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

Good morning, everyone. Thank you for standing by, and welcome to CT REIT's Annual Meeting of Unitholders. I would now like to hand the meeting over to David Laidley, Chair of the Board. Please go ahead.

Good morning. My name is David Laidley, and I'm Chair of CT REIT. It is my pleasure to welcome you to CT REIT's Eighth Annual General Meeting. Thank you for joining us today. For the second time, we're conducting a virtual AGM, necessitated, of course, by the requirement for physical distancing as well as we all continue to do our part to reduce the spread of COVID-19. I know the other trustees and the CT REIT team join me in expressing our regret that we don't have the opportunity again this year to see you in person and to thank you for your interest in and support of CT REIT. When we met this way last year, we certainly didn't imagine that a year later, we would still be operating under pandemic protocols nor did we imagine the terrible toll the virus would take and continues to take on families who have lost loved ones and the frontline workers who have been battling under extreme conditions and the rest of us who have had our lives disrupted to one degree or another. At the same time, we can be grateful for the successful and rapid development of effective vaccines whose continuing rollout will save lives and return us to normal, hopefully, before too long. Before commencing with our formal remarks, it's important to point 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 cautionary statement regarding the forward-looking statements and non-GAAP measures are on the webcast screen and can be found in the REIT's first quarter report to unitholders. You may incidentally also follow the agenda for this meeting on your webcast screen. I will leave it to our CEO, Ken Silver, to discuss CT REIT's 2020 achievements, first quarter 2021 results which were released yesterday and other aspects of CT REIT's business. What I want to share with you is my perspective on how the Board and management have worked together to navigate the pandemic for over a year now. Like so many organizations, we have worked virtually since last March. While we believe that a completely virtual work environment comes somewhat at a cost to the spark of human interaction and creativity, we have worked hard to ensure that open lines of communication and the relationship between the Board and management has never been stronger. Together, we have, first and foremost, remained focused on protecting the safety and well-being of our employees and the safety and security of our tenants and their employees and customers. Recognizing the importance of connection and communication, while our team is working remotely, each of the trustees have participated in a virtual town hall meeting with the CT REIT team over the last 12 months. Throughout the pandemic, we have also given careful consideration to risk management, liquidity and operations and capital planning. Management has reviewed with the Board the work they have undertaken to assist those of our tenants most at financial risk due to the disruptions from lockdowns and other pandemic-related impacts and negotiating rental abatements and deferrals and applying on their behalf for government assistance programs. We are sensitive to the role these businesses play in their communities and are hopeful that our efforts will help see them through to the end of this crisis. We've also been forward-looking in considering the implications of the pandemic on the REIT strategy and the risks and opportunities that lie ahead in a post-COVID-19 world. Our ability plan for and grow in advance of a full post-pandemic economic recovery is a reflection of the resilience of CT REIT's business model. That resilience and our continued solid results in 2020 gave your Board the confidence to declare the seventh distribution increase in the 7 years since our IPO. That we were able to increase our distribution in a year of such uncertainty, I think, is a testament to the solid core attributes of CT REIT, attributes we continue to build on. While we live in a world of constant change, we are proud of CT REIT's track record of growth, balanced with conservative financial management, which has delivered attractive performance even through these challenging times. I would like to welcome to the meeting Gregory Craig, who has been nominated as a trustee of the Board. Gregory is Executive Vice President and Chief Financial Officer of Canadian Tire Corporation and has a wealth of experience in all areas of Canadian tire businesses, including within multiple retail banners and the financial services. Gregory replaces, to the extent that's possible, Greg Hicks, President and CEO of Canadian Tire Corporation as a nominee to the Board. I would like to take this opportunity to thank Greg for his outstanding service on CT REIT's Board over the last 3 or 4 years and wish him and Gregory the best as they continue to successfully lead Canadian Tire through the evolution of retail and through the currently challenging times. We are fortunate at CT REIT to benefit from our special relationship with Canadian Tire, our majority unitholder and most important and significant tenant; and the extraordinary insight leadership provided by Greg, Gregory and the entire team at Canadian Tire Corporation. And finally, I'd like to thank management and the entire CT REIT team for rising to the occasion and overcoming obstacles and challenges to deliver a very successful 2020 and for positioning us well for what comes next. To our unitholders, I would like to thank you for your continued confidence and support. We are hopeful that we are through the worst times of this crisis and look forward to building on our successful track record and rewarding your continuing confidence in us. Thank you. It is now my pleasure to invite the CEO of CT Real Estate Investment Trust, Ken Silver, to say a few words. After Ken's remarks, we will deal with the formal business of the meeting, and thereafter, we will take questions. Ken?

Thank you, David. I join you in welcoming our unitholders, team members and business partners to CT REIT's second virtual AGM. Once again, the management and trustees of the REIT are unable to meet with you in person to greet you and thank you personally for your support. I hope that you and your loved ones have been able to stay safe and in good health. When we met this time last year, the potential of a second wave of the virus was starting to register in our collective consciousness. But I don't think variants of concern had yet entered our vocabulary, and I doubt many were expecting a third wave that would be the worst one of all. At the same time, the prospect of quickly developing, approving and rolling out effective vaccines globally was just a hope with no historical precedent. As the vaccine rollout in this country accelerates, we have much to be thankful for. We all owe a huge debt of gratitude to our heroic frontline workers who continue to treat those who have been afflicted by the virus. Our essential workers have also put themselves and their families at risk to allow the rest of us the opportunity to stay home and stay safe, and to them, we give our heartfelt thanks. Even for those who could work from home, I know it hasn't been easy to manage all the challenges that the past 14 months have presented. I am grateful to the CT REIT team for your flexibility, hard work, endurance and focus on results in the face of he many obstacles you have faced, both personally and professionally, and that have contributed so meaningfully to CT REIT's resilience and strong performance. Not only have you risen to the occasion, as David mentioned, you have shown great depths of determination, talent and potential that speak well to our future. I must also thank the team at Canadian Tire, who, in the face of the pandemic's health challenges, ever-changing government mandates and lockdowns and global supply challenges, delivered as never before on the company's core vision to be there for life in Canada. No matter the circumstance, Canadians know they can turn to Canadian Tire as an essential part of their lives, as was clearly demonstrated in 2020. As Canadian Tire approaches its 100th anniversary next year, it has proven once again its relevance to Canadians. This is no accident but a reflection of the innovation, agility and determination that the entire team at Canadian Tire demonstrate every day. We have always maintained that CT REIT's relationship with Canadian Tire is the source of its competitive advantage, and that advantage is as solid as ever. Yesterday, we released our Q1 2021 results, and you may have had the chance by now to read our press release and financial disclosures. Notwithstanding the continuing pandemic, it was a very strong quarter with impressive growth in AFFO per unit of 7.5% over the same quarter in the prior year. Our results were driven largely by occupancy and rent collection rates of over 99% that delivered healthy organic growth, complemented by attractive incremental investments and acquisitions and lower interest costs. All of our financial and balance sheet metrics continue to be strong with our leverage and payout ratios at all-time lows. We also announced new incremental investments of $40.2 million to be completed over the next several years, bringing our development pipeline to over $240 million, of which 95% is pre-leased. These newly announced investments include expansions to 6 existing Canadian Tire stores in our portfolio. This brings the number of stores we own and have expanded in recent years or in the pipeline to be expanded in the next few years to come to almost 60. We also recently announced a major expansion to our Canadian Tire distribution center near Montreal. This level of activity reflects the critical role of a high-quality retail store network and supply chain in an accelerating world of omnichannel retail and how well positioned Canadian Tire is to compete. This strong quarter followed what was a solid 2020. This time last year, in the early throes of the pandemic, we were confident that CT REIT was well positioned to weather whatever challenges were to come. This confidence was not misplaced. In fact, CT REIT was one of the top performing Canadian REITs in 2020 and one of the few to deliver growth in AFFO per unit. We also completed over $200 million in new investments and acquisitions and took advantage of all-time low interest rates to refinance what was an upcoming debt maturity, which was completed in January of this year. We have ample liquidity and no further debt maturities in 2021. In addition to a distribution increase that took effect in January 2020, our investors were also rewarded with another distribution increase in September 2020. While we are pleased with the strong results, 2020 certainly had its bumps in the road. Again, my thanks to the team who responded with great agility and resourcefulness. They effectively managed the risks presented by the pandemic early on, worked with our ancillary tenants to help them get through the crisis, reinstated deferred capital projects and investments, putting us back on our growth trajectory and took advantage of favorable capital markets to raise funds at all-time low interest rates. Along the way, we also celebrated some milestones that are worth noting as we hit $2 billion in cumulative investments that added over 10 million square feet to the portfolio since our IPO. As I look back on a successful 2020 and a strong beginning to 2021, I can tell you that our solid results were the product of the consistent execution of an unwavering vision and strategy that began with the planning for our IPO in 2013. We set out to create a REIT that would deliver to our unitholders both growth and resilience built on a high-quality real estate portfolio and long-term net leases with an investment-grade tenant. Everything we have done since our IPO built on that foundation. We've leveraged our relationship with CTC as we significantly grew the portfolio with more high-quality real estate and focused on net lease assets and value-add opportunities while, at the same time, strengthening our balance sheet and our financial metrics. Our path has delivered a track record of growth in AFFO per unit and net asset value per unit, not to mention distribution growth that is amongst the best in the Canadian REIT sector across all asset classes. Looking at the bar chart of our AFFO and distribution growth alone, you would be hard-pressed to imagine that 2020 represented the greatest economic disruption in our lifetimes. That's what we mean when we say that CT REIT exists to deliver reliable, durable and growing distributions to our unitholders. It's relatively simple to measure and report on our financial results. What is more challenging is measuring and reporting on social and environmental issues, both of which deservedly took on higher profiles in 2020. But just because it's challenging doesn't mean this work isn't equally as important. Working with Canadian Tire, we have embraced sustainability and diversity as significant goals, increasing our efforts and building on progress already made to further integrate them into our business plans and objectives. Reaching our goals will be a journey, and I look forward to sharing more on that in the coming months and years. Before I close out my comments, I do have some remaining thank yous that I would like to make: firstly, to our Board of Trustees, who also rose to the occasion, providing sound advice, perspective and calm and collected feedback throughout the pandemic. I'd like to join David in extending a personal thank you to Greg Hicks, firstly, for the outstanding leadership he provided and continues to provide to the Canadian Tire family of companies throughout the pandemic and secondly, for his service as a trustee of CT REIT. We have benefited greatly over the past 3 years from Greg's perspective, especially in the past year as CEO of Canadian Tire Corporation and as Chair of the Retail Council of Canada. While we will be losing Greg as a trustee, we will undoubtedly benefit from his continued interest and support as real estate and CT REIT remain a core component of Canadian Tire strategies. And while we are losing Greg as a trustee, his replacement as a nominee to the Board, Canadian Tire's CFO, Gregory Craig, will also be a source of wisdom in the boardroom. It's been my privilege to know and work with Gregory for many years, and I'm excited at the prospect of him joining our Board. In closing, I also want to thank my executive team, Lesley Gibson, Kevin Salsberg and Kim Graham, for their leadership and commitment; and of course, our unitholders for your confidence and continued support. Thank you. And with that, I will turn it back to David.

Thank you, Ken. And now we will move to the formal business of the meeting. As Chair of the Board, I will act as Chair of this meeting; and Kimberley Graham, our Corporate Secretary, will act as secretary. I appoint Paul Allen of Computershare Trust Company of Canada, who's joining us remotely, to act as scrutineer of the meeting. Notice calling this meeting together with the management information circular or the notice and access notification as applicable were mailed to unitholders of the trust of record as of the close of business on March 23, 2021. Copies of the management information circular and other meeting materials are available under the REIT's profile on the SEDAR website. 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 with the minutes of this meeting. The scrutineer has confirmed that a quorum of unitholders is present and represented by proxy. 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 following the meeting and to keep a copy of the initial and final scrutineer reports on attendance with the minutes of this meeting and to provide any unitholder or proxy holder with the details on attendance at this meeting upon request. We have a few guidelines for you on how the formal business of this meeting will proceed. To facilitate the introduction of motions, our Corporate Secretary, Kimberley Graham, will move; and Bruce Detlor, our AVP of Finance, will second the motions where required. Our Corporate Secretary will now speak to some of the procedural items. Kim?

Thank you, Mr. Chairman. The items to be voted on today are the election of trustees and the appointment of the REIT's auditor. These items will be voted on by ordinary resolution requiring a simple majority of the votes cast for approval. For unitholders that have voted in advance of the meeting, your voting instructions have been recorded, and you do not need to take any further steps. In order to vote at the meeting, registered unitholders should have logged into the webcast by entering the 15-digit control number on the proxy form as their control number. Duly appointed proxy holders, including beneficial unitholders who appointed themselves as proxy holders, should have logged into the webcast by entering the 4-digit alpha code sent to them by Computershare as their control number. If you have logged in as a guest, you will not be able to vote at the meeting. Each item of business to be voted on today will be conducted by way of separate resolution. Once the chair declares that voting for a specific motion has been opened, the resolution will appear on your screen. You can also view the resolution by clicking on the Voting icon on the navigation bar at the top left-hand side of your screen. After voting on all items has been completed, the preliminary voting results will be read. The final voting results will be available after the meeting. Unitholders and proxy holders who are accessing the meeting online with a control number may submit questions. [Operator Instructions] Your name and question will be read aloud at the appropriate time. Questions relating to any of the formal items of business that are being voted on today may be raised after the applicable item has been presented. After the formal business has been completed, we will open the meeting to general questions from our unitholders. [Operator Instructions] We also request that you refrain from asking questions of a personal nature. Questions or comments which have already been answered or that are redundant will not be answered. Questions on the same topic will be grouped together. Please submit your questions as early as possible during the meeting and prior to the commencement of the question period, if possible. We will do our best to respond to all questions during the meeting. To the extent any questions are not answered during the meeting, we will endeavor to answer them following the meeting.

Thank you, Kim. The first item of business is for unitholders to receive the REIT's audited consolidated financial statements for the year ended December 31, 2020, and the auditor's report thereon, which can be found in our 2020 annual report. The report was sent to all registered unitholders except those who requested that these materials not be sent to them and to all beneficial unitholders who requested that these materials be sent to them. A copy of the materials was also filed on SEDAR and posted on our website. The next item of business is the nomination and election of trustees of the REIT. The second amended and restated declaration of trust of the REIT provides the REIT 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 circular.

Mr. Chairman, I nominate Gregory Craig, Dean McCann and Ken Silver for election as trustees of the REIT to hold office until the next Annual Meeting of Unitholders or until their successor is elected or appointed.

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

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

Thank you. Kim, have we received any questions on the nominations?

We have not received any questions on this matter.

Thank you. 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 REIT to hold office until the next annual election of trustees or until their successor is elected or appointed.

Thank you. May I have a seconder?

I second the motion.

Thank you. I declare then that nominations are closed. Voting will now be opened on this matter, and the poll will appear momentarily on your screen. Unitholders have been provided with the opportunity to vote for or withhold their vote in respect of each individual trustee nominee. Please vote now by selecting for or withhold. I'll remind you that the Board of Trustees and management recommend voting for all of the trustees set out in the circular. Also, may I 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. We will pause for a moment to allow for voting to be completed. [Voting]

The next item of business is the appointment of CT -- the REIT's auditor and to authorize the trustees to set the auditor's compensation. The trustees of the REIT recommend the reappointment of Deloitte LLP chartered professional accountants as the REIT's auditor for the ensuing year. Have we received any questions on this motion?

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

Thank you, Kim. I will now ask Kim to make the motion appointing Deloitte LLP as the auditor of the REIT and authorizing the Broad of Trustees to set the auditor's compensation.

Mr. Chairman, I move that Deloitte LLP chartered professional accountants be appointed the auditor of the REIT to hold office until the next annual meeting of unitholders and to authorize the Board of Trustees to set the auditor's compensation.

Thank you. May I have a seconder?

I second the motion.

Voting will now be opened on this matter, and the poll will appear momentarily on your screen. Unitholders have been provided with the opportunity to vote for the motion or to withhold their vote. Please vote now by selecting for or withhold. I remind you that the Board of Trustees and management recommended the voting for the reappointment of REIT's auditor. Also, may I remind you that if you've already voted or sent in your proxy, there's no need to do anything unless you wish to change it. We will pause for a moment to allow voting to be complete. [Voting]

As this concludes the formal items of business to be considered at today's meeting, the voting will now be closed. We will proceed to answer questions from our unitholders momentarily. If you have not yet submitted a question and wish to do so, please submit your question now. Before we proceed to questions, I will ask Kim to report on the preliminary voting results.

Based on the preliminary scrutineer's report, approximately 82% of the REIT's outstanding units were voted by proxy in advance of the meeting. 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 to carry both motions. 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.

So Kim, are there any questions?

We have not received any questions at this time.

Okay, okay. Well, thank you, Kim, and thank you to our unitholders, trustees, management, employees and other guests for joining us today and for your continued support of CT REIT. We look forward to seeing you in person at next year's AGM. And in the meantime, have a wonderful day. That's it.

This concludes CT REIT's meeting of unitholders. The lines are now closed.