman. Based on the preliminary scrutineer's report, the vote return in advance of the meeting was approximately 82.17%. As such, sufficient votes were cast prior to the meeting in favor of the election of each trustee nominee and the motion approving the appointment of the auditor. Therefore, each of the nominated trustees has been elected, and the auditors have been reappointed. The final voting results will be available after the meeting, which we will announce by way of press release. We will also file the final voting results on SEDAR.

Thank you, Kim. Well, this completes the formal business for which this meeting was called. If there is no further business, may I have a motion to terminate the meeting?

I move that this meeting be terminated.

The motion is carried. And the formal business of the meeting is terminated. So we will now take questions from our unitholders. I will ask the Corporate Secretary to, I guess, read the questions that have come in. Kim, over to you.

At this time, we have not received any questions.

Well, then, I guess, we then proceed. And I -- please join me in offering a warm welcome to Kelly Smith to our Board of Trustees. We are delighted, Kelly, to have you join us. So thank you for joining us today via webcast, and we apologize again for the delay to the start of the meeting. We wish you all continued health during these unprecedented times, and thank you for your continued support of CT REIT.

Thank you, David. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may disconnect, and have a great day.