Primaris Real Estate Investment Trust (PMZ-UN.TO) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to the Primaris REIT's Third Quarter 2025 Results Conference Call. [Operator Instructions] I would now like to hand over to your host, Leslie Buist, SVP of Finance, to begin. Please go ahead, Leslie.

Thank you, operator. During this call, management of Primaris REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Primaris REIT's control and that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions, risks and uncertainties is contained in Primaris REIT's filings with the securities regulators. These filings are also available on Primaris REIT's website at www.primarisreit.com. I'll now turn the call over to Alex Avery, Primaris' Chief Executive Officer.

Thank you, Leslie. Good morning. Thank you for joining Primaris REIT's Third Quarter 2025 Conference Call. Joining me today are Pat Sullivan, President and Chief Operating Officer; Rags Davloor, CFO; Leslie Buist, SVP, Finance; Mordy Bobrowsky, SVP, General Counsel; and Graham Procter, SVP, Asset Management. Claire Mahaney, our VP of Investor Relations and Sustainability, is out with some of our Board members doing Board engagement with investors today. Q3 2025 delivered another excellent quarter of results, including same-property NOI growth and almost 6% FFO per unit growth, driven by the continued secular recovery in the Canadian mall sector. Once again, this quarter, we demonstrated disciplined capital allocation, recycling capital from strategic dispositions and retained free cash flow into both strategic acquisitions and unit repurchases. 2025 has been an incredibly active year. With the business delivering strong operating and financial results, we have been using this time to recycle capital with the objective of structurally raising Primaris' long-term internal growth rate from its portfolio of exceptional properties on a sustained and durable basis. While 5 disclaimed HBC leases were an occupancy and NOI headwind in the quarter, we are very excited to announce substantial leasing progress made on 5 of the 6 disclaimed HBC boxes and the leasing of the vacant Sears box at Lime Ridge. This includes the HBC at our Promenades St-Bruno property in Montreal acquired in early October. Pat will provide more details shortly, but we have leased almost 0.5 million square feet of space to single-tenant occupiers and anticipate tenants to take possession as soon as November as in next month and in Q1 of next year. Late Tuesday, we learned the remaining 5 leases were disclaimed, allowing Primaris unfettered access and control of these spaces as of November 27, 2025. In 2025, we have acquired 4 top-tier malls, including Oshawa Center, a 50% interest in Southgate Centre in Edmonton, Lime Ridge Mall in Hamilton and Promenades St-Bruno in Montreal, bringing total acquisitions for the year to $1.6 billion. Consistent with our strategic ambition of becoming the first call, all of these acquisitions are consistent with our target mall criteria and were chosen to increase portfolio quality and to structurally increase the base level of internal growth in our portfolio to an above-sector average 3% to 4% same-property NOI growth rate on a durable and recurring basis. These malls, in addition to our other acquisitions to date, are important centers for retailers in Canada, are the leading shopping centers in their markets and elevate Primaris' stature in the mall industry. The resulting scale and quality of our mall portfolio makes us a strategically important landlord to retailers across Canada. Even better, all of these acquisitions were completed with FFO accretion on an NAV-neutral basis, while keeping leverage within our target range. In September, we held a very well-attended property tour at Les Galeries de la Capitale in Quebec City, where we hosted analysts and investors. Capitale was acquired in 2024 and is the leading shopping center in Quebec City. We showcased Primaris' execution of its acquisition strategy, as well as our mall management team, the quality of the asset, the scale of the recent renovations prior to our purchase and spent some time on the value creation opportunities we are exploring with the excess land at this site. We also invited local industry experts to participate, providing the full picture of the opportunity we see ahead for this asset. Some of us even rode the Electro roller coaster, which left my knees weak and my stomach queasy, mission accomplished. Throughout the tour, we emphasized the connection between these acquisitions and our ambition to be the first call for retailers seeking space in Canada's top malls. We hope attendees found it valuable and a great use of time. Along with our quarterly results, we are also announcing a 2.3% distribution increase, our fifth annual increase. Effective with this increase, we anticipate Primaris will be added to the Dividend Aristocrats Index at the next appropriate rebalancing. With all of the transactions we have completed over the past 2 years, we have substantially repositioned Primaris' portfolio to deliver and exceed the outcome our investors want most, high-quality and durable NOI with sustainable same-property NOI growth in the 3% to 4% range, translating to above-average FFO and AFFO growth per unit. I'll now turn the call over to Pat to discuss operating and leasing results, followed by Rags, who will discuss our financial results. Pat?

Thank you, Alex. We've been hard at work reshaping the portfolio to achieve structurally higher internal growth by acquiring some of the best malls in the country and recycling capital from our noncore property portfolio. Underlying fundamentals for shopping centers continue to be supported by low retail supply, strong tenant sales and continued tenant demand for quality space. In March 2025, HBC filed for CCAA protection, and a process commenced shortly thereafter to surface value from the leases. In June 2025, 5 HBC locations in our portfolio were disclaimed. These 5 locations occupied approximately 532,000 square feet. A proposed assignee emerged for 28 locations, including 5 sites owned and managed by Primaris. These 5 locations not originally disclaimed encompass approximately 624,000 square feet. Last week, to our satisfaction, the court rejected the proposed assignment. And on October 28, all remaining HBC leases were disclaimed. In addition, we obtained control of the vacant HBC box at St-Bruno upon the closing of our property acquisition. The HBC St-Bruno location is about 131,000 square feet. For reference, the average minimum rent HBC paid in our portfolio was $4.18 per square foot, equating to $5.4 million annually. With the [ disclaimant ] of all remaining HBC leases, retailers will now be able to understand and assess the full inventory of HBC space available. We now anticipate an acceleration of negotiations with tenants for all available space. We have made significant leasing progress at our HBC boxes and are pleased to announce that we have agreed to terms with tenants for the entire HBC box at St-Bruno with [indiscernible], as well as for 1 level at Galeries de la Capitale with [indiscernible] and with Zellers at Sunridge Mall. We anticipate the Medicine Hat lease deal to replace the entire premises formerly occupied by HBC will be signed imminently. All 4 deals have been completed with very limited capital contribution from Primaris and have been kept short term with the potential to extend further. These stores will collectively occupy approximately 384,000 square feet and will open in spring 2026. At Place d'Orleans, we are in advanced discussion with a single tenant to occupy the entire premises on a long-term deal with limited capital contribution from Primaris and anticipate completion of a transaction in Q1 2026. We are in active negotiations with national covenant tenants for space within all our HBC locations, and we will provide further updates on leasing and development activity in the near term. As a general statement, we continue to estimate that it will cost approximately $25 million to $30 million to demise an HBC box and approximately $8 million to $9 million to demolish, including all site works. Where a single tenant takes an HBC box, the cost to Primaris could be as little as 12 months of free rent. We are currently estimating a total HBC-related spend of $125 million to $150 million over the next few years. Furthermore, we expect yields on this invested capital of between 7% and 12% or more, or a lower 3% to 6% when including only the incremental NOI beyond the foregone HBC rent. We would like to take the opportunity to announce that we have signed a lease with a single national tenant for the entire former Sears premises at Lime Ridge Mall, which measures approximately 139,000 square feet. The term of the lease is 20 years with limited capital investment from Primaris. The tenant is expected to take possession in November 2025 and open early 2027. Our same-property cash NOI was up 0.7% for the quarter compared to Q3 2025 and 5.1% for the first 3 quarters of the year. The primary drivers were higher rents and specialty leasing revenue. Same-property NOI was also impacted by a $600,000 accrual adjustment in the prior quarter and $800,000 in lost revenue due to the closure of 5 HBC locations. Excluding these 2 items, same-property cash NOI would have been 3.1% positive. Recovery ratios for the quarter were essentially flat compared to the same quarter in 2024 and up 1.5% to 79.4% on a year-to-date basis. While our property tax recovery ratio was negatively impacted by the closure of HBC, we realized a gain in our operating cost recoveries of 2.3% as compared to the same period of the prior year. We have adjusted our spending to incorporate the shortfall in operating contributions from HBC to maintain affordability for our tenants. The increase in operating cost recovery ratio continues to trend towards a return to historical norms in the metric, which is around 92% to 93% for property tax and 96% to 97% for operating costs as compared to our current figures of 74.8% and 84.4%, respectively. For context, every 1% increase in CAM and tax we recover equates to approximately $2 million annually. This number directly impacts the bottom line. Portfolio in-place occupancy was 91.7%, down 1.6% from Q3 last year, but higher than the 88.8% reported in Q2 2025. New store openings pushed occupancy higher in Q3 2025. Over the past several quarters, we note there's a higher proportion of committed area being related to CRU space, which generates higher rents than anchor and major premises. Leasing activity was very strong during the quarter with 121 leases renewed at spreads of 5.3%. In addition, we completed 41 new deals encompassing 79,000 square feet during the quarter. Average CRU rents achieved in new deals during Q3 was $57.60 per square foot, which is 20% higher than our average CRU rents of $47.81 per square foot. Year-to-date, we have completed 97 new deals for 228,000 square feet with 88 of those deals being CRU tenants equating to 162,000 square feet. During the third quarter, approximately 175,000 square feet of tenants commenced rental payments, and we anticipate 135,000 square feet of tenants will commence rental payments during the fourth quarter. Our leasing team continues to experience strong demand for space, and our watch list is limited. We are in active discussions with existing retailers in our properties to expand their footprint and from retailers looking for new locations, including both Canadian and international retailers. Our weighted average net rent per square foot for the quarter increased to $29.16 per square foot versus $25.28 per square foot at year-end. This material increase is a result of our acquisition activity of properties with higher rents, disposition of properties with lower rents and the 5 disclaimed HBC leases with net rents significantly lower than our portfolio average. Tenant sales within our properties continue to grow, and our malls realized positive sales growth on both the same-store and all-store basis during August, which is generally the third busiest month of the year for enclosed shopping center sales. Including St-Bruno, total sales productivity has grown to $800 per square foot versus $715 per square foot at Q3 2024, and total sales volume now exceeds $3.5 billion compared to $2.1 billion at the end of August 2024. Several of our properties have shown strong productivity growth, including Oshawa Center, where same-store sales have grown from $758 per square foot at acquisition to $825 per square foot. Our sales productivity numbers continue to grow because of strong tenant performance and capital recycling, including the strategy of acquiring leading shopping centers in growing markets. Over the long run, we anticipate sales growth at our properties will occur to the strong fundamentals in the enclosed shopping center industry, including a 30-year low in per capita enclosed mall square footage in Canada, coupled with population growth. To conclude, it is a very exciting time to be in the mall business. Primaris' business continues to perform very well, and we are very well positioned to capture continued growth within our malls. And with that, I'll turn the call over to Rags to discuss our financial results. Rags?

Thank you, Pat, and good morning, everyone. Our operating and financial results for the quarter continued to remain very strong. We're seeing very strong NOI growth from our portfolio, specifically the acquisition properties. And our many operating metrics are continuing to improve. These results are flowing through to our cash flow metrics with FFO per diluted unit up 5.7% for the quarter. We achieved these impressive per unit results despite higher interest costs, increased unit count, sale of noncore assets and the impact of the disclaimed HBC leases. Internal growth and accretive high-quality acquisitions completed over the last 12 months are the drivers of our outperformance. During the quarter, we closed on the sale of 3 strip plazas in Medicine Hat, Alberta for proceeds of $12.7 million and the disposition of Northpointe Town Centre, an open-air plaza in Calgary, Alberta, for $54.5 million. This brings total dispositions year-to-date of $246.1 million. Notably, we have Northland Village up for sale, a high-quality recently developed power center. The center is anchored by Walmart, Winners, Best Buy, Good Life, Dollarama and Spinelli Italian Centre Shop, a specialty grocery store and restaurants similar to Eataly, all in an affluent trade area in Northwest Calgary. As expected, this asset has attracted a broad pool of interested buyers, and we expect this deal to close late in the year. Our disposition strategy aligns to our strategy to own a growing high-quality portfolio of leading enclosed shopping centers in Canada. At Primaris, we talk constantly about our differentiated financial model. We are highly committed to maintaining very low leverage at below 6x debt-to-EBITDA and maintaining an FFO payout ratio of approximately 50%. This model gives us structurally higher FFO and AFFO per unit growth as we retain and compound capital faster. As our public company track record continues to grow, we expect this to result in an improved cost of capital with higher FFO and AFFO multiples from their current levels. Our average net debt to adjusted EBITDA was 5.9x. As a reminder, this range forms part of our executive compensation structure with the top end of the range of 6x. Our financing strategy is another critical piece of our structure. Our investment-grade rating, made possible by our sector-low financial leverage and low payout ratio, allows us to access the unsecured debenture market. This greatly simplifies our ability to arrange debt financing for our acquisitions as the mortgage financing alternative for these large value properties and stretch the limits of the secured mortgage market in Canada. The unsecured structure also allows us to buy and sell properties, as well as renovate and redevelop the properties, without the constraints that come with secured mortgages. This gives us a significant advantage over potential new entrants to the mall market and over smaller private groups. In October, concurrent with the Bruno acquisition, Primaris issued a 5-year $250 million senior unsecured green debenture at a spread of 110 basis points, resulting in a coupon of 3.845%. The net proceeds from the issuance will fund eligible green projects as described in our green finance framework. Including this issuance, our weighted average term to maturity is extended to 4.2 years and the weighted average interest rate is reduced to 5.03%. With unencumbered assets of $4.4 billion, $618 million of liquidity and no debt maturing until 2027, we have eliminated financing risk in the medium term and have access to significant liquidity. Primaris has been in the market repurchasing units since March 9, 2022, under the NCIB. In 2025, we have purchased for cancellation 4.7 million units at an average value per unit of $15.09, or an approximate 30% discount to NAV of $21.58. Repurchases under the program in 2025, funded in part by proceeds from dispositions, have already exceeded all repurchases completed in 2024. This program is very accretive to unitholders. Given our strong results to date and confidence in the strength of our business, we are reiterating our 2025 guidance for cash NOI of $352 million to $357 million and FFO per unit of $1.78 to $1.82. This guidance accounts for accretive acquisitions completed during the year and no rental income from the remainder of the HBC leases. We do not anticipate any significant CapEx spend with respect to the HBC boxes in 2025 due to the timing of the CCAA process. Our guidance includes the impact of the acquisitions of Oshawa Centre, Southgate Center, Lime Ridge Mall and Promenades St-Bruno, and approximately $250 million in dispositions that have been completed. No additional acquisitions are incorporated into the guidance. We anticipate same property cash NOI growth to remain in the range of 4% to 5%. We adjusted our occupancy guidance for the balance of 2025 to 85% to 87%, which assumes the HBC leases are disclaimed and accounts for acquisitions with lower occupancies. Further details of our 2025 guidance can be found in Section 4 of the MD&A titled Current Business Environment and Outlook. We are also announcing 2026 guidance with an anticipated cash NOI of $385 million to $395 million, same-property cash NOI growth of 1% to 3% and FFO per unit of $1.83 to $1.88. This guidance includes the sale of Northland Village on or about December 31 of this year. No other acquisitions or disposition activity are considered. We had a lot of positive leasing momentum in our same properties that is offsetting the hurdles of HBC and Toys "R" Us vacancy and the high volume of prior year tax recoveries in 2025. If you are trying to reconcile same-property NOI growth to FFO growth, it is important to note that 1/3 of the 2026 cash NOI guidance is attributable to 2025 acquisitions, which are not included in same property. Overall, we are pleased with our results for the third quarter and are optimistic of the outlook into 2026 and beyond. Maintaining our conservative financial model and generating free cash flow after distributions and operating capital is the core focus from which we will not deviate from. And with that, I will turn the call back to Alex.

Thank you, Rags. We are very pleased with our results so far in 2025. 2025 has been a remarkable year for Primaris: $1.6 billion of strategic acquisitions completed; over 6% FFO per unit growth, based on our 2025 guidance midpoint; continued strong leasing and operating results; our fifth consecutive annual distribution increase; a rising weighting in the TSX Capped REIT Index; and a doubling of our trading volume as measured in dollars of units traded per day from about a year ago. We completed our 3-year sustainability plan and established a new plan for the next 3 years. Our trustees are out meeting with investors today as part of our annual Board engagement program. With visibility to controlling all HBC spaces by the end of November, we are confident that 2026 will be another remarkable year for Primaris. We'd now be pleased to answer any questions from the call participants. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Sam Damiani from TD Cowen.

So just on the HBC spaces, backfilling of those, great initial progress. I wonder if you could just maybe give us a picture of sort of how you see it playing out. You've got 11 spaces. It looks like pretty much 5 are put to bed imminently. How is that going to look in terms of leases to tenants that are sort of quick backfills with minimal CapEx versus maybe tenants coming in, maybe bigger tenants with longer commitments that are taking a little longer to ramp up operations and open their stores?

Yes, I mean, our ultimate goal is to get long-term leases with national covenant tenants. The tenants we've done deals with right now are relatively short term in basis, but we are optimistic that they will -- that there's a chance they'll turn into longer terms. It might not be in the square footage they're in today. They might actually get a reduced size as we go forward. One of the issues with this process that started back when the bankruptcy was filed in March has been, it's been a long process and really ultimately had a lot of really quality property tied up. And the result of that has been that tenants have been rather slow in dealing with commitments. They wanted to understand the full inventory of the space that was available before they really press forward with their plans to commit capital for new store openings. So with the announcement on Friday coming out, we really received a lot of positive inbound calls wanting to tour, wanting to start proceeding with discussions. So we're optimistic we can move a lot of the other deals forward on the remaining 5 locations. And even in the stores that we've tied up short term with tenancies, while we're optimistic that we can keep them longer term, we're going to continue to look at our options for quality tenants that can take them for the much longer term.

And with that -- I guess, with that sort of strategy -- initial strategy, let's say, Phase 1 of the strategy, I guess, it sounds like the CapEx for Primaris might actually be quite modest relative to that sort of $150 million overall perhaps budget certainly in the next couple of years. Would that be fair?

Yes, I would say that's a fair comment.

Our next question comes from Mario Saric from Scotiabank.

Just coming back to your '26 FFO per unit guidance, can you discuss what FFO you reflected regarding the HBC backfill that Pat was just talking about? And as a follow-up, what are the key items in that guidance that are driving the $183 million to $188 million range?

Yes. So the HBC, I don't know that we have any cash rent coming in. There was some, but there's also some straight-line rent. I can't recall the exact numbers. So we'll have to get back to you on that. The guidance is really -- we almost look at it as 2 buckets. There's the same store, same property, which is sort of flat to up a couple of percentage points. And HBC is obviously the big factor there. So with the 5 other stores coming back, we had not assumed anything on those 6, I should say. The 5 that we got in progress, we did embed some assumptions on that. And then, we do expect some significant growth on the acquisition. So that's sort of what drove the overall FFO per share increase. There's a modest increase in G&A, as you can see. And that's about it. It was pretty clean, pretty simple. We did not include -- we reduced our assumption around the property tax rebates because we -- a lot of the appeals have now gone through. So we do have an amount in there, I think, about $1 million, and that's about it. If you're looking for noise, that would be the only sort of non-recurring item, if you want to call it that.

I think just from a general guidance statement perspective, the pace of developments that we've experienced since September 30 on HBC in particular, initially with the ruling from Judge Osborne and then the disclaimer of the leases on Tuesday, the discussions have been pretty fast and furious. And we have the 3 leases that we noted in the press release and in the materials, but there are a lot of other discussions ongoing. And so, when you think just about how the timing of preparing guidance and the visibility into what has been executed, what is in process, I think as a general statement, we tend to be relatively conservative on what we include in guidance. But at the same time, we're trying to be as accurate as possible and capture the spectrum of possible outcomes. I think if you look at the bottom end of the range, that would assume that we have nothing and some other assumptions throughout the business. And at the top end of the range, you would include a little bit of HBC backfill revenue, mainly in the form of either sort of temporary tenant cash rent, or if we turn over some space relatively soon, we get percentage rent -- or not percentage rent, sorry, straight-line rent during the fixturing period.

But just to reiterate on the [indiscernible] back, we have not assumed any income on those sets. At the time the budget was prepared, we didn't know what the outcome was going to be.

Yes, we were still waiting for the ruling from Judge Osborne when we prepared the forecast. We assumed that we were going to get them back vacant, but we didn't assume any backfill for any of those.

Our next question comes from Lorne Kalmar from Desjardins.

Just on the 2025 guidance, on FFO, the range is still fairly wide despite there being just one quarter left. I was just wondering if you could provide some insight or some reasoning as to why you guys are giving yourself so much wiggle room here.

It's just kind of nailed down what the percent rent. And we also weren't sure at the time where we were going to end up with HBC, when exactly would the disclaimers kick in, will not kick in. And sales have been strong, so just trying to kind of factor in what's going on with sales because they have been surprisingly resilient, given the economic backdrop.

Our next question comes from Pammi Bir from RBC.

It sounds like the leasing overall is going well in the business, tenants still expanding. Can you elaborate on that, and which tenants are in that sort of expansion mode versus some that might be shrinking? And then, I guess, the second part of my question is, for Q1, typically, we obviously do see some seasonality. And are you anticipating anything outsized in terms of bankruptcies or closures or anything in terms of the watch list?

Pammi, yes, no, leasing is going very well. I mean, there's -- as I noted in my speech, I think there's Canadian and U.S. and international retailers expanding. We've done some deals with Uniqlo. We're in discussions with Victoria's Secrets for new stores. Aritzia is looking to upsize. Lululemon is adding stores. Bath & Body Works is upsizing. Canadian side, you got Soft Moc looking for more space. Browns is looking to capitalize on the closure of HBC and it's looking for new stores. They're seeing a net benefit of footwear traffic flowing into their stores now that HBC is closed. There's a number of Southeast Asia retailers opening in Canada right now, Kiokii being one of them. So there's lots of new activity going on in the malls, which is great. On the other side of it, one thing we did build into our budget that we do anticipate is Toys "R" Us failing in the new year. We have factored that into our numbers, and that's something we've been expecting for some time, and we're being proactive on the replacement tenants, and we have a good handle on all the space right now to replace. So, on the small shop side, there's really not a lot of noise right now. The watch list is very limited. Sears came out of their troubles with the new purchaser. So that situation stabilized. Otherwise, nothing much more on the horizon.

Sorry, just one follow-up. The Toys "R" Us you mentioned, can you just remind us how much square footage that is in total in the portfolio, and I guess, NOI exposure for rents?

I'm going to have to get back to you on that. I don't know off the top of my head. Memory serves, it was 6 stores. The average store is about 20,000 square feet. We already have 2 -- we have vacant possession of 2 already, and we're working on the replacement.

Our next question comes from Tal Woolley from CIBC Capital Markets.

I just wanted to talk a little bit about -- you've got a lot of college towns in your portfolio. And there's obviously been a lot of conversations around immigration and the impact, particularly on those markets. And there's been some discussion in the residential markets about what's going on. Just wondering like how you're seeing that. Are you seeing any impact from changes in approach in malls like Conestoga or maybe Cataraqui and Kingston? There's a handful of names that could probably [indiscernible] off there just to see if -- yes, there's been any change at the CRU level.

No, no, I can't say I've seen any correlation on that side of it. I think mall sales have been doing exceptionally well. Back-to-school was very strong. And that's a big indicator because that's when a lot of the kids are back shopping and looking for supplies and so forth in September. Preliminary numbers on September, I looked at the other day, and they were very good as well. So sales continue to be strong, but I really haven't seen any correlation between the university attendance and the international student makeup and the sales of the properties.

Got it. And then, just when I look at your occupancy, if I look last year versus this year, like this quarter last year versus this year, you have more of your occupancy in these shorter-term leases. Is that a function of just acquisitions? Or is there something else going on there, too?

Yes. I think the occupancy -- the malls that we bought have rather -- they have low occupancy for the most part. Oshawa had a significant amount of vacancy. And I think as you can -- as you've seen by the numbers, the mall sales are doing very well, and we've been leasing up a lot of space. But like Lime Ridge, Galeries de la Capitale, I mean, these have been very opportunistic buys for us because they have not had the attention that perhaps we're affording to them. And not that the previous owner did a poor job. I think just in their greater portfolio, they had some much higher profile malls that got a lot more attention, and we're certainly giving them the attention they need. In the remainder of our portfolio, we have pretty good occupancy levels, and we're driving that forward still, but the opportunity really lies in the malls we've acquired.

And just as a...

Go ahead, Alex. Sorry.

Sorry, Tal. I was just going to say that one thing that struck us as we were going through the quarterly analysis internally is, 30% of our portfolio by NOI, by value has been acquired this year and almost 40% has been acquired in the last 4 quarters. So we have a tremendous amount going on. And your question about whether we're seeing any impact from foreign students and things like that, I think the mall business is a lot like the office business right now, where if you own the AAA product, it is going extremely well. Occupancy is essentially full. Rents are at all-time highs. And if you own a C product, you're having a very, very difficult time. And so, what I think may not be fully appreciated is just how much we have transformed this portfolio. And some of that shows through in some of our metrics. If you look at -- for instance, I was looking at our leasing activity, and in Q3 2025, our average new tenant CRU rent was over $50. And then, if you look at that same number 2 years ago, it was $35. And that's not on a small number of leases. It was 88 leases this quarter, 38 leases 2 years ago. The average rent for the whole portfolio was $29, up from $25. Our pro forma average sales per square foot across the whole portfolio was $800. Two years ago, it was $621. The business has really changed quite a bit. And the macro backdrop, I think, is something that a lot of people put a lot of emphasis on. But I think supply and demand of space is really what drives our business. And for the space that we own, there's a lot of demand.

And just for the short-term leasing component, like, versus the long-term in-place occupancy, like that's sort of ticked up from just below 3% to 4%. I assume, again, acquisition mix has driven that up probably too. But like do you -- I'm assuming you're always going to have a bit of short-term leasing in this business. And so, is there a number like where ultimately you want to get that to?

I don't think there's a -- well, I think you -- my obvious answer is I'd love to have none, but you're right. We're always going to have some because we're always trying to remerchandise the properties. I think the max occupancy for Primaris at peak back 15 years ago was probably around 96%, 97%. And that's just simply related to the fact that we always had space that was swing space and remerchandising. That's part of the business, and that's how you continue to grow rents if you have to remerchandise. But you're right, the additional -- the uptick in our specialty leasing space or our temporary space is really tied to the new acquisitions where there was a lot of vacancy in place that was occupied by temporary tenants.

Our next question comes from Mark Rothschild from Canaccord.

It sounds like in general, the demand is there, the fundamentals are good. To what extent should we be reading into a trend in leasing spreads? Obviously, it could be lumpy quarter-to-quarter, especially with perhaps some larger leases. But looking at the trend of the past few quarters, I just want to know if we should be reading into that. And what should we expect the trend to be over the next few quarters with your visibility on leasing?

Mark, yes, the renewal spreads, there's 3 tenants -- if we remove 3 tenants from this number this quarter, it would have been up -- it would have been 2% higher. I think we've generally been guiding to the mid-to-high single digits. And I think that trend is going to continue. It's going to -- it always depends on the subset of tenants that's expiring. But while we're still in the phase of driving the occupancy higher, we've tended to hang on to tenants that perhaps in another time, we would have let go, just to maintain occupancy. So we're still working through the Bay portfolio and driving occupancy higher. So I still think mid-to-high single digits is the right number.

Okay. Great. And maybe one more, which I think you've kind of spoken about already, just to make sure I understand this clearly. For your guidance range for same-property NOI for 2026, at the top end, what would that assume from HBC sites? And to what extent could that be exceeded if you get more leasing done in time? Or is it just not likely to lead to a lot of rent in 2026 just because of the work you might do at those sites?

Yes. I mean, there's a bunch of moving pieces there. And when you think about the types of tenants that are going in, if you're going to take a full HBC store and the tenant is going to build out the space, we're probably going to give them 12 or even 15 months of build-out time. And during that time, they wouldn't be paying any cash rent. So we will be collecting straight-line rent in terms of our FFO. Other tenants we're going to bring in have less of a capital investment strategy, maybe shorter term in nature. And then, we have some where we're contemplating re-demising into CRU, which involves a lot more capital, but also would generate $70 and even higher than that average rents on the resulting CRU space. So a big part of what the -- I guess, the variability in our 2026 guidance is really about the timing of all of this. And I would say, the early results are pretty impressive in terms of how much leasing activity we've gotten done on HBC space since we got control of the first 5 of them back in June. But even with that control, it's really about the timing. I think we don't have guidance for 2027, but I would say, it's a lot easier to forecast what the financial results will look like in 2027 because 2026, if something comes in, in Q1 versus Q3, that's a huge swing, whereas we're pretty confident that a lot of stuff is going to come in through 2026, and stuff that doesn't come in, in 2026 is likely to come in, in early 2027, very early 2027. And so, the 2026 number is -- it's still -- there's still a fair bit of play in there.

Our next question is from Brad Sturges from Raymond James.

Just, I guess, continuing along the lines of HBC questions. Just on the stores that you're getting back or get control of in November, how would you characterize the prospects in terms of leasing to a single tenant or multi-tenant or the requirement around maybe more of a redevelopment or capital requirement to re-lease the space versus what you've already had control of for a little bit longer and you've done some short-term leasing in the first few stores?

Brad, yes, the stores that we're getting back now were clearly really high-quality locations. And that's Ruby Liu had tied up a lot of the best quality real estate with -- that HBC had in Canada. And so, we've been working on replacement tenants with these boxes for quite some time. And we pretty much know where we're going with this. And it's going to be a mix of -- there's a potential for a single -- there's more likely most of them will be multiple tenants, 2 or 3 boxes. And one will be, in all likelihood, a lot more CRU. And the CRU one will generate higher cost, but it will also generate very high returns because the CRU rents are so high. So it's going to be a mixed bag, but it's all high-quality real estate. And I think we can hopefully get some transactions put to bed pretty quickly as we've already had pretty advanced discussions with people to this point.

Okay. My other question would be just on the investment activity or transaction activity that Primaris has completed or just more on a go-forward basis, I guess, more specifically. Given you've had a lot of success on the acquisition side and you've high-graded the mall quite extensively -- or the mall portfolio quite extensively, where do you rank acquisitions in terms of priority going forward? And how should we think about Primaris' transaction activity, I guess, over the next 12 months?

Thanks, Brad. So yes, we're almost $1.6 billion of acquisitions this year and $250 million of dispositions. We've got Northland Village, which is ballpark $150 million disposition that we're hoping to close by the end of the quarter. So, that will get us to about $400 million. And when we think about the ratio of acquisitions to dispositions, it might be 3:1 kind of a range. So we still have more disposition activity that we'd like to get done in the relatively near term. Transacting was a lumpy kind of an event, and each transaction is unique, but we do have some priorities in terms of dispositions, as you can see in our assets held for sale bucket. On the acquisition side, it is also very lumpy. We don't have anything that we're -- I would describe as being in any advanced stage or any serious focused negotiation, which is different from the status that we've had for most of the last 3.5 years, frankly. But we're optimistic that we'll be able to find some more additions for the portfolio over the next 18 or 24 months. We have a number of properties that we've identified that we'd really like to buy, but it takes a willing seller or a willing buyer and the meeting of the minds on price. So I think you can expect to see more on the disposition front in the near term than on the acquisition front. We also have a lot of -- I mean, when you come to our office, it's a beehive of activity, and we have an awful lot to do in terms of HBC backfills. We're doing a lot of master planning of properties where we see opportunities for separating land and selling to developers or building out parcels for our own account. There's an awful lot going on in our business, and it's all great stuff. But yes, I mean, the -- to your point, the emphasis is less on acquisitions today than it has been at any point in the last 3.5 years.

Our next question is from Matt Kornack from National Bank Financial.

You mentioned, the number of tenants are expanding. Should we think of kind of this HBC opportunity as an ability for new entrants to come into the mall? Or do you think it will create a little bit of musical chairs with existing tenants maybe moving around and backfilling them with others?

Matt, yes, I think in terms of new entrants, there are tenants looking for space in Canada that are struggling to find expansion opportunities just because of the lack of available space and nothing new being built. So tenants like Uniqlo, this presents an opportunity for them to expand their footprint where there was a lack of space in the market. And then, on the CRU side, it has given us the ability to actually be able to consider CRU for the bankruptcy of HBC, whereas in the past, with Sears and Target, I don't think that real opportunity was as prevalent for us. So -- and the CRU pays very good rent. So yes -- but in addition, I do think there'll be some musical chairs with tenants relocating some other developments, perhaps expanding within our own properties, whatever it might be. So it's going to be the same to an extent that it was with Sears and Target.

Okay. Fair enough. And then, just maybe quickly, if you took out the noise from both years from HBC, are you still kind of expecting the rest of the portfolio to be in that kind of 3% to 4% same-property NOI growth range? And would that be a function of occupancy improvement? Or is it still capturing of the change in kind of the accruals that you've been able to charge back to them?

Yes. I think your comment is fair, and I think it's really driven by occupancy. We're doing a lot of new leasing that's continued. Our recovery ratios are still only in the low-80s, and we're continuing to see growth in that every year. And that's going to continue for quite some time until we get back to our historical norms, which are more than 10% from where they are today. So yes, I think outside of the Bay, the business is very solid.

Maybe very quickly a follow-up to that last point. Like what time horizon do you think you can kind of recapture that or...

I'd like to say...

The recoveries.

Yes. I mean, I'd like to say it's probably going to be in the 3-year time frame of our forecast where we can get our occupancy back into the mid-90s.

There's no question, '26 is a bit of a transitional year as we're dealing with Hudson Bay. But '27, '28, you should start to see that acceleration. I mean, we took a small step back on recoveries, and that was wholly a function of the Bay. And so, we can start to work that again. But '26 -- when you get into the latter half of '26 and move into '27, you're going to see quite the acceleration.

I do want to circle back on Toys "R" Us just for everyone's clarity. So we had 6. We terminated 2 last month. We have 4 remaining stores. The average -- it's 104,000 square feet. The average rent -- the average base rent is well below our average in the portfolio. It's only $14 a foot. So good opportunity in one of those locations is at Dufferin where we know we could grow the rent substantially.

Our next question comes from Gaurav Mathur from Green Street.

Just a quick question on the forward guidance. What are the renewal spreads that you're underwriting internally when you're considering both the initial net rents and then also with the contractual rent increases?

Gaurav, our -- I guess, our de facto policy is, we generally try to target 2% to 3% annual rental rate escalations in our leases. And that does play into cash same-property NOI growth. It doesn't show up in our FFO because of straight lining of rent. So, that would be on the sort of step rent side of things. In terms of the leasing spreads, we continue to struggle a little bit with -- it's not an input. I know how you might model our business, but it's not how we would model our business in the sense that we have spaces, and we know what we can generate from those spaces. Often, it's a function of the tenant that we can put in that space. And so, it's a little bit -- we don't really emphasize the leasing spreads as much as you might in other retail property types. There are differences. We proactively try to encourage about 25% turnover on an annual basis in our business. We're trying to really fine-tune the merchandise mix on an ongoing basis. And so, the leasing spreads as well, Pat was addressing it a few minutes ago, we're still seeing some statistical subduing of our leasing spreads because we still have some of these gross rent and percentage rent in lieu leases that are being converted to net rent leases. And those leases tend to offer the largest positive NOI impact for us, but we can't put them in -- I mean, we could put them in, but we just decided that it was too much funny math to try and convert them into some sort of a form that could be captured in the leasing spread. But the trend over the next few years is going to be that our leasing spreads are going to be stronger. But that -- again, that may not actually translate into an acceleration relative to what would otherwise be the case of same-property NOI because we're already capturing it through conversion of these leasing -- these leases that are nonstandard into net lease structures. So I guess, I've been rambling now for a little bit about leasing spreads, but it's not as much of an input into our business as it might be for others.

Our next question is a follow-up question from Sam Damiani.

First one is just on the disposition, I guess, ambitions over the near to medium term. How would you characterize the market today versus maybe 3, 6, 12 months ago for -- in the transaction market?

Yes. I mean, we're seeing some interesting signs of capital becoming more available. We saw a transaction for a 50% non-managing interest in a mall that we would target for ownership, which was the first in some time, and that was at about a 7% cap rate, which is very constructive for our valuations. On the disposition side, it continues to be a relatively thin market from a depth of bidding perspective. There are quite a few parties that show up to the auctions for properties like the ones that we've been selling. But I think the decline in interest rates and increased availability of credit are 2 positives on that front. So we continue to be pretty optimistic that we'll be able to continue to execute on dispositions.

It's really choppy. So, I mean, that's what we're seeing and that’s what Alex is saying. It depends on the day of the week, you call us. It is really kind of all over the place. And it's hard to get any firmness of sense that there's a trend one way or the other.

Understood. And then, just lastly, on the Lime Ridge full space lease for the former Sears, I mean, that's great to hear. I wonder if you could just give us a little bit of a background there, how long that took to get across the finish line? Was it in play with the vendor? Any color there would be helpful.

Yes, there was a discussion that was going on before we ended up buying the property. We advanced it very quickly once we closed on the property and brought it to a resolution very fast.

We currently have no further questions. I'd like to hand back to Leslie for some closing remarks.

Thank you, operator. With no further questions, we will close today's call. On behalf of the Primaris team, we thank you all for participating, and Happy Halloween.

This concludes today's call. We thank everyone for joining. You may now disconnect your lines.