CTRRF (CTRRF) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Jonathan and I will be your conference operator today. At this time, I would like to welcome everyone to CT REIT's second quarter 2026 earnings results conference call. [Operator Instructions] The speakers on today's call are Kevin Salsberg, President and Chief Executive Officer of CT REIT, Jodi Shpigel, Senior Vice President, Real Estate, and Lesley Gibson, Chief Financial Officer. Today's discussion contains information that may constitute forward-looking information within the meaning of applicable securities laws, although CT REIT believes that the forward-looking information in today's discussion is based on information, estimates and assumptions that are reasonable such information is necessarily subject to a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in such forward-looking information. For information on these material risks, uncertainties, factors and assumptions, please see the REIT's second quarter 2026 and full year 2025 MD&A, as well as the 2025 AIF, which are available on the website and filed on SEDAR+. The REIT does not undertake to update any forward-looking information, whether written or oral, except as is required by applicable laws. And now I'd like to turn the call over to Kevin Salsberg, President and Chief Executive Officer of CT REIT. Kevin?

Thank you, Jonathan. Good morning, everyone, and thank you for joining us on our call today. CT REIT delivered another solid quarter in Q2, reflecting the strength and resilience of our portfolio and the disciplined execution of our strategy. Our objective remains unchanged to be Canada's premier net lease REIT by delivering strong risk-adjusted returns, portfolio stability, and reliable, durable, and growing distributions for our unitholders. During the second quarter, we continued to advance that objective through a combination of strong operating performance, strategic investments, advancing our development activity, and prudent capital management. From an operating perspective, our results once again demonstrated the durability of our business model. Our portfolio remains substantially fully occupied and we continue to successfully address upcoming lease maturities. Same property NOI, including the benefits of our intensification program, grew 2.5%. AFFO per unit on a diluted basis also increased 2.5% year over year, while overall NOI increased 4.8%. We were also active on the growth front during the quarter. In addition to completing a $13 million vend-in in St. Catharines, Ontario, we closed approximately $76 million of previously announced investments and developments that added more than 230,000 square feet of incremental GLA to the portfolio. Jodi will discuss these investments in greater detail in a moment, but these activities demonstrate our ability to continue growing through a mix of acquisitions, developments, and intensifications while remaining focused on opportunities that complement our existing portfolio and generate attractive long-term returns. Another highlight during the quarter was the successful issuance of $300 million of Series K unsecured debentures. This transaction allowed us to refinance maturing debt, extend our debt maturity profile, and further strengthen our financial flexibility. As Lesley will describe, we remain well-positioned to fund our development pipeline and pursue future investment opportunities as they arise. Finally, as we previously disclosed, our Board recently approved a 3.5% increase in our monthly distributions, which took effect in the quarter. The increase is supported by our conservative AFFO payout ratio and marks another step in CT REIT's long-term track record of distribution growth and value creation for our unitholders. Overall, we were pleased with our performance in the quarter and remain confident in the outlook for the business. Our high-quality portfolio, strong relationship with Canadian Tire, ability to source strategic investments, and conservative balance sheet continue to position CT REIT well for the future growth. With that, I will turn the call over to Jodi to discuss our investment, development, and leasing activities in more detail. Jodi?

Thanks, Kevin, and good morning, everyone. As Kevin noted and as highlighted in our press release yesterday, we were active on the investment front again this quarter sourcing a new investment while closing on previously announced transactions. During the quarter, we completed a $13 million vend-in of a Canadian Tire store and Canadian Tire Gas+ gas bar in St. Catharines, Ontario. The property is well located in a strong retail node, represents approximately 52,400 square feet of incremental GLA, and is expected to earn a going-in yield of 6.9%. We also closed on approximately $76 million of previously announced investments during the quarter, which together added over 232,000 square feet of incremental GLA to the portfolio. These included the third-party acquisition of Centre 50, a Canadian Tire anchored multi-tenant property in Edmonton, Alberta, the acquisition of Marché Rosemère, a multi-tenant retail property adjacent to our existing Canadian Tire store in Rosemère, Quebec, and the acquisition of land adjacent to an existing CT REIT-owned property in Oliver, British Columbia. In addition, we completed intensifications of three existing Canadian Tire stores in Penticton, British Columbia, Burlington, Ontario, and Valleyfield, Quebec. During the quarter, we also continued to advance the Canada Square Toronto office retrofit project. As we have previously discussed, this project is a complete modernization of two buildings at our Canada Square complex, 2180 and 2200 Yonge Street, and includes refurbishing 680,000 square feet of GLA, over 90% of which has been leased. The project started in Q4 2025, and is running on schedule. The upgrades to the curtain wall systems in both 2180 and 2200 Yonge Street are underway, and the upgrades and refresh of internal facilities at 2180 Yonge are almost completed. As well, the work on the new elevator systems has commenced. To date, approximately 17% of the project's budget has been spent. Looking ahead, our development pipeline remains healthy. Including Canada Square, we currently have nine projects at various stages of progress. These developments represent total development costs of approximately $354 million, of which approximately $191 million has been spent to date. We expect to invest roughly $66 million over the next 12 months to advance these projects. As at quarter end, we had committed lease agreements for 488,000 square feet representing 94.2% of total GLA under development of which 91.6% has been leased to Canadian Tire. Returning to leasing, during the second quarter, CT REIT completed nine Canadian Tire store lease renewals. On blended basis, renewal leasing activity for the portfolio totaled over 618,000 square feet at a 10.4% increase. Canadian Tire store renewals accounted for approximately 515,000 square feet at a 10.9% increase, while other tenancies represented roughly 103,000 square feet at an 8.3% increase. As of quarter end, we maintained a long weighted average lease term for the portfolio, with our leases with Canadian Tire averaging 7.1 years and our occupancy rate remained robust at 99.5%. I will now turn it over to Lesley to discuss our financial results. Lesley.

Thanks, Jodi, and good morning, everyone. As Kevin mentioned, we are very pleased with the REIT's financial performance in the second quarter. Once again, our results demonstrated the steady growth and resilience of our portfolio. Same property net operating income, which includes the impact of intensifications, grew by 2.5% in the quarter compared to Q2 2025. The increases reflect the contractual rent escalations in many of our Canadian Tire leases, as well as the contributions from the intensification projects completed in 2025 and 2026. Overall, NOI grew by 4.8% quarter-over-quarter, representing an increase of approximately $5.8 million. This strong performance was supported by the same property NOI that I just referenced and the impacts of the properties acquired and developed in 2025 and 2026. In the second quarter, general and administrative expenses as a percentage of property revenue were 4.4% compared to 4% in the same period last year. The increase was mainly due to fair value adjustments on the unit-based awards and the timing of the deferred income tax provision. Excluding the fair value adjustment, G&A as a percentage of property revenue was 3.6% compared to 3.4% in the prior year. The fair value adjustment on investment properties was $44.3 million in the second quarter, compared to $23.6 million in the prior year. This gain was driven primarily by contractual rent increases, renewal activity completed in the quarter, and changes to investment metrics for certain retail and industrial properties based on market activity and recently completed external appraisals. In the second quarter, AFFO per unit on a diluted basis was $0.326, up 2.5% compared to the second quarter of last year. FFO on a diluted basis was $0.353 per unit, up 3.2% compared to Q2 2025. Growth in FFO and AFFO primarily reflects the increase in NOI, partially offset by increases in interest expense. Cash distributions paid in the quarter increased 2.5% compared to Q2 2025 to $0.237 per unit, reflecting the higher monthly distribution rate that became effective in July '25. The AFFO payout ratio for Q2 was 72.7%, stable from the 72.6% in the same period last year. Turning to the balance sheet, our interest coverage ratio for the second quarter was 3.49x compared to 3.55x in Q2 of 2025. During the quarter, we completed the issuance of $300 million of Series K unsecured debentures, which carry a 5.5-year term at a coupon of 3.57%. The net proceeds were used to repay the $200 million of Series D unsecured debentures that matured on June 1, '26, and to pay down amounts owing under our credit facilities. Even with these refinancing activities, our total indebtedness to EBITFV improved to 6.56x at June '26 compared to 6.77x at the end of 2025. Earnings growth outpaced the increase in debt. With respect to liquidity, we ended Q2 with approximately $12 million of cash on hand for a total of approximately $312 million available to us as our committed $300 million bank credit facility was undrawn at quarter end. In addition, we had roughly $187 million available on our $300 million uncommitted facility with Canadian Tire. Our strong balance sheet, conservative credit metrics, and ample liquidity provide us both with a strong foundation as well as substantial financial flexibility to fund future growth initiatives. And with that, I will turn back the call to the operator for any questions.

Certainly. [Operator Instructions] Our first question comes from the line of Tal Woolley from CIBC Capital Markets. Your question, please.

Just wondering if you can speak at all to sort of any deal flow that you've seen outside of Canadian Tire? Have you, has there been a lot to look at a little bit? And what's sort of been available to -- is like, put in front of you of late?

Hey, Tal, good morning. I'd say on a marketed basis, there's not much out there right now that for us would be on strategy or of interest. Obviously we have had discussions ongoing, you know, with market participants about the type of assets we acquire, which, you know, from a strategic perspective would be Canadian Tire stores, single-tenant properties, strategic assets, or assets that are adjacent to existing sites we own, and that kind of fits the description of a number of the acquisitions we made in the quarter. Nothing specific for us to speak to on today's call, but obviously there's a lot of activity broadly in the market right now. And certainly there could be some subset of assets that would be of interest to us from some of those opportunities. So I think we'll just keep at it and we'll see where the year takes us.

And maybe you can just refresh us on, like, what sort of size or what's our quantity of maybe of REIT suitable properties Canadian Tire still hold.

I'd say there's probably between 10 to 15 assets on the Canadian Tire balance sheet that would meet the REIT's investment criteria. So over time, certainly those could be possible candidates for what we call vend-ins. So we keep our mind turned to that. We obviously have a number of different growth levers between our development pipeline, those vend-ins, and third-party opportunities and you know pull on the appropriate lever as desirable or needed when the time comes so we are also in discussion with Canadian Tire about some of those.

Okay. And then can you just talk a little bit about, you know, you're sort of more into the teeth of doing a lot of Canadian Tire renewals, or at least renewals at this point in time. Is that something like you guys sit down to tackle like, you know, 2 times a year, 4 times a year? Like how, can you just talk a little bit about that with the process of that, given that there are normally so many to do?

Sure. Under the lease, there's a period at which they will have to notify us of their intention to renew or not. So that is the sort of governor in terms of the timing of the process or where it starts. And typically that's around 18 months prior to lease expiry. Um, so we have a pretty good line of sight to, um, you know, where things are going from that perspective. The renewals that we announced this quarter pretty much deal with those up to the end of the first half of 2027. Obviously, once we receive their notification or intention with respect to those renewal options, we then sit down, do a little work on market context, market rents, you know, renewal terms, anything else that needs to be discussed to lead to ultimately, you know, the appropriate lease documentation to then codify the renewal.

Okay. And then, Lesley, you know, like the leverage metrics, you know, really remain low relative to most of the Canadian real estate universe. We've been seeing some other issuers manage to see credit rating upgrades. I'm just wondering, like, is that something you've been in discussion with the credit rating agencies at any point?

I mean, we're really happy where the sort of the metric is overall. I think maybe one of the different parts is that our credit rating is linked to Canadian Tire's, as noted in the DBRS report. So, you know, we're happy with the credit metrics, you know, they're very positive, but I think really the ratings are linked to that of Canadian Tire, so there'd have to be a broader discussion, but yes, that is something that we discuss with the rating agencies on a regular basis when we meet with them, but we sort of are where we are, and if things change for Canadian Tire, then there's a possibility right now that things could change for us.

Thank you. And our next question comes from the line of Sam Damiani from TD Cowen. Your question, please.

I apologize if this was asked already. I was distracted by some other activity in the REIT sector this morning. Just on the, I guess, the new investments announced, just one, is there any change in your outlook for the year or let's say the next year or so in terms of the velocity of new investments that could be sourced and secured for the REIT?

We don't typically speak to forward expectations on the investment pipeline. I would say in this market we're being selective, retail fundamentals are great, but what that's caused in the investment market is a lot of competition and elevated pricing. And so for us, you know, certainly we have been pretty good at sticking to our knitting with respect to the type of assets we're interested in acquiring. We're going to continue focusing on that type of asset. And, you know, I mentioned in the previous answer, you know, certainly some of the broader market activity and the M&A we're seeing could bring about some opportunities for us, but it's nothing that we have anything to say about at this point in time.

Okay, understood. And on the St. Catharines acquisition, is there anything more about that asset you could share in terms of when it was last expanded or renovated? Anything unique about the lease there? I mean, the 6.9% cap rate, you know, seems to indicate, you know, a yield that hasn't moved with the market over the last year, let's say.

Yes, I think the first thing I'll say is we've been talking to Canadian Tire about this asset for some time and kind of locked in on the pricing a little while back. The asset has not been expanded anytime recently, although it is on format. So great, great site, just a kitty-corner from Pen Centre. St. Catharines is a strong market for Canadian Tire. For us, it totally fit with our portfolio and was a desirable asset.

A great location for sure. And just last one for me, noting the IFRS NAV is up about 7.5% year over year. Just trying to think about how that, uh, I mean, I guess the, the inputs obviously, same property NOI growth. You've got about probably a 1% tailwind from, from the discount rate being reduced, maybe, maybe 2%. Obviously, balance sheet leverage, but are there other factors that are contributing to the NAV growth besides those obvious ones from the MD&A?

Well, the lease renewals that we've effected over the last two years would be part of the uptick to the discounted cash flow. We would have development completions tying into it, and then probably some broader future updates to cash flow assumptions would also play into it, Sam.

Okay, and Kevin, you mentioned lease renewals. Does that mean that your IFRS -- you know, implicitly assumes some percentage of renewal or non-renewal, and then, you know, when the lease is obviously renewed, that goes to 100% from 90% or whatever it was assumed, is that a value-adding event for your IFRS process?

Yes, we would always have a run rate assumption on a percentage likelihood of lease renewal. I don't think we've changed that particular assumption. I think it's more around the rent uplifts and the rental rates that we hope to achieve when it comes time for renewal.

Congrats on the great results.

Thank you. And our next question comes from the line of Giuliano Thornhill from National Bank.

Just kind of wanted to ask about the pipeline earlier, is that kind of represented or potential pipeline from CT? Is that a representative of your existing portfolio right now or is there anything like chunkier or like higher quality that that's available there could be available?

Yes, I mean, we like to think of our existing portfolio as high quality, so I would say it certainly fits with our existing asset base, primarily retail properties. One or two smaller non-retail, but I would say it looks pretty comparable to our existing assets.

Okay, and then just following on that is, with your kind of leverage at pretty low levels, would you ever consider broadening out the investment opportunity set, like maybe initiating more development, or just upticking the investments capacity potentially?

Certainly. You know, we like our balance sheet position in that it gives us a lot of financial flexibility and dry powder if we do find something that we like. Development side, we're open to. I mean, the number of projects we have in our development pipeline has certainly shrunk over the last year or so, but the actual dollar quantum, is kind of, similar with Canada Square. That's a big single investment that we're making in one of our assets, and we're kind of still early days on that project, so we're trying to manage development exposure overall in the context of the total spend. So... I hope that answers your question, but we're open to doing more, but I think it's got to be on strategy and obviously financially attractive to us.

Yes, and then just lastly on Canada Square, I think you, it was mentioned in the prepared remarks around 75% of the project budget has been spent. I'm assuming that's for phase 1. Is that a good kind of approximation for what phase 2 could look like, just in terms of modeling out future capital intensity for the business?

Good morning. Just to clarify, 17% of our budget, 17, yes, because we're still, we started in Q4, so we're still sort of in early days. The project itself, a retrofit, will take till the end of '28, so we're 17% spent as of now. And no, it would not be reflective of any future phases, those would be modeled separately and analyzed separately when the time comes.

So that's just phase 1, correct?

That's right, yes.

Okay. And is there anything different about phase 2 in terms of, like, why would it be different potentially?

Yes, so phase 2, when it comes along down the road, is the residential component of the future land area of Canada Square. So phase 1 is the office retrofit of the two existing office buildings. Phase 2 is everything else. So they're completely different projects, different scope, budgets, timelines.

And then phase 1, we're working with the existing buildings. Phase 2 would be ground-up construction.

Yes, a little different. And then the 17%, is there like a dollar figure that you could disclose or approximation in your PUD value that has been outlaid there?

We haven't given a specific number for the project, although we have said that at 100%, it's a little over $200 million.

[Operator Instructions] Our next question comes from the line of Brad Sturges from Raymond James.

Just, I guess, on the new investment side, you talked about the development pipeline shrinking a bit. How do you think that could evolve in terms of the retail intensification opportunities going forward? Do you think that there's some opportunities in the pipeline that could allow for new projects to start, or how should we think about that over the next few quarters?

Yes, so we've talked about it a little bit over the past couple calls where the pace at which we're adding to the development pipeline has certainly slowed, mostly related to the Canadian Tire-related projects. You know, we mentioned that one of the acquisitions in the quarter was a piece of land in the Okanagan Valley in British Columbia. So for us, that is a future retail development opportunity unconnected to Canadian Tire. I would say we have a couple of those in the works. You know, Canadian Tire certainly continues to invest in their store network. We're the beneficiary of that when it's on a REIT site or it's an opportunity to participate alongside of them. But I think in the context of their True North strategy, certainly there's less focus on store development than in the last iteration of their formal strategy, which was called Better Connected, which really launched our outsized Canadian Tire-related retail development spend for the last couple of years. So there'll still be opportunities, but probably to a lesser extent as we've had for the next few years, I anticipate.

Okay. My other question would be, obviously, you were able to get the bond offering completed in the quarter and bond yields have kind of moved up since then. I guess if you had to reprice that today, how much would that be, much of the all-in cost moved since June?

The all-in cost probably about 35 basis points sort of since June, so a little bit more, but definitely things have been more volatile and sort of moving around. So I think we're just happy to have that sort of one taken care of early on in the year.

[Operator Instructions] Our next question comes from the line of Lorne Kalmar from Desjardins. Your question, please.

Just a quick one from me on the leasing side, and sorry if I missed it, but it looks like you guys did a pretty decent job in terms of getting spreads on Canadian Tire stores, as I think we should anticipate by this point. But just on the other leasing you guys did, I know last quarter, I think there were some flat rate renewals that happened that pulled the number down. But at 8%, it's still obviously pretty healthy, but a little bit below where we've seen some of your peers doing lease renewals. I was just wondering if you can give us a little bit of color around that and where you sort of think you can -- these will trend over the next 12 to 18 months.

So, you know, I guess the problem with our third-party renewal activity is in most quarters, it's pretty small. I mean, this is about 100,000 square feet. So, you know, last quarter you mentioned that was skewed by some flat options that were exercised. I think this quarter there was some fixed rate options in there. There was also some shorter-term lease renewals. So it kind of just depends on what's in the mix of that smaller quantum of space being extended. So I wouldn't read too much into it other than to say it fluctuates quarter to quarter.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Kevin Salsberg, President and CEO, for any further remarks.

Thank you, Jonathan, and thank you all for joining us today. We look forward to speaking with you again in November after we release our Q3 results. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.