Plaza Retail REIT ($PLZUN)

Good morning. I would like to welcome everyone to the Plaza Retail REIT First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would like to advise everyone that this conference call is being recorded. And I would like to turn the conference over to Kim Strange, Plaza's General Counsel and Secretary. Please go ahead, Ms. Strange.

Thank you, operator. Good morning, everyone, and thank you for joining us on our Q1 2026 results conference call. Before we begin, we are obliged to advise you that in talking about our financial and operating performance and in responding to questions today, we may make forward-looking statements, including statements concerning Plaza's objectives and strategies to achieve them as well as statements with respect to our plans, estimates and intentions or concerning anticipated future events, results, circumstances or performance that are not historical facts. These statements are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the risks that could impact our actual results and the expectations and assumptions we applied in making these forward-looking statements can be found in Plaza's most recent annual information form for the year ended December 31, 2025, and management's discussion and analysis for the first quarter ended March 31, 2026, which are available on our website at www.plaza.ca and on SEDAR+ at www.sedarplus.ca. We will also refer to certain non-GAAP financial measures widely used in the Canadian real estate industry, including FFO, AFFO, EBITDA, adjusted EBITDA, NOI and same-asset NOI. Plaza believes these financial measures provide useful information to both management and investors in measuring the financial performance and the financial condition of the Trust. These financial measures do not have any standardized definitions prescribed by IFRS and may not be comparable to similar titled measures reported by other real estate investment trusts or entities. They should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. For definitions of these financial measures and where to find reconciliations thereof, please refer to Part 7 of our MD&A for the first quarter ended March 31, 2026, under the heading Explanation of Non-GAAP Financial Measures. I will now turn the call over to Jason Parravano, Plaza's President and CEO. Jason?

Thank you, Kim, and good morning, everyone. The momentum we've built in our business throughout 2025 has carried into the first quarter of 2026, and we're starting the year from a position of strength. Even in a market defined by cautious consumers, uneven economic signals and still elevated cost of capital and construction, our portfolio continues to perform exactly as we would expect. That really speaks to the durability of essential needs retail and to the consistency of our execution. At a high level, nothing about our strategy has changed, and that's intentional. We remain focused on optimization and intensification within our existing portfolio, supported by a fully internalized operating platform that allows us to move quickly and allocate capital efficiently. Because our assets are concentrated in nondiscretionary retail, we continue to benefit from stable demand and predictable traffic patterns, which provides a strong foundation for growth, and that's evidenced in our results for the quarter. What's important here is not just the growth itself, but the quality of that growth. It is being driven primarily by same-asset NOI expansion by leasing spreads and by the incremental contributions from projects we've been advancing over the last several quarters. In other words, we're seeing the results of work that has been in motion across the platform. Leasing continues to be a key part of that story. In Q1, negotiated leasing spreads were approximately 13.4% over the lease term and new leasing spreads reached 76.1%. That level of spread is meaningful as it reinforces that there is still a clear gap between in-place rents and market rents across the portfolio. It also tells us that tenant demand remains healthy, particularly for well-located open-air centers with strong anchors. Those renewals are inclusive of anchor renewals, which is an important distinction to make as it demonstrates we also have the ability to move rates in those leases. From an occupancy standpoint, we are effectively full. Committed occupancy remained very stable at 97.5% with same-asset occupancy at 97.1%. When you exclude enclosed malls, that number climbs to approximately 99%, which really underscores how tight the availability is within our portfolio. In many of our markets, there simply isn't new supply coming online. So when space does become available, we're seeing strong interest and the ability to push rents. All of this continues to support steady same-property NOI growth. For the quarter, NOI totaled $18.8 million, up 2.5% year-over-year with same-asset NOI growth of 1.9%. While that may appear modest at first glance, it's important to remember that this growth has been achieved in a very stable, low volatility portfolio and is complemented by additional upside from projects that have not yet fully contributed. In addition, we have been able to deliver this growth even following the disposition of approximately $25 million worth of income-producing properties in 2025. On the capital side, our intensification, development and consolidation initiatives are continuing to do exactly what we want that -- we expect them to do, create incremental value from within the portfolio. We are starting to see contributions from projects delivered in late 2025 and early 2026, and we have additional projects that are still in lease-up or under construction. There's a natural timing element here. We incur costs upfront, while the income comes in as tenants open and stabilize. As a result, the full earnings impact of this work will become more visible as we move through the balance of the year. You can see that timing dynamic reflected in AFFO for the quarter. AFFO was essentially flat at $8.3 million year-over-year. This is largely a function of higher leasing activity and maintenance CapEx, both of which are aligned within our strategy. We're making those investments deliberately because they support higher rental spreads, improve asset quality and ultimately drive longer-term cash flow. We are beginning to see early contributions from spaces that were previously handed over to tenants for fixturing. And as those locations open up and ramp up, they will provide an additional tailwind to earnings as we move through 2026. Stepping back, the consistency you're seeing in these results really comes down to the structure of the portfolio. We own approximately 190 properties totaling about 8.8 million square feet across Canada with a strong concentration in open-air centers and small box formats. These are predominantly leased to national tenants serving essential needs, value and convenience segments that tend to perform well across economic cycles and continue to generate steady foot traffic. Looking ahead, our priorities for the balance of 2026 are very clear and very consistent with what we've been doing. We will continue executing on the optimization and intensification opportunities already in motion, continue to capture leasing spreads where we see embedded mark-to-market value and continue to allocate capital in a disciplined way toward the highest return opportunities in our pipeline. There is no need for us to take incremental risk to drive growth. The opportunity set within the existing portfolio remains significant, and we are well positioned to continue delivering stable, predictable performance. With that, I'll turn it over to Jim to take you through the financials in more detail.

Thank you, Jason. Good morning, everyone. I will expand on a few of Jason's comments and highlight our results. As a result of the NOI growth Jason mentioned, FFO increased by 11.7% year-over-year to $10.9 million or $0.098 per unit. On a normalized basis, adjusting for timing-related items, including accrued bonuses this quarter and reorganization costs in the prior year, FFO per unit would have increased by almost 16% to $0.102. AFFO per unit normalized for those same timing-related items in the current year and reorganization costs in the prior year would have increased by 7.1%. AFFO was also impacted by the material optimizations Jason mentioned. Excluding the leasing costs for these projects and those timing-related items I mentioned, AFFO per unit would have increased by 16% year-over-year. On the balance sheet, as a result of focused efforts, our debt ratios continue to improve. Debt to assets is down 100 bps over Q1 last year, now at 49.5%, excluding land leases. Net debt to adjusted EBITDA is 8.8x, 40 bps lower than Q1 last year. We repaid $12 million of convertible debentures on maturity on March 31, which will reduce the related interest expense going forward. The coupon on the debentures was 5.95%, which we replaced with mortgages at a weighted average rate of approximately 5%. We maintain a balanced mortgage maturity ladder with $45 million of fixed rate mortgages rolling for the remainder of 2026 at a weighted average rate of 3.7% and overall loan-to-value under 40%. We continue to see strong interest in our mortgage offerings with current all-in rates ranging from the mid-4s to mid-5% Finally, for the fair value of our investment properties, we took a $2 million write-up during the quarter on new appraisals and minor cap rate compression. Our weighted average cap rate is now 6.79%. Those are the key points for the quarter. We will now open the lines for any questions. Operator?

[Operator Instructions] Your first question comes from Mark Rothschild with Canaccord Genuity.

Jason, you spoke already about the leasing spreads and how that -- the demand for space. Can you just expand a little bit more on whether you think that the double-digit pace of that is sustainable? And what that can lead to for same-property NOI growth? Would that be in the 2% range or maybe even better going forward?

Mark, thanks for your question. No, I think that the double-digit pace is achievable for the next few years. As mentioned, we have a large gap between our in-place rents and market rents across the portfolio. On open-air strips, market rents are ranging in the mid-20s on new product or even on existing product for that matter. And I would say average rents in our portfolio on our open-air strips are in the mid-teens. Obviously, tenants have, in many cases, fixed renewal options, but where we're able to unlock value here is on the expiries or in the events where tenants have fair market value renewal options. So to the second part of your question, will that contribute to same-property NOI growth north of 2%? I'd like to think so and with the goal to achieve closer to 3%.

Okay. Great. And maybe just one other small one. The accrued bonuses in the current year period, is this just a Q1 thing this year that's not really recurring? Is it maybe something we should expect on an annual basis? How should we think about that?

So this is just a change in administration and structure, which the business has changed drastically over the last 2 years. So this is something you can expect now going forward in Q1 on a go-forward basis where we normally would have taken that accrual in Q2.

The next question comes from Lorne Kalmar with Desjardins.

Just staying -- going back to the leasing side of things, not a ton of vacancy in the portfolio, but one that we've talked about a little bit recently was the Toys "R" Us departure. Just wondering if there's any update there in terms of timing? And if there's any more color you can share, that would be great.

Yes. Good question. Thank you, Lorne. So we are actually working on a temp deal to fill the space for a couple of months in the fall, after which we are currently working on a lease with a new tenant for that space. And if that doesn't pan out, we do have a backup tenant in our back pocket. So to your question from last quarter, should we see some straight-line rent come in on the back end of the year? We'll likely see some straight-line rent, Lorne, coming in, in Q4.

Okay. Good memory on that. And then maybe just on the portfolio optimization side, not much -- not a ton on the acquisition or disposition side. Maybe you can give us a little bit of color on what the outlook is for the balance of the year, if you don't mind.

Yes. We're actively working on selling some properties, similar pace as last year. And that feeds into, one, our optimization and other development or intensification initiatives that we're working on. So I expect to see a similar number that we had last year from the disposition side. And then we are working on pairing that capital with consolidation opportunities as they come up. So we have a couple that we're working on, which will probably require between $5 million to $10 million of equity between now and the end of the year.

Okay. And then maybe just one last quick one. I think the Welland development is coming on in pretty short order. I think it's about just under 2/3 of the way leased. Any update there?

Yes. So we actually got -- we are delivering space. We've been handing over keys over the last few weeks to tenants. So we are, as you mentioned, 2/3 leased. I think the number today is just -- or we have some leases in circulation right now or last leases being signed. I think we're closer to 80%. And by the time the project is fully completed, we should be around that 85%, 90% mark as we're just in some pre-leasing stages or pre-lease stage with a few tenants, potential tenants for the space.

[Operator Instructions] Mr. Parravano, there are no further questions at this time. Please go ahead.

Thank you, everyone, for joining us today and for your continued support and trust. We remain committed to creating long-term value for our unitholders, our tenants and the communities they serve. We appreciate your time and look forward to the journey ahead. Take care and talk soon.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participating. Please disconnect your lines.