Primaris Real Estate Investment Trust (PMZUN) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the 2025 Annual Meeting of the Unitholders of Primaris REIT. My name is Tim Pire, and I'm the Chair of the Board of Trustees of Primaris REIT, which I will refer to as Primaris or the REIT. Pat Sullivan, President and Chief Operating Officer, is present at the meeting, Alex Avery, Chief Executive Officer, unfortunately, is unable to join due to illness, has a seasonal flu. As you'll see in here, this past year has been an exciting year for Primaris, and the team is very excited for the coming years. Before I call this meeting to order, I'd like to state that the comments made during this meeting of unitholders, the management presentation and the question period may contain forward-looking information within the meaning of the applicable securities legislation, which reflects the REIT's current expectations regarding future events. 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 the REIT's control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. These forward-looking statements are made as of today's date, and except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please refer to the REIT's filings on SEDAR+, including the REIT's Annual Information Form for the year ended December 31, 2024, which identifies certain factors that could cause actual results to differ materially from those projected in any forward-looking statements made during this meeting. With that being said, it is my pleasure to now call the meeting to order. With the consent of the meeting, Mordy Bobrowsky, Senior Vice President, General Counsel and Corporate Secretary, will act as the secretary of the meeting; and Patty Sigiannis of Odyssey Trust Company will act as scrutineer. The secretary has deposited with me a statutory declaration establishing the giving of written notice of meeting and in addition to the sending of the notice of the time and place of the meeting to each unitholder entitled to vote and to each trustee and to the REIT's auditors. The notice calling this meeting requires that unitholders attending intending to vote by proxy must have properly deposited their proxies prior to April 29, 2025 at 10:00 a.m. Eastern Standard Time. The proxies so deposited are now in the custody of the scrutineer. The scrutineer has provided me with the preliminary report on attendance at this meeting, and I confirm that the requisite quorum of unitholders is either present in person or represented by proxy. The scrutineers' report will be kept with the records of this meeting. Notice of the meeting having been given as required and a quorum being present, I declare that the meeting has been regularly called and is properly constituted for the transaction of business. This meeting is being held in a hybrid format, both in person and virtually through a live webcast. We welcome everybody in attendance today. Our decision to hold the meeting in a hybrid format this year was made in consideration of our desire to provide access to our investors and other stakeholders across Canada and beyond Canada's borders. We have done our best to provide a meeting that allows us to communicate with unitholders, receive your questions and comments and permit voting. I would like to thank those unitholders who came, who have chosen to attend the meeting today and all those who have submitted their proxies in advance on a timely basis. The REIT has used notice and access provisions to make the management information circular available to unitholders on the Internet instead of mailing paper copies. A copy of the management information circular is available on the REIT's public profile at sedarplus.com and on its website at primarisreit.com. The agenda for motions to be submitted for unitholders' action with respect to the matters that will be dealt with at this meeting are contained in the notice of meeting that unitholders received prior to this meeting and are more carefully described in the management information circular. I will begin the meeting with a few comments regarding procedural matters for today's meeting format. Registered unitholders and duly appointed proxy holders who voted in advance of the meeting do not need to take any further steps to cast their votes. Your advanced vote has already been recorded. If you do vote at the meeting today, that will automatically revoke any prior vote or proxy granted. That said, if you're a registered unitholder or proxy holder attending in person and you have not already voted or if you are a registered unitholder who would like to change your vote and you have not received a ballot, please raise your hand when requested to vote and the scrutineer will provide you with a ballot. The ballot should be completed by marking an X in the appropriate spaces and must be clearly signed. If you are a registered unitholder, please print your name on the ballot. When you've completed and signed the ballot, please so indicate to the scrutineer who will come and collect it. If you are a registered unitholder or a proxy holder participating online, and you have not already voted by proxy or you would like to change your vote, you can vote when prompted. For those participating virtually, the online polls have been open for all items of business and you may -- and may be voted on at the same time. This will allow you to vote on each item immediately or if you prefer, you may vote until the conclusion of the discussion of all items prior to casting your vote. Once all the business matters have been addressed, I will conclude the balloting. At that time, the voting page will disappear from your screen and the ballots will automatically be submitted. Then the scrutineer will compile the report regarding the results of the voting on all items of business, and we will inform you of the outcome. To make the best use of our time today, our secretary, Mordy Bobrowsky will move various motions. Questions in respect of the business of the meeting may be submitted by unitholders using the designated My Messages field on the web portal and by raising your hand for the participants attending in person. When submitting a question online, please identify whether it relates to a motion being considered as part of the formal process of the meeting or whether it is general in nature. Given the hybrid format of the meeting and in order for us to expediently undertake the discussion on any matter proposed for a vote, while we will pause at certain points during the meeting to provide an opportunity to ask questions, we will encourage unitholders participating online who have specific questions on a formal item of business to submit such questions now. We will address questions directly related to a particular motion at the appropriate time of the meeting. We will do our best to answer all general questions after all formal business items have been completed. But if for any reason we are unable to do so, we will endeavor to follow up with you after the meeting. If during the course of the meeting, we encounter any technical difficulties with the virtual meeting, please remain logged in, and we will resume as soon as the issue is resolved. All participants are responsible for maintaining their own Internet connection. The first item of business is the presentation of the consolidated financial statements and the auditor's report thereon for the year ending December 31, 2024. Copies of the financial statements are available on the REIT's website and on SEDAR+. On behalf of the trustees, I now place before the meeting the consolidated financial statements and the report of the auditors thereon for the year ended December 31, 2024. The next item of business is the election of the trustees. The trustees have a set size of the Board at 6. Each trustee is to be elected at the meeting and to hold office until the close of the next annual meeting of unitholders or until their successors are duly elected or appointed. Details about the individuals being nominated as trustees are found in the management information circular for the meeting, in the proxy forms and voting instruction forms. Unitholders were asked to vote individually for each of the nominees. I will now ask Mordy Bobrowsky to move a motion for the nomination of the nominees named in the management information circular.

Mr. Chair, I move that each of Avtar Bains, Anne Fitzgerald, Louis Forbes, Tim Pire, Patrick Sullivan and Deborah Weinswig, be elected to serve as trustees of the REIT for a term of 1 year beginning today and ending at the close of the next annual meeting of unitholders or until their successors are duly elected or appointed.

The REIT's declaration of trust requires that nominations of trustees by unitholders be received by the trustees at least 30 days in advance of the meeting in order to be valid. As no nominations were properly received from the unitholders prior to the deadline, the nominations are closed. The motion is now open for discussion. Are there any questions in the room? Thank you. Now let us pause to account for any delay in the broadcasting of the online meeting to allow for any questions by unitholders participating virtually. Mordy, are there any questions online?

Mr. Chair, I confirm that we have not received any questions from unitholders participating online specifically on this item.

Thank you, Mordy. Whether you are participating online or in person, please follow the voting instructions I provided at the start of the meeting. The next item of business is the appointment of the auditors and the authorization of the trustees to set the remuneration. I will ask Mordy to form -- to move a formal motion in this regard.

Mr. Chair, I move that KPMG LLP be appointed auditors of the REIT to hold office until the close of the next annual meeting of unitholders or until a successor is appointed and that the Board of Trustees are authorized to fix the auditor's remuneration.

The motion is now open for discussion. As before, I will pause to ask if there are any questions in the room. Thank you. Now let us also pause to account for any delay in the broadcasting of the online meeting to allow for any questions by the unitholders participating virtually. Mordy, are there any questions online?

Mr. Chair, I confirm that we have not received any questions from unitholders participating online specifically on this item.

Thank you, Mordy. Whether you are participating online or in person, please follow the voting instructions that I provided at the start of the meeting. The next item of business is to vote on the nonbinding say-on-pay resolution on the approach to executive compensation. I will ask Mordy to move a formal motion in this regard.

Mr. Chair, I move that the nonbinding say-on-pay resolution on the approach to executive compensation, as outlined in the management information circular for this meeting, be approved.

This motion is now open for discussion. Are there any questions in the room? Thank you. Now let us pause again to allow for any questions by the unitholders participating virtually. Mordy, are there any questions online?

Mr. Chair, I confirm that we've not received any questions from unitholders participating online specifically on this item.

Thank you, Mordy. Whether you are participating online or in person, please follow the voting instructions I provided at the start of the meeting. The final item of business is the vote on certain amendments to the REIT's Incentive Unit Plan. Management has proposed the following amendments to the incentive plan: one, increase the overall maximum number of units issuable under the Incentive Unit Plan; two, revise the maximum number of units issuable to the nonexecutive trustees in any calendar year; three, revise the amendment provision in the Incentive Unit Plan regarding item #2; and number four, to confirm that units covered by the grants settled or surrendered for cash or terminated, forfeited or canceled be available for issuance pursuant to the settlement of subsequent grants under the Incentive Unit Plan. Details about these amendments to the Incentive Unit Plan are found in the management information circular for the meeting. I will ask Mordy to move a formal motion in this regard.

Mr. Chair, I move that the resolution regarding amendments to the REIT's Incentive Unit Plan, as outlined in the management information circular for this meeting, be approved.

The motion is now open for discussion. Are there any questions in the room? Thank you. Now let's pause again to allow for any questions by unitholders participating virtually. Mordy, are there any questions online?

Mr. Chair, I confirm that we have not received any questions from unitholders participating online specifically on this item.

Thank you, Mordy. Whether you are participating online or in person, please follow the voting instructions I provided at the start of meeting. We will now proceed with the process of completing the online voting on all items of business of the meeting. Mordy, just to double-check, given the delay in the broadcasting of the online meeting, have any further questions come in from the unitholders participating online specifically on any of the motions.

Mr. Chair, I confirm that we have not received any questions from unitholders participating online specifically on the motions.

Thank you, Mordy. For those of you participating through a virtual meeting platform who have not voted on all the items of business, please do so now. We will now pause to allow you time to vote, after which the polls for the meeting will close. [Voting]

I declare the polls for the meeting closed. We will pause in silence for a moment to give the scrutineer the opportunity to tally the votes.

Mr. Chair, I'm reporting you on behalf of the scrutineer that sufficient votes have been received for all items of business to pass, and that all nominees for election as trustees received a majority of votes in favor of their election.

Having been informed that all items of business have been duly passed, I declare that Avtar Bains, Anne Fitzgerald, Louis Forbes, Tim Pire, Patrick Sullivan and Deborah Weinswig are each duly elected as trustees of the REIT to hold office until the close of the next annual meeting of unitholders or until their successors are duly elected or appointed. KPMG LLP are appointed auditors to be -- to hold office until the close of the next annual meeting of unitholders or until the successor is appointed and the Board of Trustees are authorized to fix the auditor's remuneration. The motion to approve the nonbinding say-on-pay resolution on the approach to the executive compensation is carried, and the motion to approve the amendment to the REIT's Incentive Unit Plan is carried. As there is no other business that may properly come before the meeting, the meeting is now terminated. It is my pleasure to serve as the Chair of the Board of Trustees. My email address is [email protected]. I would be pleased to hear from any of the stakeholders who would like to engage with the Board. I will now ask Patrick Sullivan to deliver his remarks.

Thank you, Tim. Good morning, everyone. Thank you for joining us at Primaris REIT's Fourth Annual General Meeting of Unitholders. Since our AGM last year and under the guidance and oversight of our best-in-class Board of Trustees, our business continues to deliver very attractive growth. We have been driving same-property NOI growth across our portfolio through raising occupancy and converting leases back to standard terms. The scale of this opportunity continues to be very large, and we expect it to drive above-average same-property NOI growth over the next few years and potentially longer, as we find further opportunities in the portfolio and acquire new properties where we believe we can surface growth. Primaris was created through an incredibly opportunistic spin-off process, providing a substantial public float at a time of deep skepticism in the public markets towards enclosed shopping centers. The advantage this provided to Primaris as we pursued our goals can't be overstated. Combined with the very low leverage and low payout ratio, Primaris was spun off in a manner that provided an ideal starting point. We are a brand-new entity and has an established business with over a 20-year operating history, a deeply talented and tenured team and a very strong financial position. With all these structural advantages, Primaris has been focused on execution. There are 2 important areas of execution worth focusing on at this juncture: one, Primaris' portfolio construction ambitions; and two, the REIT's diversified financial model and its importance to delivering growth in per unit FFO and per unit NAV. Primaris frames its strategic portfolio ambition as becoming the first call for retailers. That means being the first enclosed shopping center landlord retailers call when they want to bring their concepts to Canada or expand their store footprints right across the country. In practice, that means owning a relatively large portfolio of market-leading shopping centers. While popular opinions have varied over time on the strengths of the enclosed shopping centers and the role they have played in the retail landscape, for most of their history, malls have been the top dog among retail property types. This is a function of a few characteristics that set malls apart, including the size and scale of a typical shopping center with typically at least 400,000 square feet of gross leasable area, but often much more than that, a prime location in the center of town, quite often with mass transit connectivity and abundance of free parking. These characteristics tend to make it very difficult to develop new malls, creating a wide moat around our business. Generally, the malls in our portfolio were originally developed several decades ago on vast plots of land, periodically expanded and the cities in which they grew around -- and the cities grew around them. The main threat the malls has historically been and continues to be other malls located in very close proximity to each other. You can see how we define market leading by looking at our acquisition criteria, which includes aggregate CRU sales volume of at least $100 million per year, markets with population of no less than 200,000 people and generally being the most productive mall in the market as measured by sales per square foot. When viewed holistically, our acquisition criteria results in a portfolio of properties in growing cities that are the primary retail node in their market and attract the most productive retailers with the highest demand from consumers. Becoming the first call defines Primaris' strategic ambition by describing the role we want to play in businesses of our customers, being both retailers and consumers. By positioning Primaris this way, we expect the REIT to have the most defendable competitive position among retail landlords and also be well positioned to capture upside by participating in the success of Canada's most successful retailers. We are pleased to report that over the past 3 years, Primaris has acquired 11 new shopping centers totaling $2.4 billion, which moved the REIT significantly closer to its ambition of being the first call. These additions to Primaris portfolio are designed to deliver higher internal growth in the Primaris portfolio. These -- sorry, let me back up. These additions in the Primaris portfolio are designed to deliver higher internal growth in the form of net operating income growth, which drives NAV per unit growth, FFO per unit growth and ultimately, distribution per unit growth. Turning to the REIT's diversified financial model and its role in delivering growth per unit FFO and per unit NAV. While we have made significant progress in demonstrating the value of our financial model, the best is yet to come. In terms of progress, Primaris has grown FFO per unit by 7% over the 3 years, 2022 to 2024 and 13.3% in Q1 2025 alone, an above-average growth rate relative to its Canadian retail peer group. What makes this particularly remarkable is that Primaris experienced a 2.55 basis point increase in its weighted average interest rate since 2022, resulting in an approximate $0.46 increase in interest expense. In 2024, FFO per unit rose from $1.58 to $1.69 per unit, overcoming the interest rate headwind and delivering per unit growth. $0.56 per unit in total change was driven by a combination of strong NOI growth, acquisitions, retained cash flow, retained free cash flow and unit repurchases completed under the NCIB. With essentially all debt at now fixed rate, maturities laddered out across the next 7 years and a weighted average interest rate of 5.2%, interest rate headwinds are now behind Primaris, and the growth rate of FFO per unit should benefit the continued contributions of NOI growth, acquisitions, retained cash flow and NCIB activity. The benefits of the differentiated financial model to both FFO per unit and NAV per unit are clear. Lower leverage and more retained cash flow deliver more consistent and sustained higher growth in both metrics. For nearly 30 years, the largest single contributor to FFO growth per unit was refinancing maturity, maturing debt at lower interest rates. That era is over. And whether interest rates remain low or rise, Primaris' differentiated financial model provides: one, lower sensitivity to interest rates; secondly, structural higher cash flow growth; third, lower reliance on external capital to fund growth; and fourth, substantially more financial flexibility to pursue value-enhancing strategies. As we look forward to 2025 and beyond, we see a long runway of opportunity to drive growth out of our existing portfolio and a variety of acquisition opportunities that can enhance our value proposition with retailers. We are well positioned to capitalize on these opportunities with the right team and platform and the right financial model for the road ahead. We'd now be pleased to answer any questions from participants. Mordy, are there any questions from the room or online?

There are no questions at this time.

Thank you, everyone, for joining us today. On behalf of the Board and the leadership team, we appreciate you taking time this morning to hear from us. As the meeting has ended, I will now turn the webcast portion of the meeting back to the operator.

Thank you very much for attending. The meeting has now concluded. You may now disconnect.