Plaza Retail REIT (PAZRF) Q4 2022 Earnings Call Transcript

Plaza Retail REIT (OTC:PAZRF) Q4 2022 Earnings Conference Call February 24, 2023 2:00 PM ET

Company Participants

Kim Strange - General Counsel and Secretary

Michael Zakuta - President and Chief Executive Officer

Jim Drake - Chief Financial Officer

Conference Call Participants

Gaurav Mathur - iA Capital Markets

Operator

Good afternoon. I would for illustration to invited everyone to nan Plaza Retail REIT Fourth Quarter 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. [Operator Instructions] I would now for illustration to counsel everyone that this convention is being recorded.

I will now move nan convention complete to Kim Strange, Plasma's General Counsel and Secretary. Please spell ahead. Ms. Strange.

Kim Strange

Thank you, operator. Good day everyone, and convey you for joining america connected our Q4 2022 results convention call. Before we statesman today, we are legally obliged to counsel you that successful talking astir our financial and operating capacity and successful responding to questions today, we whitethorn make forward-looking statements, including statements concerning Plaza's objectives and strategies to execute them, arsenic good arsenic statements pinch respect to our plans, estimates, and intentions, aliases concerning nan anticipated early events, results, circumstances aliases capacity that are not humanities facts.

These statements are based connected our existent expectations and assumptions and are taxable to risks and uncertainties that could origin our existent results to disagree materially from nan conclusions successful these forward-looking statements. Additional accusation connected nan risks that could effect our existent results and nan expectations and assumptions we applied successful making these forward-looking statements, tin beryllium recovered connected Plaza's astir caller yearly accusation shape for nan twelvemonth ended December 31, 2021, and management's chat and study for nan play ended December 31, 2022, which are disposable connected our website astatine www.plaza.ca and connected SEDAR astatine www.sedar.com.

We will besides mention to non-GAAP financial measures wide utilized successful nan Canadian existent property industry, including FFO, AFFO, NOI, and aforesaid plus NOI. Plaza believes these financial measures supply useful accusation to some guidance and investors successful measuring nan financial capacity and financial information of Plaza. These financial measures do not person immoderate standardized definitions prescribed by IFRS and whitethorn not beryllium comparable to likewise titled measures reported by different entities.

For definitions of these financial measures and wherever to find reconciliations thereof, please mention to Part 7 of our MD&A for nan play ended December 31, 2022, nether nan heading mentation of non-GAAP measures.

With that, I will now move nan telephone complete to Michael Zakuta, Plaza's President and CEO. Michael?

Michael Zakuta

Thank you, Kim. Good afternoon. Our business continues to show awesome spot and resilience successful look of singular challenges. In nan past 3 years, we person navigated a pandemic pinch lockdowns that materially affected business operators, an economical resurgence that creates proviso concatenation challenges and boosted inflation, and a bid of fierce liking complaint hikes.

Recent discussions pinch our tenants bespeak that customers are trading down to much basal needs and worth equipment and services, offerings that predominate our portfolio and person proven clip and again to beryllium dependable and reliable successful a softening economy. We vanished 2022 pinch our astir robust improvement pipeline ever. Our attraction coming into 2023 is to execute and present these caller developments.

In 2024, we will reap nan rewards, our improvement activity of 2022 and 2023. Demand from starring nationalist retailers remains very beardown and pre-leasing for our projects is progressing well. Recent volatility successful building pricing is [calming] [ph] and task schedules are progressively predictable

Healthy retailer request has allowed america to push renewal spreads and occupancy successful our existing portfolio is astatine an all-time high. Leasing vacancies comes pinch a cost, but nan affirmative effect from having caller and applicable retailers astatine our centers and expanding our NOI outweighs nan short-term effect connected AFFO.

Most of Plaza's indebtedness is successful nan shape of longer-term fixed complaint mortgages pinch well-laddered expiries, which has been our indebtedness strategy since inception. Mortgages expiring successful 2022 were renewed astatine akin rates, which minimized nan effect of expanding liking rates connected our business.

Further, mortgages expiring successful 2023 are expected to beryllium renewed astatine akin and successful [some instances] [ph] little rates. However, we are not immune to expanding liking rates arsenic they person an effect connected our operating and improvement lines, arsenic good arsenic building financing for caller developments.

While we expect liking rates to proceed to stabilize, we person been prudent successful discerning astir our sources and usage of capital. Plaza remains progressive trading non-core assets supra our book values. We are reinvesting nan proceeds successful caller value-added projects anchored by Canada's starring basal needs and worth retailers. The consequence is simply a newer aliases applicable portfolio that generates return from value unchangeable tenants.

Plaza stabled itself complete 2 decades agone by identifying and executing improvement and redevelopment opportunities for grocery, pharmacy, and worth retailers, One task astatine a clip we developed these open-air centers successful ascendant locations wrong superior and beardown secondary markets successful Atlantic Canada, Quebec, and Ontario.

Plaza cognize these markets good and has an established way grounds of securing nan champion locations for retailers. As a consequence of our strategy, we person irreplaceable assets leased to beardown covenant retailers, our portfolio has ne'er been stronger.

We are very excited astir nan early of our business, our coagulated and resilient portfolio and increasing pipeline supported by our entrepreneurial operating improvement level and our value-add business strategy will proceed to make coagulated results and early growth.

I will now move nan telephone complete to Jim Drake, Plaza's CFO. Jim?

Jim Drake

Thank you, Michael, and bully afternoon, everyone. As Michael mentioned, we are excited astir our robust improvement pipeline, but our improvement programme has contributed to 2022 arsenic well. We transferred 18 cardinal of developments successful income producing during nan twelvemonth and we are nearing completion connected a fewer further projects.

These projects adhd value, amended nan value and property of our portfolio, and assistance our results. On those results, aforesaid plus NOI was impacted by a fewer properties that we are improving successful Nova Scotia and Quebec, wherever we are replacing smaller tenants pinch larger, stronger, and much resilient secondary anchors.

Even pinch that, aforesaid plus NOI is up 1.8% for nan 4th and 1.5% for nan year. FFO per portion was [$0.099] [ph] for nan quarter, [$0.402] [ph] for nan year. When comparing to past year, it is cardinal to retrieve that 2021 included 3 cardinal of lease termination income. Excluding nan effect of aforesaid and excluding different different items specified arsenic security proceeds and COVID-related bad indebtedness incurred past year, yearly FFO per portion is accordant pinch past year.

Year-to-date AFFO per unit, adjusted for these aforesaid different items was down 3% versus past year. Higher leasing costs impacted AFFO in-part owed to costs inflation, but besides accrued leasing activity, which will consequence successful accrued gross going forward. And that accrued leasing activity is reflected successful our committed occupancy of 97.5%, up 100 bps complete past year, and a grounds level for nan 2nd consecutive quarter.

Strong leasing request has besides pushed lease renewal spreads astatine 3.8% for nan year. Our liquidity remains coagulated and astatine year-end totaled 66 million, including cash, operating line, and unused improvement and building accommodation pinch an further 5 cardinal of unused accommodation connected nonconsolidated properties. We besides had 18 cardinal of unencumbered assets.

Our indebtedness to full assets ratio remained accordant pinch past twelvemonth astatine 56%, including convertible debentures. For owe rollovers, we person 30 cardinal of fixed complaint mortgages maturing successful 2023 astatine a weighted mean complaint of [5.3%] [ph]. The wide loan-to-value connected these mortgages is 49% and a ample information of nan rollovers subordinate to freestanding pharmacies aliases pharmacy-anchored properties.

We are seeing beardown liking successful our owe offerings pinch all-in rates successful nan debased 5% range. We will person commitments successful spot soon for astir 10 cardinal of nan 2023 maturities. We besides person our 47 cardinal Series E convertible debentures maturing adjacent month.

The convertible debenture marketplace continues to beryllium a spot expensive, [barring] [ph] immoderate important changes successful that marketplace aliases our portion price, we will repay nan maturing converts pinch a $37 cardinal [bridge loan] [ph] pinch nan remainder from non-core plus sales, which person already closed. The pricing connected nan span indebtedness is astatine premier positive 1.25% aliases [indiscernible] positive 2.25% for a one-year term.

Finally, connected headdress rates and valuation, we proceed to spot beardown request for basal needs and convenience assets specified arsenic ours. And nan income of our non-core assets during 2022 were supra IFRS values. Significantly higher replacement costs besides enactment arsenic a obstruction to introduction and provides further support for our IFRS valuations.

We saw insignificant headdress complaint compression during nan quarter, and mixed pinch increases successful underwritten NOI, and a fewer appraisals obtained. We took a $6 cardinal write-up this quarter. This brings nan full write-up for nan twelvemonth to 8 cardinal pinch our weighted mean headdress complaint now astatine 6.73%. Those are nan cardinal points relating to our results for nan 4th and year.

We will now unfastened nan lines for immoderate questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first mobility comes from nan statement of Gaurav Mathur from iA Capital Markets. Your statement is now open.

Gaurav Mathur

Thank you and bully day everyone. Just connected nan improvement pipeline. You've talked astir wherever [development] [ph] yields are. And I deliberation nan past quarter, you said they'd beryllium northbound [indiscernible] I'm conscionable wondering if that's still nan lawsuit arsenic we look astatine 2023?

Michael Zakuta

So, mean yields are coming successful betwixt 7% and 9%, which is beautiful good what we've been moving pinch for immoderate time. There's evidently been immoderate erosion. So, immoderate of that that we would deliberation that we deed a coagulated 9%, we mightiness suffer half a constituent and useful its measurement done nan system. But we're holding connected to that type of yield, peculiarly connected nan projects that are much recent, wherever we've been capable to set rents to considerably higher levels to compensate for building inflation.

Gaurav Mathur

Okay. Great. And past conscionable connected superior allocation [for] [ph] 2023, you do person nan improvement pipeline. There mightiness beryllium immoderate non-core dispositions and past nan NCIB arsenic well. What's nan pecking bid fundamentally aliases really you're reasoning astir it arsenic nan twelvemonth unfolds?

Michael Zakuta

I don't know, Jim if do you want to measurement in. But from my perspective, nan privilege is our improvement pipeline and execution, and we person capable superior to do that. NCIB is, really is secondary. And is location arsenic a protection if things really – if portion value is highly low. But we person capable superior to do our program, and that's wherever nan attraction is. I don't know, Jim, do you person thing you'd for illustration to add?

Jim Drake

No, I perfectly work together to, Michael. Definitely improvement pipeline is nan priority. NCIB, if nan value proves attractive, we will surely participate arsenic well.

Gaurav Mathur

Fantastic. Thank you for nan colour gentlemen. I will move it backmost to nan operator.

Michael Zakuta

Thank you.

Operator

[Operator Instructions] Mr. Zakuta, location are nary further questions astatine this time.

Michael Zakuta

Well, convey you for listening and participating. Operator?

Operator

Thank you. Ladies and gentlemen, this concludes nan convention telephone for today. Thank you for participating. Please disconnect your lines.