Pro Real Estate Investment Trust (PRVUN) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the Annual Meeting of Unitholders of Pro Real Estate Investment Trust. Please note, this meeting is being recorded. I would like to introduce Mr. John Levitt, Chairman of the Board. Mr. Levitt, the floor is yours.

Good afternoon, ladies and gentlemen. My name is John Levitt, and I am the chair of the Board of PROREIT. It's a pleasure for me to welcome all of you to our annual meeting of unitholders. Today's meeting is being held virtually once again this year due to the pandemic and to ensure the health and well-being of our unitholders, employees and other stakeholders. The business of today's meeting will be conducted in English. Before we move on to the formal portion of this meeting, I would like to say a few words about last year. I know I speak on behalf of all my fellow trustees when I say that we are very proud of the way the PROREIT management team and employees navigated the pandemic. They showed remarkable dedication and agility. As stewards of the REIT, your trustees also remain fully committed to their fiduciary responsibilities and in upholding the highest governance standards through these challenging times. From the onset of the pandemic, the Board and its committees were actively involved and work closely with management in order to monitor and reassess as the pandemic situation evolved. Management continued to operate the business prudently in order to preserve unitholder value and always with an eye on the long term. Management did so while also prioritizing the health and safety of employees, tenants and their clients. We look to the future, we have full confidence in management's ability to continue to profitably and responsibly grow PROREIT in order to generate sustainable value for our unitholders. Now turning to the formal business of the meeting. Today's agenda will appear on your screen. The matters to be considered at today's meeting are the receipt of PROREIT's audited consolidated financial statements for the year ended December 31, 2020, and the report of the auditor and those statements; the election of trustees of PROREIT for the ensuing year; the appointment of MNP LLP as the auditor of PROREIT; an authorization for the Board of Trustees to determine the remuneration to be paid to the auditor; and any other matters which may be properly brought before the meeting. During the meeting, registered unitholders of PROREIT and duly appointed and registered proxy holders may, at any time, submit questions or communicate with the chair and the secretary by clicking on the Ask A Question icon, typing in and submitting their question or comment. If you were attending as a guest, you will not be able to ask questions during the meeting. Given the virtual format of the meeting and in order for us to expeditiously address as many questions as we can, we would encourage unitholders who have a specific question on the items of business to be discussed and voted on at today's meeting to submit their questions now. If you have further questions not relating to the items of business to be discussed at today's meeting, please feel free to submit those questions at any time, and they will be addressed at the conclusion of the meeting. Before we begin, I would like to acknowledge some of the trustees and senior officers of PROREIT who are attending today's meeting virtually: Jim Beckerleg, our President and CEO and member of the Board; and Gordon Lawlor, our Executive Vice President, Chief Financial Officer and Secretary. I would also like to take the opportunity to acknowledge some of the other members of the Board of Trustees who are or may be attending today's meeting: Peter Aghar, Vincent Chiara, Martin Coté, Shenoor Jadavji, Gérard Limoges and Ronald Smith. In accordance with the declaration of trust of the REIT, I will act as chair of the meeting. With the consent of the meeting, Gordon Lawlor will act as secretary. With the consent of the meeting, I appoint Rosa Garofalo of TSX Trust Company as Scrutineer for the meeting. I will now pause for a few if there are any questions and ask [ Mr. Gotye ] who is monitoring the questions to let me know if there are any.

Mr. Chairman, there are no questions.

Thank you. Let us now proceed with the business of the meeting as set forth in the notice of meeting. I have received an affidavit of a representative of TSX Trust Company as to the due mailing to unitholders of the notice calling the annual meeting of unitholders and the form of proxy or voting instruction form for the meeting. The information circular for the meeting together with the 2020 annual financial statements and related auditor's report were made available through the notices and access system of the Canadian securities regulators. They are also available on SEDAR and on PROREIT's website and can be accessed by clicking on the Links in the Welcome Language located at the top of your screen. I request that a copy of the notice of the annual meeting of Unitholders, together with the affidavit attesting to the mailing of the notice and the form of proxy and the voting instruction form, be kept by the secretary with the records for the meeting. I have been advised by the scrutineer that prior to the meeting, proxies were received from holders of more than 12 million units or approximately 25% of the voting rights attached to the units entitled to be voted at the meeting. As a result, we have a quorum for the meeting, and I declare the meeting to be regularly called and properly constituted for the transaction of business in accordance with the court order allowing the REIT to hold this meeting by way of electronic means. The scrutineer's report will be provided to the secretary of the meeting and will be incorporated into the minutes of the meeting. I would now like to explain our voting procedures. As you may know, most of the trust units at PROREIT are held through brokers in book entry form and are registered in the name of the nominee. To vote at this meeting, each holder of trust units held in book entry form must have previously submitted voting instructions or designated a representative and completed the procedure outlined in the information circular and their voting instruction form to register for this meeting. All other trust units and special voting units are registered in the name of the persons holding them directly and may be voted at the meeting. During the meeting, the trust units of the REIT and the special voting units of the REIT are collectively referred to as units and the holders of any such units are referred to as unitholders. To facilitate the formal business of the meeting, Ms. Schafer will propose and [ Mr. Gotye ] will second the formal motions. Each of them is a unitholder of PROREIT or a duly appointed proxy holder. While this procedure will assist the handling of the formal matters, it should not discourage any unitholder or proxy holder from speaking via the questions function in reference to any motion after it has been proposed and seconded. I would ask you to be brief with your questions and remarks, limiting them to matters directly related to the meeting or to the REIT's business generally. At this meeting, each unit is entitled to 1 vote. If you have voted your units prior to the start of the meeting, your vote has been received by the scrutineer, and there is no need to vote those units during the meeting unless you wish to revoke or change your vote. In order to streamline the voting procedure, we will now open the poll. And at any time during the meeting, registered unitholders who have not already provided voting instructions or appointed a proxy holder that are logged on and wish to vote their units may do so by clicking on the Cast Your Vote icon on your screen. The polling screen will also appear in due course to the unitholders who have logged on and with their control numbers. Duly appointed and registered proxy holders may also vote now using the same method. The polls will remain open until just before the conclusion of the formal business of the meeting. If you are attending the meeting as a guest, you will not be able to vote or ask questions during the meeting. Following the formal business of the meeting, there will be a management presentation and question period with unitholders and proxy holders. I would also like to caution you by stating the following on behalf of those speaking today. Forward-looking statements may be made during this meeting or during the discussion following the formal part of the meeting. And there are risks that actual results could differ materially from forecasts, projections or conclusions in forward-looking statements. You may find additional information about such risks and assumptions that could cause actual results to differ in the forward-looking statements section in the Risk Factors section of our annual information form, which is available on SEDAR. The first item of business is the presentation of the consolidated annual financial statements of the REIT for the year ended December 31, 2020, together with the auditor's report thereon. The financial statements are available under PROREIT's profile on SEDAR and on PROREIT's website. They can also be accessed by clicking the links in the Welcome Language located at the top of your screen. I now present to the meeting the financial statements together with the auditor's report thereon. I ask the secretary to keep a copy of these statements with the minutes of the meeting. The next item of business is the election of trustees to the Board of Trustees,for a term expiring at the close of the next annual meeting of unitholders in 2022 or until their respective successors are elected or appointed as they otherwise -- or they otherwise cease to hold office. As stated in the information circular prepared and filed for this meeting, 8 trustees are to be elected at the meeting. 8 trustees are named in the information circular. As stated in the information circular, the trustees of the REIT have adopted a policy that entitles each unitholder to vote for the nominees for election by the unitholders on an individual basis. In addition, the trustees have adopted a policy stipulating that if the votes in favor of a nominee for election as trustee of PROREIT by the unitholders represents less than a majority of the units voted and withheld, the nominee will submit his or her resignation promptly after the Board meeting for consideration by the Board of Trustees. Ms. Schafer, would you please propose the nominations for election of the trustees?

Mr. Chairman, my name is Alison Schafer. I am a proxy holder appointed by a unitholder of the REIT. I nominate the following persons for election as trustees of the REIT to hold office for a term to expire immediately following the annual meeting of unitholders in 2022 or until their respective successors are elected or appointed or they otherwise cease to hold office: Peter Aghar, James Beckerleg, Vincent Chiara, Martin Cote, Shenoor Jadavji, John Levitt, Gérard Limoges, Ronald Smith.

Thank you. Certain advance notice provisions are included in PROREIT's declaration of trust. And any additional nominations must be made in advance of the meeting in accordance with the terms of the advance notice provision. PROREIT did not receive notice of any trustee nominations in connection with this meeting within the time prescribed by the advance notice requirements in PROREIT's declaration of trust. Accordingly, at this meeting, the only persons eligible to be nominated for election to the Board are the persons nominated by management as set out in the information circular. Since there are no further nominations, I declare the nominations closed. Mr. Gotye, do we have -- have we received any questions relating to this item of business?

Mr. Chairman, there are no questions.

Thank you. As a reminder to unitholders and proxy holders voting at the meeting, to vote on this item of business under the Cast Your Vote icon or on the welcome screen, you will find listed the names of the 8 nominees for election to the Board of Trustees listed in the information circular. For each nominee, you may vote for or withhold from voting in respect of that nominee. If you have already provided voting instructions or submitted a proxy, you do not need to vote on this matter. I have been advised by the secretary based on the scrutineer's report that a significant majority of the proxies received by management prior to the meeting have been voted for the election of each of the persons nominated to serve as trustees. I will announce the voting results after all other matters of business have been voted on. You can cast your vote until I announce that the polls are closed. The next item of business is the appointment of the REIT's auditor for the ensuing year and the authorizing of the Board of Trustees of the REIT to fix the auditor's remuneration. The Board's Audit Committee and the full Board have recommended the reappointment of MNP LLP as auditor. Ms. Schafer, would you please make a motion?

My name is Alison Schafer. I am a proxy holder appointed by a unitholder of the REIT. I move that MNP LLP be reappointed auditor of the REIT to hold office until the next annual meeting of unitholders or until their successors are appointed and that the Board of Trustees of the REIT be authorized to fix its remuneration.

[ Mr. Gotye ], would you please second the motion?

My name is [ Veth Gotye ]. I am a unitholder of the REIT. I second the motion.

A motion has been made and second to appoint MNP LLP as the REIT's auditor and to authorize the Board of Trustees of the REIT to fix its remuneration. [ Mr. Gotye ], have we received any questions relating to this item of business?

Mr. Chairman, there are no questions.

Thank you. As a reminder to shareholders and proxy holders voting at the meeting, to vote on this item of business under the Cast Your Vote icon or on the welcome screen, you may vote for or withhold from voting in respect of this motion. You may not vote for any accounting firm other than MNP LLP. If you have already provided voting instructions or submitted a proxy, you do not need to vote on this matter. I have been advised by the secretary based on the scrutineer's report that a significant majority of the proxies received by management prior to the meeting have been voted for this resolution. We will now wait a moment to allow unitholders to submit their votes, and then we will close the poll. [Voting]

The polls are now closed with respect to voting on all of the motions. We will now wait a moment to allow the scrutineer to provide preliminary voting results to the secretary.

Mr. Chair, based on the preliminary report of the scrutineer, all items voted upon at the meeting have received more than the number of votes required, and therefore, all items are passed. The final voting results will be posted online on SEDAR at www.sedar.com.

Thank you, Mr. Secretary. In light of the results of the voting, I now declare that the 8 trustee nominees named in the information circular have been duly elected as trustees and that MNP LLP is appointed as auditor of the REIT until the next annual meeting or until their successors are appointed and that the Board of Trustees of the REIT is authorized to fix its remuneration. A final report to be furnished by the scrutineer subsequent to the meeting will be incorporated into the minutes of the meeting. Is there any other business that may properly be brought before this meeting? I will now pause for 20 seconds if there are any questions and ask [ Mr. Gotye ] who is monitoring the questions to let me know if there are any matters of business to come before the meeting.

Mr. Chairman, there are no other motions.

Thank you. Since there are no other matters of business to come before the formal part of the meeting, I declare the meeting concluded and terminated. This concludes the formal part of the meeting. We will now proceed with a presentation by our management and a question period for unitholders. Jim, take it away.

Thank you very much, John. Thank you for an effective meeting, and thank you all for joining us via webcast today. It is hard for me to believe, as I'm sure many of you, that pandemic has been part of our everyday reality now for well over a year. But I hope you all remain healthy, are keeping safe and getting vaccinated. I think we all look forward to being able to meet in person next year and well into the future. Before we begin, like John, I have to remind you that my presentation may contain forward-looking statements. So I again invite you to read the disclaimer regarding such forward-looking information that appears just now on your screen. As President and CEO of PROREIT, at this AGM today, I'm really proud to report that we have achieved -- what we have achieved during a challenging and not always predictable period. Our solid foundations, our strong and dedicated team and the soundness of our business strategy have enabled us to succeed in these circumstances. Today, while pandemic-related challenges to our economy certainty remain, we are, we believe, on very solid footing. The disciplined approach we maintained throughout 2020 has positioned us well for the year that's now well underway. We resumed our growth in early 2021 as the economy started to reopen, and I can assure you we have been active on many fronts. You'll see here, we have already made meaningful strides to further broaden and strengthen our portfolio through several accretive acquisitions. Looking at where we stand today, our portfolio is now comprised of 107 properties across the country on a pro forma basis. That is including transactions announced and not yet closed. This represents about 5.5 million square feet of gross leasable area, or GLA, and over $750 million of gross book value. Specifically, you'll see in this next slide, we have been expanding our footprint in the industrial sector, which is a very strategic objective for us at the current time. On a pro forma basis, our exposure to this sector now represents fully 73% of our total GLA and 57% of the base rent coming into the REIT. Our recent expansion has also solidified our exposure in stable and, we believe, attractive midsize cities, another of our strategic objectives. Ontario, principally, Ottawa and the Southwest, now account for 30% of base rent, while the economically strengthening maritime provinces contribute 41%. Let's have a closer look at this next slide, at the accretive acquisitions we've made in 2021, which are propelling us to our next stage of growth. In March, we announced the purchase of 12 institutional-quality industrial assets in Ottawa and Winnipeg for just under $87 million, which turns to be a 6% cap rate. We have closed on 4 of the properties with the remaining 8 expected to close in the early third quarter of this year. Last week, we announced the acquisition of a late industrial building for redevelopment in Moncton, New Brunswick for $4.5 million. This property has significant upside potential in terms of value with what we believe is minimal and fundamental capital investment required. Strong interest is already being shown by potential tenants in this property. Last week, we also announced the binding agreement for 5 institutional quality industrial assets located in major cities of Atlantic Canada for just under $43 million. We also recently divested some nonstrategic assets. We sold a light industrial building located in the Greater Montreal area in the first quarter for $8 million, which is above its carrying value -- forward carrying value. And in addition, we divested a real property -- a retail property located in Fredericton in April this year for $4.9 million, also above its carrying value. Strengthening our balance sheet and liquidity position were objectives where we started to take steps -- rigorous steps last year. This year, in April, we completed a $50 million private placement with the Bragg Group of Companies, a major Canadian private investor. We are very pleased to have such a high-caliber equity investor participate to capitalize on opportunities as we move our business forward. We have also taken advantage of the low interest rate environment we all enjoy to improve our debt profile. We refinanced $52 million of mortgages at lower rates and extended 7- and 10-year terms on these new loans. This includes a $25 million mortgage to refinance 6 retail properties, which has just now closed. Our liquidity position is solid with over $30 million in cash and undrawn offering facilities available to us. Our debt to gross book value stands at 57.5%. Despite the many challenges in the context of the pandemic, our portfolio has consistently delivered strong rent collection rates across every asset class. We believe our pandemic performance to be -- we believe our pandemic performance to be one of the best among our peer group. Our overall collection rate remained above 90% even at the height of the pandemic and by July 2020 stood at 98.5%. It has consistently stood up close to 100% since last November. We believe our rent collection numbers reflect the stability of our operations, underpinned by a well-positioned portfolio. We also believe the quality of our long-standing relationships with many tenants was a key contributor to the success in this challenging period. I'm also very pleased to advise our leasing activities. As of today, we have successfully renewed 80% of our total square feet maturing in 2021 at positive spreads averaging at least 5% to the maturing numbers. These numbers include our new Ottawa industrial buildings, which we recently added to the portfolio. Our occupancy rate across the portfolio generally remains firm at 98.2%. Our success over the past year is a testament to the remarkable resilience of our tenant base. As I just said, we are gratified to have such a high-quality group of tenants, 86% of whom are national and government. That is measured in terms of base rent. I am particularly proud of the strength in the retail segment, though, our strategic focus on strip malls, anchored by needs-based community services, has served us well with 86% of the retail rent coming from grocery stores, pharmacies, financial institutions and government and medical offices, providing underlying strength. Despite various restrictions imposed throughout the year impacting operations, our retail tenants have really held up exceedingly -- exceptionally well. I'll just now turn back to briefly review our fiscal 2020 period. Despite many headwinds from the pandemic that we've all discussed, we achieved solid results, thanks to the resilience of the portfolio. We capped off the year with 91 properties and close to $635 million in total assets. We believe we were prudent last year in the acquisition front when we purchased only 1 light industrial property and sold 2 smaller nonstrategic assets. As our financial performance -- as for our financial performance, property revenue grew to $69.8 million, a 21.1% increase compared to the prior year. Net operating income reached $40.5 million, up 14.2% year-over-year. And excluding COVID-19 related impacts, net operating income was $41.3 million, up fully 16.6%. Our AFFO grew to $22.4 million, which was an increase of just over -- just under 10% for the year. Our AFFO payout ratio stood at 88.3% compared to 106.8% for the same prior year period. This solid growth across key indicators was mainly driven by net acquisition activity over the previous 2 years. As I think most of you know, prudent measures were taken in April 2020 to respond to the great stock market volatility that flowed from the onset of the pandemic. Our Board of Trustees at that time revised our distribution policy to the current sustainable long-term level, allowing for a reduction in debt and increase flexibility in allocating our capital resources. All of this benefits all unitholders. And we also took that opportunity, the stock market volatility, to suspend our distribution reinvestment plan. Our monthly distributions are now 3.75% -- $0.0375 per unit or $0.45 per unit on an annual basis, which we believe continues to provide a very attractive return for all unitholders. Let me also now briefly go over the first quarter results for 2021, which have been recently announced, and I'm pleased to say that we continue to strengthen our financial position through that period. We ended the quarter with 19 properties in our portfolio with $636 million in gross book value. Net operating income reached $10.1 million, marginally up compared to the fourth quarter of 2020. It did dip slightly compared to the pre-COVID level quarter -- first quarter of 2020 as a result of the sale of 3 nonstrategic assets that I previously mentioned. Highlighting again the stability of our portfolio in a challenging context, same-property net operating income was $9.8 million, fully comparable to the same prior year period. Our AFFO totaled $5.4 million, which is again comparable with the fourth quarter of 2020. It did dip by $600,000 compared to the first quarter of 2020. But again, that was largely due to the property sales that I referenced. Our AFFO payout ratio stood at 83% at the end of the first quarter compared to 105% a year earlier. And finally, distribution to unitholders totaled $0.0375 per unit, and they were declared each month during the quarter. We returned the page on 2020, I believe, a year that really tested our resilience but did confirm the strengths of our business and our business strategies. With the strong restart of our economy and as the vaccination rates increase, we are looking into the future with really renewed optimism. We have great conviction in our strategic direction, and we will continue to execute our growth leveraging our robust pipeline of acquisitions. We will do so while maintaining our solid financial position to allow for solid capital allocation decisions over the longer term. As a team, I believe we are deeply motivated to continue moving forward in our sustainable growth plan, and that will benefit again all of our unitholders. In closing these remarks, I wish to once again recognize the contribution and commitment to a wonderful group of hard working employees. It continues to be a great privilege to lead this team with their talent and perseverance. And I also want to thank my fellow trustees for their expertise, support and wise counsel as we pursue the highest standards of excellence. So thank you to them. So that concludes our presentation for today. But I am here with Gordy Lawlor, our Executive Vice President and Chief Financial Officer, and we're glad to take any questions from any of our participating unitholders who wish to pose. Thank you.

Mr. Beckerleg, there are no questions.

All right. Thank you, [ Veth ]. So thank you, everybody, for attending this meeting. We are -- of course, management is, of course, always available to answer any questions from unitholders and potential unitholders. And thank you again for attending today. I guess that concludes the meeting.

The meeting has now concluded. You may now disconnect.