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

So ladies and gentlemen, formally let us begin. [ Foreign Language ]. My name is James Beckerleg, and I'm Chair of the Board of PROREIT. It is a pleasure for me to welcome all of you to the Annual Meeting of Unitholders of PROREIT today, and I thank you all for joining us. I would like to welcome also all those who are joining us by video link webcast. While the business of today's meeting will be conducted in English, Unitholders may feel free to ask questions in English or in French at the appropriate times during the meeting. Before we move on to the formal portion of the meeting, I would like to introduce members of the senior management who are present with us today. I can just ask each of you to stand as I introduce you, wouldn't mind. Gordon Lawlor, our President and Chief Executive Officer, a member of the Board and a trustee nominee. Alison Schafer, our where are you Alison, you're right there, our Chief Financial Officer and Secretary; Chris Andrea, our Senior Vice President of Property Management and President of Compass, our Internal Property Manager Chris, good morning. Zach Aaron, who was appointed Vice President of Investments and Asset Management this year. Welcome to the senior management team. Isabella Monte, our Senior Manager, Human Resources and Administration. Isabella, thanks. You didn't stand up very long as [indiscernible]. I would also like to now introduce to you the other trustee nominees who are present here today. And again, I'll ask each of them to stand so you can identify them. Martin Coté, Shenoor Jadavji, Christine Pound, Deborah Shaffner and Ron Smit. Unfortunately, Vincent Chiara is not able to be with us today. An important -- in accordance with the declaration of trust of the REIT, I will act as Chair of the meeting, and with the consent of the meeting, Alison Schafer as Secretary of the Trust will act as Secretary of the meeting. Begin with the consent of the meeting, I appoint Francine Beauséjour of the TSX Trust Company as Scrutineer for the meeting. So, with that information, we can proceed with the business of the meeting as set forth in the notice of meeting, which I think you've all received. I have received an affidavit of a representative of the TSX Trust Company as to the due mailing to unitholders of the notice calling the Annual Meeting of Unitholders, the information circular and the form of proxy for the meeting. Additional copies of these documents are available in the registration area. And I would ask the secretary to place these documents before the meeting. I requested a copy of the notice of the annual meeting of Unitholders, together with the affidavit attesting to the mailing of the notice, the information circular and the form of proxy to be kept by the Secretary with the records of meeting. I have been advised by the scrutineer that prior to the meeting proxies were received from the holders of approximately 19.5 million units or more than approximately 32% of the voting rates attached to the units entitled to be voted at this 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. The scrutineers' report will be provided to the Secretary of the meeting and will be recorporated into the minutes for today. As well, the minutes of our last meeting of Unitholders are available here today with the Secretary should anybody want to review those. I would now like to explain the formal voting procedures of the meeting. As you may know, most of the trust units of PROREIT are held through brokers and book entry form. To vote, each holder of trust units held in the book entry form must have previously submitted voting instructions or designated a representative to attend on his or her behalf today. All other trust units and the special voting units are registered in the name of the persons holding them directly, and these may be voted in person or by proxy. Trust units held in the book entry form, Trust units registered in the name of their persons holding them and special voting units are collectively referred to as units and the holders of any such units are referred to as Unitholders. In view of the necessity of attending to various formal matters at the meeting, the Secretary has asked certain unitholders to propose and second the various motions that we put before the meeting this morning. While this procedure will assist the handling of the formal matters, it should not discourage any unitholder present or a proxy holder from speaking in reference to any motion after it has been proposed and seconded. If you wish to speak, please identify yourself and state whether you are a Unitholder or a proxy holder. I think there's actually a mic available to people here [indiscernible] would like to step forward. And in the interest of fairness to all Unitholders, I would ask you to be brief your questions or remarks, limiting them to the matters related to the meeting or to the REIT's business generally. Following the formal business of the meeting, there will be a management presentation and a question period with unitholders and proxy holders. Alternatively, after the meeting, you may also leave questions along with your name and address at the registration desk for follow-up by management. I would also like to caution you by stating the following on behalf of those speaking today. This is always a hard [indiscernible] to get all of it anyway. 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 lead to our actual results differing from the forward-looking statements section and the Risk Factors section of our annual information form. Those documents are also available on SEDAR. So now turning to the first item of business. The first item of business is the presentation of the consolidated annual financial statements of the REIT for the year ended December 31, 2023, together with the auditor's report contained with them. The financial statements were mailed to unitholders and additional copies are again available at the registration area if anybody likes to review them this morning. A copy of its 2023 financial statements has been placed before this meeting by the Secretary. And those statements and reports also available on SEDAR. The next item of business is the election of Trustees to the Board of Trustees for the term expiring at the close of our next Annual meeting of the Unitholders, which will be in 2025 or until their respective successors are elected or appointed or they otherwise cease to hold office. As stated in the information circular that has been sent to the unitholders prior to the meeting, 8 trustees are to be elected at the meeting this morning and 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 the nominee for election as trustee approved by the unitholders represent less than a majority of the units voted and withheld. The nominee will submit his or her resignation promptly after the meeting for the consideration by the balance of the Board of Trustees. So Mr. Zack Aaron, would you please propose the nomination for the auction proceeds?

Mr. Chairman. My name is Zack Aaron. I'm a proxy holder duly appointed by a unit holder of the REIT. I nominate the following persons for election. I'm trusting that the REIT to hold office for a term to expire immediately following the annual meeting [indiscernible] holders in 2025 or I feel their respective successors are elected or appointed or they otherwise cease the whole offer. James Beckerleg, Vincent Chiara, Martin Coté, Shenoor Jadavji, Gordon Lawlor, Christine Pound, Deborah Shaffner, and Ronald Smit.

Thanks, Zack. Certain events 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 events notice provisions. No other nominees were proposed prior to the meeting today. So as I just said, there are no further nominations, I declare the nominations closed. As the number of persons nominated is equal to the number of trustees required to be elected, I propose with the consent of the meeting, not to take a formal vote on election of the trustees. Therefore, I confirm that the 8 persons who were nominated as trustees have been elected as trustees to hold office for a term to expire immediately following the annual meeting of Unitholders in 2025 or until their respective successors are duly elected or appointed or they otherwise cease to hold office. For the information of the meeting, will the Secretary please announce the number of units represented by the proxies received that were voted in favor of each of the 8 nominees.

Prior to the meeting, proxies were received in favor of the election of each of the 8 nominees as trustees for the holders of at least approximately 19.1 million units or not less than approximately 98% of all units represented at the meeting.

Thank you, Alison. So turning to the next item of business. This is the appointment of auditors for the ensuing year and authorizing the Board of Trustees of the REIT to fix their remuneration. Board's Audit Committee and the full Board have recommended the reappointment of MNP LLP as auditors. Again, Zack, would you please make a motion [indiscernible].

Mr. Chairman, I move that MNP LLP duly appointed auditors under REIT [indiscernible] office until the next annual meeting of the year. [indiscernible] successor or appointed and not until their successors are appointed and that the Board of the trustees be authorized to fix their remuneration.

Chris Andrea, would you please second the motion?

My name is Chris Andrea. I'm a unitholder of the REIT. I second the motion.

Thanks, Chris. So a motion has been made and seconded to appoint MNP LLP as the REIT's auditors and to authorize the Board of trustees of the REIT to fix the remuneration for the audit. The meeting will now vote on this motion. [Voting] Based on the proxies received from the Unitholders, which are to be voted on this matter, if a ballot were conducted on this matter, more than 99% of the units represented by such proxies in the meeting would be voted in favor of the reappointment of MNP LLP as the auditors of the REIT. And so therefore, I propose to take the vote by a show of hands. [Voting] All those in favor, please signify by raising your hand. Being withheld. Thank you. The motion is carried. I declare that MNP LLP are appointed as auditors of the REIT until the next annual meeting or until their successors are appointed and the Board of Trustees of the REIT is authorized to fix the remuneration. That actually is the conclusion of the formal part of the business, and I would ask Mr. Aaron for a motion, including the meeting. This will be followed by a presentation by management and a question period for Unitholders.

[indiscernible] meeting.

Thanks. Mr. Andrea, would you second the motion?

[indiscernible] I second the motion.

Thanks, Chris. All those in favor of this waiting motion, please signify by raising your hand. Any opposed? [indiscernible]. So that concludes the formal part of the meeting. Thank you very much for everybody listening. And before I turn the proceedings over to Gordy, I would just like to say as Chair of the Board, the whole board is unanimously pleased with the REIT's performance over the past year. In the context of the great economic uncertainty that we've all seen, the REIT's capacity to deliver good results reflect the soundness of the strategy, I believe, developed by management and stewarded by the Board. I would also like to take this opportunity to commend each member of management for their significant contributions throughout the year and their Gordy sound leadership. And of course, I also want to extend my gratitude to my fellow trustees for their trust and dedication during this my inaugural [indiscernible] as the Chair of the Board of Trustee. I think Proreit is well positioned to achieve its long-term objectives going forward, and I truly look forward to all that remains to be done, which is, of course, to the benefit of all of our stakeholders. But with that, I will now invite Gordy to take over the podium here as CEO and share some words on the PROREIT for us. Thanks, Gordy.

Thank you, Jim. [ Foreign Language ]. In April, I celebrated my first anniversary as CEO of PROREIT, and I'd like to take this opportunity to express my gratitude to the PROREIT management team, all of whom are here today. My privilege to work with such an exceptional group of people whose passion and commitment to excellence I witness on a daily basis. Finally, I'd like to congratulate Zach Aaron for his well-deserved promotion to Vice President, Investments and Asset Management. Congratulations, Zach. In 2023, we continued to operate in a challenging macroeconomic and high interest rate environment. Against this backdrop, I'm pleased with the REIT's overall performance. Throughout the year, we continued to reap the benefits of our stated strategy to focus on the industrial sector. We delivered on our goals to optimize our portfolio by rotating capital from less attractive assets while continuing to effectively manage our balance sheet. In fiscal 2023, we disposed 7 noncore properties for gross proceeds of approximately $27 million. We ended the year with 123 properties amounting to over $1 billion in assets and approximately 98% occupancy compared to 130 properties for the prior year. This includes 42 properties co-owned with our partner an institutional investor, Crestpoint Real Estate Investments. At year-end, over 82% of our gross leasable area, or GLA, was in the industrial sector. As for our fully integrated management division, Compass Commercial Realty, they also delivered another strong performance. Our Compass team of more than 70 employees today manage a portfolio of 198 properties and over $1.6 billion in asset value, which includes all properties owned by PROREIT. [Foreign Language]. We delivered on key financial and operational metrics generating growth in the property revenue, net operating income and same property, net operating income. Our cash flows from operating activities also increased year-over-year. Notably, we achieved same-store property net operating income growth of 7.5% in the fourth quarter of 2023. A testament to our successful GLA renewal and sustained high occupancy throughout the year. Strengthening our balance sheet remained a key priority. In May 2023, we successfully completed a $35 million bought deal public offering of convertible debentures. Proceeds were used to improve our debt maturity profile, increase our exposure to fixed debt rates and to enhance our liquidity. We are set to benefit from limited mortgage maturities in 2026, while only about 3% of our total debt is at a variable rate. We ended the year with a strong liquidity position of $56 million while our adjusted debt to gross book value held steady at 50.2%. Actively managing our capital structure and returning value to our unitholders through regular distributions also remained a primary focus. We started 2024 on a solid footing. Our first quarter results reflected the momentum we saw in 2023 and has put us in a good position for the remainder of the year. In Q1 2024, we achieved growth in both property revenue and net operating income despite owning 10 fewer properties than in the same period of 2023. I'm truly proud of our capacity to generate organic growth year after year, thanks to our strong portfolio and high-quality tenant base. This is reflected in the 7.8% growth in same-store property NOI in the first quarter of fiscal 2024. In Q1, we took further steps to optimize our portfolio with the completion of 3 noncore property sales for gross proceeds of $26 million. By rotating capital away from less attractive assets. We were able to reduce our total debt by $25 million in the first quarter. We also entered into a binding agreement for the sale of 2 additional noncore retail properties for gross proceeds of $7 million. Both of these sales were completed in the second quarter and will together bring our industrial segment exposure to 83% of our GLA on a pro forma basis. The quality of our portfolio, along with the value embedded in it remain a key differentiator for us. This is evidenced by our excellent renewal record. To date, we have renewed close to 56% of our leases maturing in 2024 at a positive average leasing spread of 33% for the total portfolio and 48% for the industrial segment. Our holdings in Atlantic Canada now represent more than 52% of our total portfolio GLA and Halifax remains a particularly attractive market for us. We're one of the largest landlords in Halifax in the industrial sector. The 42 properties we co-own with Crestpoint real estate investments are almost exclusively concentrated in Halifax's Burnside Industrial Park, one of Canada's strongest industrial nodes. The Halifax economy continues to thrive. The Conference Board of Canada estimates that real GDP in the area is expected to grow at an average of 2.5% per year between 2025 and 2028. Resident attraction campaigns in recent years also seems to have resonated. According to Statistics Canada, more and more Canadians are moving to cities in the Atlantic region. Nearly all census metropolitan areas in Atlantic Canada have recorded a net interprovincial migration surplus both for 2022 and 2023. I'm also pleased to note that we published our third sustainability report last month. An update that highlighted important progress in adapting to evolving regulatory realities and stakeholder expectations. Throughout the year, we worked hard to increase our data collection capabilities. As of this moment, 49% of our properties are tracked on Energy Star portfolio manager, the bellwether for measuring use in commercial buildings -- energy use, sorry. In a further key advance, we established a specific ESG task force and a property management level, and we launched our first employee survey. We're proud of the headway that we've made so far, but recognized there is still work to be done as we move forward on our ESG journey. [Foreign Language]. Once the market stabilizes, we intend to be opportunistic and further increase our footprint in the industrial sector, particularly in regions where we already have a presence. Over a 3- to 5-year period, we remain committed to reaching $2 billion in assets, in asset value with a target of 90% of our base rent coming from the industrial sector. We will continue with our policy of allocating capital prudently in order to create sustainable value for our stakeholders. In closing, I'd like to express my thanks to the PROREIT team for driving our success. To all of the tenants, it's a privilege to serve you and to the unitholders for their trust you've placed is us. [Foreign Language].We will now take questions from unitholders. Following the Q&A, I'm pleased to invite you all to share a light lunch with us, which will provide the opportunity for more informal discussions. [Operator Instructions]. We have any questions? We have none, this concludes today's meeting. Thank you again for joining us.