Release Date: March 19, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canadian Net REIT (CNNRF, Financial) successfully executed key sales and acquisitions, enhancing their portfolio with strategic investments.
- The company acquired properties at attractive capitalization rates, which are expected to be highly accretive to their FFO per unit.
- The focus on necessity-based retail tenants has proven resilient, with tenants performing well despite macroeconomic uncertainties.
- Interest rates are beginning to decline, positioning Canadian Net REIT (CNNRF) favorably for future growth.
- The company maintains a 100% occupancy rate with a weighted average lease term of 6 years, indicating strong tenant retention.
Negative Points
- FFO declined by 2.5% for the quarter and 2.8% for the year, reflecting challenges in absorbing interest rate increases.
- Normalized FFO per unit decreased by 3.8% compared to the previous year, impacted by higher interest charges and property dispositions.
- NOI decreased by 3% due to decreases in rental revenue from property dispositions and straight-line rent adjustments.
- Administrative expenses increased due to a one-time sales tax charge and higher legal and professional fees.
- The debt to gross asset ratio remains relatively high at approximately 56%, limiting immediate capacity for additional acquisitions.
Q & A Highlights
Q: With leverage in the high 50% range, how much capacity is there for additional acquisitions?
A: Kevin Henley, President and CEO, stated that the focus in the early months of the year will be on refinancing properties to repay a $6 million convertible debenture in November. For acquisitions, they will consider refinancing opportunities on certain properties if interesting acquisitions arise.
Q: Given the current payout ratio, are distribution increases viable for 2025?
A: Kevin Henley mentioned that historically, distribution increases have been made as $0.04 per unit increases, and this is something they could consider as they move into 2025.
Q: Can you provide more color on the maintenance CapEx charge of around $100,000 noted in the quarter?
A: Kevin Henley clarified that the $100,000 maintenance CapEx completed in Q2 will generate additional income, whereas the expenditure in the current quarter was purely for maintenance purposes.
Q: Can you comment on the transaction market for potential acquisitions and dispositions, including cap rates and investment spreads?
A: Kevin Henley noted that the bulk of disposition work was completed last year, and this year the focus is on capital recycling through refinancing and acquisitions. He mentioned that necessity retail is gaining interest, and their sourcing remains strong, providing plenty of opportunities.
Q: How do you view the potential use of buybacks for capital allocation?
A: Kevin Henley stated that buybacks are not currently on the table as they still find great acquisition opportunities. The priority is to refinance for the November debenture, and any excess capital will be deployed into acquisitions, which are more accretive than unit buybacks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
