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

So ladies and gentlemen, let us begin this meeting. [Foreign Language]. My name is James Beckerleg, and I'm the Chair of the Board of Pro. It is a pleasure for me to welcome all of you to the Annual Meeting of Unitholders of PROREIT today. Thank you for joining us. I would also like to welcome any of those who are joining today by via webcast. While the business of today's meeting will be conducted in English, Unitholders may feel comfortable asking questions in either English or French. Before we move on to the formal portion of the meeting, I would like to introduce members of the senior management of PROREIT who are with us today, and I would ask each of you to stand as I introduce you, so people can see who you are. First Gordie, our President and Chief Executive Officer here at the head table. And with him is Alison Schafer, our Chief Financial Officer and Secretary. And then in the chairs, Chris Andrea, our Senior Vice President, Property Management and President of Compass, our important internal Property Manager. Zach Aaron, our Vice President of Investments and Asset Management. Thanks, Zack; and Isabelle Monte, our Senior Manager, Human Resources and Administration. Thank you, Isabelle. I would also like to now introduce to you the other trustee nominees who are present with us today. And again, I would ask each of them to stand as I introduce your name, Martin Coté, thank you, Martin; Shenoor Jadavji, thank you, Shenoor; Ken McKinnon, welcome, Ken; Christine Pound, thank you, Christine; Deborah Shaffner; and last, but certainly not least, Ron Smith, thank you. And I send apologies from Vincent Chiara, who is not able to be with us today, but stands as an nominee at our election. In accordance with the declaration of trust of the REIT, I will act as Chair of this meeting, and with the consent of all you at the meeting, Alison Schafer will act as Secretary. And with the consent of the meeting, I will ask Francine Beauséjour of TSX Trust Company to act as scrutineer for the meeting. So now let us 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 the Unitholders of the notice calling the Annual Meeting of Unitholders, the information circular and the form of proxy for the meeting. Additional copies are available in the registration area if anybody would like to pick a copy up. I would ask the Secretary to place this document before the meeting. I also request that 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 the meeting. I have already been advised by the scrutineer that prior to the meeting, proxies we received from the holders of more than 19.1 million units or approximately 31.5% of the voting rights attached to the units entitled to be voted at this meeting. As a result, we have a quorum for the meeting, and I can 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 incorporated into the minutes of the meeting. The minutes of our last meeting of Unitholders are also available here today with the Secretary, should anybody want to see them. I would now like to explain our voting procedures. As you may know, most of the trust units of PROREIT are held through brokers in book entry form. To vote, each holder of trust units held in book entry form must have a previously submitted voting instructions or designated a representative to attend on his or her behalf. All other trust units and the special voting units are registered in the names of the persons holding them directly and may be voted in person or by proxy. Trust units held in book entry form, trust units registered in the name of the persons holding them and special voting units are collectively referred to this voting as units and the holders of any of such units are referred to in our chat as Unitholders. In view of the necessity of attending to various formal matters at the meeting, the secretary has asked certain unitholders present today to propose and second the various motions, which will come before us. While this procedure will assist the handling of the formal matters, it should not discourage any Unitholder or proxy holder from speaking in reference to any motion after it has been proposed and seconded. I will say if you wish to speak, please identify yourself and state whether you are a Unitholder or a proxy holder. In the interest of fairness to all Unitholders, I would also ask you to be brief with your questions or remarks, limiting them to matters directly 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 question period with Unitholders and proxy holders. Alternatively, after the meeting, you can certainly leave your questions along with your name and address at the registration desk for follow up. 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 those forecasts, projections or conclusions in the 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 again is available on the public website, SEDAR for everybody to see. Turning now to the business of the morning. The first item of business is the presentation of the consolidated annual financial statements of the REIT for the year ended December 31, 2024, together with the auditor's report thereon. The financial statements were mailed to Unitholders and additional copies are available in the registration area of today's meeting. Copy of the 2024 financial statements has been placed before the meeting by the secretary and is maintained there. Thank you, Madam Secretary. The next item of business is the election of trustees to the Board of Trustees for the term expiring at the close of the next annual meeting of Unitholders in 2026, 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, 9 trustees are to be elected this morning. And 9 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 the election by the Unitholders on an individual basis. And 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 represent less than a majority of the units voted and withheld, the nominee will submit his or her resignation promptly after the meeting for their consideration by the Board of Directors. Mr. Zack Aaron, would you please propose the nomination for the election of directors?

Mr. Chairman, my name is Zack Aaron. I'm a proxy holder duly 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 2026 or until their respective successors are elected or appointed or they otherwise cease to hold office: James Beckerleg, Vincent Chiara, Martin Coté, Shenoor Jadavji, Gordon Lawlor, Kenrick McKinnon, Christine Pound, Deborah Shaffner, and Ronald Smith.

Thank you, Zack. Certain advanced notice provisions are included in PROREIT Declaration of Trust, and any additional nominations must be made in advance of the meeting in accordance with the terms of the advanced notice provisions. And I can advise that no other nominees were proposed prior to this meeting today. So I can therefore 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 the election of the trustees. Therefore, I confirm that the 9 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 2026 or until their respective successors are duly elected or appointed or they otherwise cease to hold office. For the information of the meeting, this -- will the Secretary please announce the number of units represented by proxies received that were in favor of each of the 9 nominees.

Mr. Chairman, prior to the meeting, proxies were received in favor of the election of each of the 9 nominees as trustees for the holders of at least approximately 18.1 million units or not less than approximately 95% of of all units represented at the meeting.

Thanks very much, Alison. So the next item of business is the appointment of auditors for the ensuing year and authorizing the Board of Trustees of the REIT to fix the remuneration. The Board's Audit Committee and the full Board of Directors have recommended the reappointment of MNP LLP as auditors. So again, Zach Aaron, would you please make a motion?

Mr. Chairman, I move that MNP LLP be reappointed auditors 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 their remuneration.

Andrea, would you please second the motion?

My name is Chris Andrea. I'm a proxy holder duly appointed by a Unitholder of the REIT. I second the motion.

Thank you. 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. 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 to be conducted, more than 99% of the units represented by such proxies at the meeting would be voted in favor of the reappointment of MNP as the auditors of the REIT. So therefore, I propose to take the vote by a show of hands only. All those in favor, signify by raising your hand, please. Any opposed or withheld? [Voting]

Thank you. The motion is carried. I can therefore declare that MNP LLP are appointed as auditors 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 their remuneration for the coming year. As there actually now is no further business -- formal business to be brought before the meeting, I would again ask Mr. Aaron for a motion concluding the meeting, and this will be allowed or followed by a presentation by management and a question period for any interested Unitholders.

Mr. Chairman, I move that the meeting be concluded.

Andrea?

Mr. Chairman, I second the motion.

Thank you very much. All those in favor, please signify by raising your hand. Any withheld or opposed? Thank you. That motion is carried, and that concludes the formal part of the meeting. I'm just going to make a few remarks myself before I turn the podium over to Gordie to provide a management presentation on the results of 2024 and the beginning of 2025. And so for the REIT, 2024 was another year marked by challenging macroeconomic conditions. And in that context, we believe PROREIT remain resilient and adaptive. Your Board is unanimously pleased with the REIT's performance, particularly at strong operational execution and prudent financial management. Over the past year, the trustees have remained focused on their key priorities, providing strategic oversight, maintaining sound governance and supporting a high-performing leadership team. We work closely with management to agree in the REIT's long-term vision, leading to efforts that have positioned PROREIT for continued growth and success. I also want to take a moment this morning to sincerely thank the management team and every employee at PROREIT for their exceptional work during these somewhat difficult times. Under the leadership of Gordie Lawlor, our President and CEO, I believe our team has shown agility, discipline and a deep understanding of our markets, all while staying committed to driving Unitholder value. On a personal note, I will be transitioning to the role of Vice Chair and trustee at the close of the meeting today. I must say that it has been one of the privileges of my life to participate in the founding and growth of PROREIT and I do look forward to staying engaged on your Board and its important work ahead. Going forward, I'm still very confident that the Board will be well led by my elected successor, Martin Coté. Martin, since joining the Board in 2015 has been a significant contributor to PROREIT's governance serving on several key committees. With over 25 years of experience across real estate markets in Canada and Europe, his insight and sound judgment will serve PROREIT well, I'm sure. So with that, I invite Gordie to the podium for his management presentation. Thanks.

Thank you Jim. [Foreign Language]. Throughout 2024, PROREIT remain disciplined in the execution of the strategy. We made steady progress towards our ambition of becoming a pure-play light industrial REIT in Canada. We delivered as planned by staying focused on driving sustainable growth and generating long-term returns for our unitholders. Behind these results is an exceptional team. Across asset and property management, their commitment and professionalism are at the heart of what we've accomplished and the possibilities ahead. I would also like to acknowledge Jim Beckerleg for the leadership and contributions as Chair of the Board. Thank you, Jim. We are pleased to welcome Martin Coté as our new Chairman and look forward to continuing our work together and benefiting from his experience and guidance. In 2024, we operated in an environment of ongoing macroeconomic volatility and elevated interest rates despite some easing by the Bank of Canada. In this context, we stayed the course. The stable income of our portfolio delivers with varying market conditions, speaks to the strength and resilience of our asset base. Throughout the year, we continued to efficiently recycle capital into the industrial sector, targeting well-performing secondary markets while prudently managing our balance sheet. Our strategic focus on light industrial properties continues to be a key performance driver. According to industry data, small and mid-bay vacancy rates across Canada were both below the national industrial average in Q4 2024. This favorable trend has carried into 2025. By the end of 2024, our portfolio consisted of 115 properties worth more than $1 billion and totaling 6.1 million square feet of gross leasable area, or GLA. This includes 42 properties co-owned with our institutional partner, Crestpoint. Over the course of the year, we've sold 9 noncore properties for gross proceeds of $71.2 million. We also acquired a strategically located industrial property near the Montréal Airport for $32.7 million. By year-end, industrial assets accounted for 81% of our base rent up from 73% at the end of 2023. Our medium-term goal remains to increase industrial exposure to 90% of base rent. [Foreign Language]. I'm pleased to report that even with 8 fewer properties in our portfolio compared to 2023, our net operating income remained stable. We continue to benefit from steady organic growth. Same-property NOI increased significantly in 2024, rising to 7.7% from 1.7% the previous year. Occupancy remained high at 97.8%. We also maintained a solid balance sheet, reducing total debt while holding our debt to gross book value ratio steady at approximately 50%. We intend to continue reducing leverage over time through disciplined capital management. Returning value to Unitholders remains a top priority. In 2024, we maintained our monthly distribution of $0.0375 per unit or $0.45 per unit on an annual basis, providing attractive and consistent returns for Unitholders. 2025 is off to a strong start. In May, we entered into an agreement to acquire a portfolio of 6 institutional quality industrial properties in Winnipeg from Parkit Enterprise Inc. The portfolio totaled 678,000 square feet of GLA and is 99.7% leased. The total purchase price was $96.5 million. As a part of the transaction, we issued $40 million in equity to Parkit at a price of $6.20 per unit, creating a strategic relationship to pursue future growth opportunities together. We expect the transaction to be accretive and to generate meaningful synergies through our platform. It also significantly expands our presence in the well-performing Winnipeg market, bringing our total number of properties in the region to 22. I'd like to take this opportunity to extend a warm welcome to Parkit's Chairman, Steven Scott, who will join our Board of Trustees upon the closing of this transaction, which is expected in the coming weeks. Let us now provide a brief overview of our results. In the first quarter of 2025, we maintained our momentum. Despite owning 8 fewer properties compared to the same period last year, property revenue was slightly higher, and net operating income remained stable. Same-property NOI rose by 5%, driven by strong performance of our industrial portfolio, which delivered 5.9% year-over-year growth. In the quarter, we completed the sale of 3 noncore properties for total gross proceeds of $12.4 million. We also continue to manage our debt prudently, and we managed our distribution of $0.0375 per unit. We're pleased with the results of our ongoing leasing efforts. As of today, we've already renewed 53% of leases maturing in 2025 and 45% of leases maturing in 2026, both at positive average spreads of 34%. These robust spreads underscore the value embedded in our portfolio and the quality of the markets in which we operate. I'm pleased to share that we recently welcomed Thales, a global leader in advanced technologies to our portfolio. They commenced a 15-year lease for 128,000 square feet of industrial space in Canada, Ontario, in February at a rent rate more than 30% above the previous rate. Thales Canada is now among one of our top 10 tenants. Our strong presence in Atlantic Canada is also a key differentiator. At the end of Q1 2025, 52.4% of our base rent came from this region. In Halifax, where we are top industrial landlord by square footage, market fundamentals are very strong. According to industry data, Halifax led the country in rental rate growth with year-over-year increases of over 19%. Halifax is also at the heart of one at Canada's most ambitious shipbuilding projects since World War II. Earlier this year, the Government of Canada awarded an $8 billion contract to Irving Shipbuilding to start construction of 3 new river class destroyers for the Royal Canadian Navy. This project is expected to create 5,000 jobs, primarily in Halifax, reinforcing the region's long-term economic growth. We're already seeing the benefits. In February, we sold the Halifax property to a key naval subcontractor at an attractive price. We've also made important progress on the ESG front for 2024. For the first time, we'll be disclosing our Scope 1 and Scope 2 greenhouse gas emissions with 2023 as a baseline year. We strengthened our climate-related disclosures, aligning more closely to the TCFD framework to improve transparency around how we manage our climate risks. We also launched our first tenant satisfaction survey, which will guide our ongoing efforts to enhance their experience. We look forward to sharing more details in 2024 sustainability report, which is expected to be published over the coming weeks. [Foreign Language]. Looking ahead, we remain focused on scaling our industrial platform by pursuing the right opportunities, supported by disciplined capital deployment and a strong balance sheet. We also continue to see significant upside potential in our portfolio. We are confident in our ability to generate long-term value through strategic growth, operational discipline and careful execution to deliver sustainable returns to our Unitholders. In closing, I want to extend my superior sincere appreciation to our employees for their dedication and professionalism to our tenants for their continued trust and partnership and to my fellow trustees for their strategic insight and guidance. And, of course, to the Unitholders, thank you for your confidence in PROREIT. 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. As a reminder, if you have any questions, please identify yourself and state whether you are a Unitholder or a proxy holder. Do we have any questions? Hearing none, this concludes today's meeting. [Foreign Language]. Thank you.