Release Date: November 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canadian Net REIT (CNNRF, Financial) maintained 100% occupancy during Q3 2024, showcasing strong portfolio performance.
- The company completed its 2024 capital recycling program, disposing of four properties for approximately $12.8 million and promptly reinvesting in a $9 million grocery store acquisition in Nova Scotia.
- The new grocery store acquisition is immediately accretive with a 7% capitalization rate, financed at approximately 4.5%, indicating a favorable spread.
- The REIT's niche in necessity-based retail is thriving, with opportunities in grocery and quick service restaurant sectors.
- All 2024 leases have been renewed, and 78% of 2025 expiring rents have been renewed with an expected 5% increase, indicating strong lease management.
Negative Points
- Normalized FFO per unit declined by 4% due to higher interest expenses from mortgage renewals and property sales.
- NOI decreased by 3% compared to the same period in 2023, impacted by property dispositions and straight-line rent adjustments.
- Administrative expenses increased significantly due to a one-time sales tax expense and higher legal and professional fees.
- The REIT's debt-to-gross assets ratio remains relatively high at 54%, though slightly improved from 57% the previous year.
- Exposure to variable rate debt is limited to the credit facility, but the REIT still faces challenges with mortgage renewals at higher rates.
Q & A Highlights
Q: The IFRS capitalization rate dropped considerably during the quarter. Is that a reflection of the recent transaction activity in the market?
A: Kevin Henley, President and CEO: Yes, the drop in the IFRS capitalization rate is due to more transactions. We updated the data to reflect more transactions this quarter. The sale of higher-yielding assets was a strategic move to align with our vision to reduce exposure to independently operated gas stations.
Q: With more stability in cap rates, is there greater visibility on the volume of acquisitions you're targeting over the next year?
A: Kevin Henley, President and CEO: While we can't specify an exact amount, we see more opportunities. Our pipeline remains strong, primarily off-market, and we pursue deals that make sense for the REIT on an FFO per unit basis.
Q: For the G&A expenses in the quarter, what portion would be recurring going forward?
A: Ben Gazith, CFO: The SG&A for Q3 2024 represents a good run rate going forward, excluding a one-time $117,000 adjustment and about $30,000 of professional fees.
Q: Are there any more dispositions planned, or does it depend on matching acquisitions?
A: Kevin Henley, President and CEO: We completed our planned recycling for 2024 and are focused on redeploying capital. We remain opportunistic for 2025, but it will be property-specific rather than a full portfolio exercise.
Q: What are your priorities for deploying capital—buybacks, acquisitions, or high-value CapEx?
A: Kevin Henley, President and CEO: Our priority is to grow the REIT by acquiring properties in our niche. While we do CapEx when required, buying properties remains the best use of capital. We focus on accretive deals over unit buybacks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
