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

Good morning, everyone. Thank you for standing by, and welcome to CT REIT 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 it has been my very fortunate privilege to be the Chair of the Board of Trustees of CT REIT since its founding in 2013. It's my pleasure to welcome you to CT REIT's 10th Annual Meeting of Unitholders, and thank you for joining us today. For the fourth time now, we are conducting a virtual meeting, a format your Board believes is a productive and cost-effective means of conducting today's annual business and providing virtual access to you, our unitholders. Thank you for your interest in and supporting CT REIT. Before commencing with our formal remarks, it is also important to note -- to point out 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 from such statements. You can refer to CT REIT's public filings for a discussion of these risk factors, which are included in the 2022 management discussion and analysis and the 2022 annual information form, both of which can be found on the REIT's website and on SEDAR. The details of our cautionary statement regarding the forward-looking statements are also on the webcast screen and can also be found in the REIT's first quarter report to unitholders. You may follow the agenda of this meeting on the webcast screen before you. As noted in the management proxy circular for today's meeting, this will be my last year chairing the Annual Meeting as Chair of the Board. After very proudly serving as Chair since the CT REIT's initial public offering in October of 2013, I have decided to retire. I am absolutely honored to have been part of CT REIT's journey since day 1. From our initial public offering almost a decade ago through the turbulence of the COVID-19 pandemic and in the current period of economic uncertainty, I am also very proud of all we have accomplished together. The strong and steady growth of CT REIT has been impressive to watch from up close. The privilege of collaborating with my accomplished peers on the Board and alongside the REIT's experienced and committed management teams has definitely been one of the highlights of my career. CT REIT's resilient business model, conservative financial management, dedicated leadership and enthusiastic employees are a strong culmination for continued success in the coming years. You will hear shortly about the REIT's future plans from Kevin Salsberg, President and CEO, and you should know that I have ultimate confidence in Kevin and his terrific management team. I want to thank Kevin, his predecessor, Ken Silver, our partners at Canadian Tire and everyone else I've worked with over the years at CT REIT. As always, I also thank my fellow trustees for their tremendous contributions, guidance and support. Following the formal portion of these proceedings, it is expected John O'Bryan will succeed me as Chair of the Board. I wish John all the best in his new role on the Board. And I have full confidence that under John's purposeful and focused leadership, CT REIT will continue to honor the promise and potential of its future. And finally, I would again thank you, CT REIT's unitholders, for your confidence in your Board of Trustees, which has always meant a great deal to me. I am delighted by what has been achieved, and I look forward to all the future holds for this great organization. It's now my pleasure to invite the President and Chief Executive Officer of CT Real Estate Investment Trust, Kevin Salsberg, to say a few words. Kevin, over to you.

Thank you, David. I would also like to welcome our unitholders and those joining us online today to CT REIT's virtual Annual Meeting of Unitholders. I feel very fortunate to lead the REIT at this exciting time in our history. Today, I plan on not only discussing our accomplishments in 2022 and thus far this year, but also to talk a little about how far we have come in our first decade since going public. As this marks my first annual meeting as President and CEO of CT REIT, I will also provide my thoughts on the potential for the business and some of our plans for the future. As I noted in my letter to unitholders and the management information circular for this meeting, 2022 was a year full of change and challenges. And I could not have been prouder of the way our team came together to focus on managing the REIT's business and delivering strong results. Last year was one of our most active on the investment front, having spent over $250 million in completed and ongoing acquisition and development projects as well as adding nearly 1 million square feet of gross leasable area to our portfolio. We also announced 14 new projects and currently have a robust development pipeline of nearly 1.3 million square feet across 27 active projects. We took care of our financing needs for the year early in 2022. And astutely, in advance of interest rates starting to rise, issued $250 million of unsecured debentures in January on very favorable terms. Our operating results were also solid, having ended the year with an occupancy rate of over 99% and a weighted average lease term of 8.6 years. We also delivered strong growth across our key metrics on a year-over-year basis. And notably, same-property net operating income grew 3.4%, diluted adjusted funds from operations grew -- per unit grew 3.9%, and net asset value per unit grew 3.4%. And 2023 has started off even stronger. We were very pleased to announce our first quarter results last evening with the CT REIT team continuing to deliver what has come to be expected of us, resilient fundamentals and consistent growth. Our Q1 2023 diluted AFFO per unit growth on a year-over-year basis came in at 5.8%. Same-property NOI increased by 4.5%. Our indebtedness ratio remains at a very conservative 40.7%. And we have lowered our payout ratio even further to 73.8%. The combination of this strong growth and conservative financial management has given our Board the confidence to approve a distribution increase of 3.5%, our 10th increase since our inception. On a cumulative basis, CT REIT has raised its rate of distribution by 38.2% since our IPO in 2013, which is a true testament to the REIT's solid performance and success over the years. On the ESG front, we were also delighted to announce that the Calgary distribution center development that we began last year has now achieved the 0 carbon building design certification. Constructing one of Canada's first net zero industrial developments was a decision that we made with the future of a low-carbon economy in mind, and this recent certification furthers our venture into responsible development, which is a key component of our ESG strategy. Our accomplishments last year and to date this year are really just extensions of what CT REIT has achieved since being formed nearly 10 years ago. Starting with a team of 2 employees with third parties managing the majority of our business, we now find ourselves with a fully internalized real estate management and development platform with over 60 talented and dedicated professionals supporting our day-to-day activities. As we have grown our talent base and improved our capabilities, we have also delivered exceptional results for our unitholders. In this regard, we have grown our portfolio by investing approximately $2.4 billion in over 200 unique projects, adding more than 11 million square feet of gross leasable area. Our compound annual growth rate in AFFO per unit and net asset value per unit since going public are 5.9% and 5.6%, respectively. We have lowered our indebtedness ratio from approximately 50% to its current level of 40.7%, and our payout ratio has decreased from 95.4% to 73.8%. And as I previously mentioned, all of this has allowed us to increase our distributions to unitholders 10x and by 38.2% on a cumulative basis. As proud as I am about what the REIT has achieved over the last decade, I am even more optimistic about our future. We currently sit in the enviable position of having no significant debt maturities to refinance until midway through next year. We also have a great development pipeline and contractual embedded organic rent growth that we expect will continue to drive strong performance going forward. At the same time, we have other unique opportunities to improve our portfolio, contribute to the communities in which we operate and create value for you, our unitholders. The REIT's Canada Square redevelopment is a great example of just that. Working alongside our partner, Oxford Properties Group, I am optimistic about the positive impact that this project will deliver to all stakeholders. Perhaps most importantly, CT REIT continues to benefit from its unique relationship with Canadian Tire Corporation Limited. We are fortunate to be their partner in the execution of the better connected retail strategy that they announced last year. As a reminder, a key component of this strategy involves an investment of roughly $1.2 billion for Canadian Tire to improve their store network and supply chain distribution capabilities over the next few years. As part of our own better connected real estate strategy, we are also pursuing additional opportunities to work alongside Canadian Tire, leveraging our collective real estate portfolios and businesses to surface value. Whether it be seeking density permissions related to some of our urban assets, finding new industrial development opportunities that improve logistics capabilities and efficiency or working together on ESG strategy, I am very excited about the many impactful ways that we are collaborating to create incremental value for our respective investors. I truly believe that CT REIT's unique business model and key relationship with Canadian Tire provides a great balance of growth opportunity and conservative management. And that despite today's dynamic and challenging business environment, the REIT continues to position itself to be able to deliver reliable, durable and growing results over time. I would like to conclude my remarks with a few thank yous, a welcome and a very special acknowledgment. Firstly, I want to thank our Board of Trustees for their support and confidence. Your guidance, sound advice and constructive feedback have been greatly appreciated during this past year. I would also like to thank the entire CT REIT team for all of their hard work and dedication. Our strong performance is, in no small part, a direct result of your efforts, and I feel fortunate to work with such an amazing group of professionals. And thank you to our partners at Canadian Tire, who we work with every day in support of our collective objectives. It is with great pride that we play a small role in helping CTC to deliver on its brand purpose to make life in Canada better. Next, pending her election as a trustee at today's meeting, I would like to welcome Pauline Alimchandani to CT REIT's Board of Trustees. Pauline is a seasoned executive with strong ESG credentials and a deep knowledge of a Canadian real estate landscape. We are delighted that she has agreed to join our team. Finally, I would be remiss if I did not acknowledge the contributions of our departing Board Chair, David Laidley. In David, CT REIT and its unitholders were fortunate to have a consummate professional of the highest esteem and with the utmost of integrity. The manner in which David balanced oversight, created a strong alignment between management and the Board and provide a constructive advice is a lesson in how a Board Chair should operate. David's steady hand and stewardship, not only when CT REIT went public, but also as we grew and evolved, have been greatly appreciated by all of our trustees, our partners at CTC and CT REIT management. David, thank you for all you have done. You have truly left an indelible mark on this organization. I would like to congratulate John O'Bryan on his expected appointment as the new Chair of the Board of Trustees following this meeting, and I very much look forward to working with him in his new role. As I turn it back to David, one final and brief thank you from me to you, our unitholders, for all of your support and interest in CT REIT. It is very much appreciated. David?

Thank you, Kevin. 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 Krish Seno and Shirley Tom of Computershare Trust Company of Canada, who are joining us remotely, to act as the scrutineers 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 16. Copies of the management information circular and other meeting materials are available on the REIT's website and on SEDAR. 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 the proxy materials with the minutes of this meeting. The scrutineers have confirmed that a quorum of unitholders is present and represented by proxy, and 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 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 inclusion of motions, the introduction, I should say, of motions, our Corporate Secretary, Kimberley Graham, will move; and Erin Fryer, our corporate law clerk, will second, will -- Kimberley will move and Erin will second the motions when required. They're both duly appointed proxy holders. The 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 have 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 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 a 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 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 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 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 the unitholders to receive the REIT's audited consolidated financial statements for the year ended December 31, '22, as well as the auditor's report thereon, all of which can be found in the -- our 2022 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 Kim to nominate the 3 Canadian Tire Corporation 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, Kim. I will now ask you to nominate the remaining 5 trustees named in the circular.

Mr. Chairman, I nominate Pauline Alimchandani, Heather Briant, 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 again. Kim, have we received any questions on the nominations?

We have not received any questions on this matter.

Thank you. I will now 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.