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 for 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 am the Chairman of CT REIT. It is my pleasure to welcome you to CT REIT's Ninth Annual Meeting of Unitholders. Thank you for joining us today. For the third time now, we are conducting a virtual meeting. And while we missed the opportunity to see you in person and thank you for your interest in and support of CT REIT, this format is an effective means for conducting the annual business and providing virtual access to you, our unitholders. Before commencing with our formal remarks, it is important to note that the discussions during today's meeting may include forward-looking statements. Such forward-looking statements are based on management's assumptions and beliefs, but are subject to uncertainties and other factors that could cause actual results to differ materially driven such statements. Please see CT REIT's public filings for a discussion of these risk factors, which are included in the 2021 management's discussion and analysis, and the 2020 Annual Information Form, which can be found on the REIT's website and on SEDAR. The details of our cautionary statement regarding forward-looking statements are on the webcast screen and can be found in the REIT's first quarter report to unitholders. You may, by the way, also follow the agenda for this meeting on your webcast screen. I will lead it to our CEO, Ken Silver, to discuss CT REIT's 2021 achievements, first quarter 2022 results, which were released yesterday, and other aspects of the REIT's business. What I want to share with you is the Board's perspective on what our priorities and focus areas were in 2021 and what they will be going forward. While the beginning of 2021 saw the early days of a successful vaccine rollout in Canada, it became quickly apparent that the pandemic was not done with us. Your Board worked closely with management to continue to manage the risks that the pandemic presented. Thanks to the resilience of our business model and conservative financial management, CT REIT's performance has been strong throughout dependent. Notwithstanding the extraordinary circumstances of pandemic continued to present in 2021, our commitment to building for the future is extended beyond our growth and financial plans to include the important work of overseeing the development and implementation of CT REIT's ESG strategies. Our strong commitment with Canadian Tire Corporation is on alignment, I should say, with Canadian Tire Corporation, our majority unitholder, extends to ESG for practical reasons, thanks to our portfolio of predominantly CTC-tenanted net lease assets. Alignment also arises from shared values, including limiting our environmental impact, contributing to communities in which we operate, ensuring a diverse and inclusive culture and a commitment to strong governance practices. Our ESG strategies are an example of our focus on planning for the long term. And overseeing our distribution policy, your Board also understands the importance of delivering for unitholders in the short term. We balance those priorities again, excuse me in 2021 with another distribution increase, our third during the pandemic. And yesterday, we are pleased to announce yet another distribution increase to take effect next month, the ninth since our IPO 9 years ago. The Board's most important accountability is choosing the CEO. So we were delighted to announce in December 2021, the appointment of Kevin Salsberg as President and CEO of CT REIT, to succeed Ken Silver upon Ken's retirement at the end of this month, and Kevin knows that he has large shoes to fill. This announcement was the outcome of a multiyear approach to succession and development planning, and I can report that the Board could not be happier with both the process and the outcome. And this is a huge credit to Ken. So it is with great pleasure that I welcome to the meeting, Kevin Salsberg, who has been nominated as a trustee of the Board to replace Ken. I will hold further comments on Ken and Kevin until the end of the meeting. At this point, I would like to thank the entire CT REIT team for yet another strong year and for continuing to position us well for the future. To our unitholders, I would like to thank you for your continued confidence and support. We look forward to building on our successful track record and recording and rewarding your confidence in us. Thank you. It is now my pleasure to invite the CEO of CT Real Estate Investment Trust Kenneth Silver to say a few words. After Ken's remarks, we will deal with the formal business of the meeting and then take questions. I will then call on Kevin to share with you his thoughts on the first opportunity to address the unitholders. Ken, over to you.

Thanks, David. I join you in welcoming our unitholders, team members and business partners to CT REIT's third Virtual Annual Meeting of Unitholders. As this marks my last opportunity to speak to you all before my retirement, it would be nice to be doing so in person. But as David mentioned earlier, this is an effective way to conduct our meeting and I'm hopeful our paths will cross again in person before too long. You might be worried that I'm going to take advantage of this moment to launch into a long-winded recap of all we've accomplished at CT REIT since going public 8.5 years ago. And believe me, I could as it is the long list of accomplishments. Suffice it to say that over that period of time, CT REIT has been one of the top-performing REITs in the sector. Beyond all the outstanding milestones and metrics I can point to, there is one I expected most meaningful to unitholders. Since our IPO, CT REIT has delivered a total return to unitholders over 50% greater than the total return of the REIT sector as a whole. This performance is the result of management and the Board of CT REIT being totally aligned on the disciplined execution of the strategy, focused on our sources of competitive advantage. Please begin with our privileged relationship with our most significant tenant and majority unitholder, Canadian Tire Corporation. Over the course of my 27-year career with the Canadian Tire family, I think Canadian Tire writes up time and again and compete successfully against the best of global retail. This year, Canadian Tire celebrates its 100th anniversary, a celebration coinciding perfectly with this emergence as a top omnichannel retailer, reflecting once again its growth, adaptability and agility. Our prospects going forward remain solidly tied to Canadian Tire's growth plans, which is laid out in its recent Investor Day includes significant expansion of its retail store network and supply chain and investment that CT REIT is already participating in. This Canadian success story is a product of a brand Canadians have come to count on is their own that uniquely reflects what they need and want. Although now a company with many international operations and employees, CTC is fundamentally powered by the team of Canadians who compete to win. In 2013, when we were planning CT REIT, we focused on creating a REIT that investors would value for the long haul. We began, of course, with a significant high-quality real estate portfolio and a strong investment-grade tenant. From there, we built a REIT with a long-weighted average lease term, annual rent escalations to our consistent growth in AFFO, a strong balance sheet and a growth strategy to complement our core portfolio of net lease assets. From day 1, we have been purposeful and focused on building on those rigs, our activities and results in 2021 and in the first quarter of 2022 reflect these efforts. Our pipeline of development projects with CTC has grown to over 1.4 million square feet, including our first net-zero distribution center. We have renewed and expanded Canadian Tire leases accounting for over 3.6 million square feet of GLA, which continue to include annual rent escalations, key contributors to delivering attractive organic growth and preserving one of the longer stated average lease terms in the sector. We have completed third-party acquisitions where we have been selective, patient and focused on quality real estate, investment-grade tenants and earnings growth. We have also continued to add density and additional tenants to our sites. In the face of rising interest rates, we have proactively redeemed 2 series of public debentures and refinanced them, raising a total of $450 million at a weighted average coupon of 2.78% and a term of 8.1 years. Our credit metrics are strong, and we have ample liquidity. The weighted average term on our debt of 7.2 years is one of the longest in the sector and with no public debentures maturing until 2025, we are well positioned against rising rates. And of course, we have continued to raise distributions with another one announced just yesterday. We have done all of this and more in the face of historic global disruption. When we were preparing for our IPO, we came up with a tagline for CT REIT, reliable, durable, growing. Almost 9 years later, we still use it, and CT REIT's combination of attractive defensive characteristics and solid growth prospects are still compelling. To have performed as well as we did through the pandemic, raising distributions as others were forced to cut theirs,, and to have delivered one of the strongest compound growth rates in the AFFO and NAV per unit since our IPO reflects CT REIT's unique characteristics. As I prepare to hand over the reins to Kevin, to have delivered on and continue to deliver on our original promise is one of the things of which I'm most proud. My comments to this point have been focused on what hasn't changed since our IPO, namely our core strategy and objectives. What has changed and fundamentally so is the CT REIT team. We went public with all of 2 REIT employees, supported by a large team of CTC employees and external service providers. Key functions have since been internalized and new capabilities added. Our team of over 60 real estate, legal, finance and accounting professionals is one of the strongest and most capable in the industry. And I'm pleased to report that our cost structure has remained one of the leanest in the sector. This transformation of the CT REIT organization began when Kevin joined the REIT 6 years ago. He has consistently demonstrated outstanding real estate and business skills, strategic vision and strong values, enabling us to deliver the results I spoke of and build this outstanding team. Along the way, he has also proven to be a strong fit with the CTC culture, learning much about the core business and how to be a valued partner in this growth. I'm extremely proud of the team we have got and is with absolute confidence that our turnover leadership of the REIT to Kevin. I know he will be outstanding. Before I close on the comments, I do have some remaining thank yous. Firstly, to our Board of Trustees whose sound advice, perspective, wisdom and constructive feedback have been a constant support over my entire tenure as CEO. I've been truly fortunate to have had a board that has it all. This shows not only to oversee risk management and government -- and governance with the strategic vision that has enabled us to deliver great things. My thanks especially to David Laidley, our Chair for creating a tremendously productive and collaborative environment and strong alignment and communication between management and the Board. I would also like to thank the entire CT REIT team for all that you do that has made us a success. One of the pleasant surprises of the pandemic with our regular virtual tenant halls, which allowed us to connect from across the country. I've truly enjoyed that time together, and I will miss you all. Finally, I would like to thank all the CTC Board members, executives, peers, colleagues, dealers and frontline team members who have always made me proud to say I was part of the Canadian Tire family. So we're saying, I think, to feel that way about a job and a career, and I feel very fortunate and very grateful. As I turn it back to David, one last thank you to you, our unitholders, for your support and interest in CT REIT.

Thank you, Ken. And now we will move to the formal business of the meeting. As Chairman of the Board, I will act as Chair of this meeting; and Paul Bachand, our Assistant Corporate Secretary, will act as Secretary. I appoint Paul Allen of Computershare Trust Company of Canada, who is 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 22, 2022. 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 scrutineers' reports on attendance with the minutes of this meeting, and to provide any unitholder or proxy holder with the details on attendance of this meeting on request. We do have a few guidelines for you on how the formal business of this meeting will proceed. To facilitate the introduction of motions, our Assistant Corporate Secretary, Paul Bachand will move and Erin Fryer, our corporate and real estate law clerk legal will second motions where required. They are both duly appointed proxy holders. The Secretary will now speak to some of the procedural items. Paul?

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. The 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, however, including beneficial unitholders who appointed themselves as proxy holder should have logged into the webcast by entering the 4-digit alpha code sent to them by Computershare as their control number. If you've 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 Chairman 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. Ballots will remain open during the entire voting period. After voting on all items has been completed, the preliminary voting results will be read. The voting results, 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 unitholders and proxy holders. [Operator Instructions] We also request that you refrain from asking questions of a personal nature. Questions or comments which have already been answered whether 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 commendence of the question -- 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, Paul. Well, the first item of business is for unitholders to receive the REIT's audited consolidated financial statements for the year ended December 31, 2021, and the auditor's report thereon, which can be found in our 2021 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 that 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 Paul to nominate the 3 Canadian Tire nominees named in the circular.

Mr. Chairman, I nominate Gregory Craig, Dean McCann and Kevin Salsberg 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, Paul. I will now ask Paul to nominate the remaining 5 trustees named in the circular.

Mr. Chairman, I nominate 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, Paul. Have we received any questions on the nominations?

We have not received any questions on this matter.

Thank you. I will now ask Paul 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 Meeting of the trustees -- the next Annual Election of trusses or until their successor is elected or appointed.

Thank you. May I have a seconder?

I second the motion.

Thank you. I declare that the 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 remind you that the Board of Trustees and management recommend voting for all 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 now pause for a moment to allow for voting to be completed. [Voting]

The next item of business is the appointment of 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, Paul. I will now ask Paul to make the motion appointing Deloitte LLP as the auditors of the REIT 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 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.

Thank you. Voting can now continue and the polls will remain open. Please see the options 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. And again, I remind you that the Board of trustees and management recommend voting for the reappointment of the REIT's auditor. 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 now again pause for a moment to allow voting to be completed. [Voting]

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

Mr. Chairman, based on the preliminary scrutineer's report, approximately 81% 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.

Thank you, Paul. I, therefore, declare 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 will be -- which would -- which we will announce, I should say, by way of press release. We will also file the final voting results on SEDAR. Before proceeding with the question period as there is no further business, I hereby declare the formal part of this meeting terminated. I will now ask Paul if there are any questions from unitholders.

Thank you, Mr. Chairman. As a reminder, unitholders and proxy holders who are accessing the meeting online with a control number or alpha code may submit questions. [Operator Instructions] We will pause for a few moments to allow for questions to be submitted Mr. Chairman, there are no questions.

Okay. Thank you, Paul. Before closing off, and as I advised before, I'd like to see the stage to Kevin Salsberg, the REIT's new President and Chief Executive Officer, effective June 1. Kevin.

Thanks, David, and good morning, everyone. I'm honored to be addressing you today as the incoming CEO of CT REIT. David and Ken have already shared CT REIT's many and varied accomplishments in our IPO over the last year and in our most recent quarter. Instead, I will focus my comments on the future and where we are heading. As Ken mentioned, the REIT has certainly evolved a great deal since it went public in 2013. I feel very fortunate to work with such a talented and dedicated team of professionals, and I am very proud of the capabilities we have built within our organization. These skills and abilities have and will continue to pave the way for us going forward. We are fortunate to drive tremendous opportunities working alongside Canadian Tire. And as they execute on their recently announced $1.2 billion enhanced capital strategy related to improving the connection between their digital and physical channels, we expect CT REIT to continue to benefit both from this program and CTC's strong performance and growth plans. We will also continue to identify value creation opportunities that exist within our portfolio and in the external environment that surrounds us. Between the REIT and CTC, we own some of the best well estate in the country and are keenly without the potential that exists within some of those properties. We will continue to work hard to unlock the value in those assets and to create project-specific plans that balanced capital allocation and risk enabling us to stay true to our core strategy and focused on delivering unitholder growth over the long term. David also potentially increasing focus on ESG, continuing to evolve our thinking on sustainability and the impact that we have on the communities in which we operate as well as digging back will continue to be priorities for me and for CT REIT going forward. I look forward to sharing more details with you related to these plans in the coming months. I would like to conclude with a few thank yous of my own. First and foremost, to our Board of Trustees, thank you for the confidence you have shown in me by naming me as the next leader of this great organization. It is my privilege to assume this position come June 1, and I look forward to continuing to work with you even more closely. Thank you to my tremendous management team for their support and the amazing work made every single day. I would now like to welcome our U.S. executives, Jodi Shpigel to the team as Senior Vice President, Real Estate. I know that Jodi will be a great addition to the group, and I am positive that her skill set and experience will further enhance the way we work and our ability to execute on our strategy. Last but certainly not least, I would like to thank Ken Silver. When Ken called me about 6.5 years ago to describe the opportunity at CT REIT, I remember him saying that we have this fascinating business where there is no shortage of opportunities, tons of exciting projects, meet challenges and great people to work with. Now I have to admit I figure is doing a bit of a sales job at the time, but as word ring true. And for those of you who know Ken well, you know that everything he does, he does with integrity, everything he says, he says, honestly. He's a strategic thinker, a loyal and dedicated team member and a great leader. Ken, it is hard to describe how much your mentorship, guidance and friendship have meant to me over the last 6 years. I am aware that I have some big shoes to fill once you retire, but you have left a meaningful legacy for us all to build upon and a footprint to follow in terms of how to be a great CEO. We all wish you nothing but the best in their upcoming retirement. I will now turn it back to David for some concluding remarks.

Thanks, Kevin. Well, I will try not to get emotional, but I must say this does feel like the end of an era and a new beginning. Ken, you have been our incredible CEO since the creation of CT REIT in the fall of 2013. With an enormous contribution you have made during the intervening 9 years, you help tax this enterprise called CT REIT, and you have left your indelible imprint on what it is time. A huge thank you from all our employees, the Board and our unitholders, all of them have benefited from your skills, your guidance and your leadership. We're also delighted that you've agreed to be available to us for at least the next 12 months to provide advice and counsel as required. And Kevin, welcome as our new CEO. As I said earlier, you have big shoes to fill, and we are all confident that you can do so. In addition to our confidence, you also have our full support, and we will do everything we can to make sure you succeed. Finally, thank you to our unitholders, trustees, management, employees and other guests for joining us today and for your continued support to CT REIT. We look forward to being with you at next year's Annual Meeting of Unitholders. Have a wonderful day.

This concludes CT REIT's Annual Meeting of Unitholders. The lines are now close.