Primaris Real Estate Investment Trust · TSX:PMZ.UN
Primaris Real Estate Investment Trust — Investor Day (September 2024)
78 slides from Primaris Real Estate Investment Trust's investor day presentation, Sep 24, 2024
Slide 1: The Primaris Strategic Advantage
The Primaris Strategic Advantage Investor Day in Halifax September 24, 2024
Slide 2: Caution Regarding Forward-Looking Statements
CAUTION Forward-Looking Statements and Future Orientated Financial Information Disclaimer: Certain statements included in this presentation constitute ‘‘forward-looking information’’ or “forward-looking statements” within the meaning of applicable securities laws. The words “will”, “expects”, “plans
Slide 3: Welcome to Primaris' Investor Day in Halifax
Welcome to Primaris' Investor Day in Halifax 3
Slide 4: Overview
Halifax Shopping Centre, Halifax, NS BBB (high) 94.4% $3.8B $3.3B Stable Committed National Unencumbered Investment Grade Occupancy Portfolio Assets Rating 12.4MSF $6761 45% - 50% 5.7x2 GLA Same Store Sales Target FFO Average Net Debt** to Productivity Payout Ratio** Adjusted EBITDA** 1. Supplementa
Slide 5: Primaris Strategic Advantage: Enclosed Malls. Open Opportunity.
Primaris Strategic Advantage Differentiated financial model and a mandate for growth Enclosed Malls. Open Opportunity. Built to Grow and Thrive Size and Scale Proper Capitalization • $3.8B national portfolio of leading • Average Net Debt** to Adjusted EBITDA**: 5.7x1 enclosed shopping centres in gro
Slide 6: How Far We've Come
Primaris REIT Outperforms with a clearly defined strategy, differentiated financial model, How Far We've Come and a mandate for growth Dec'21: WAIR: 2.73% Total Unitholder Return Dec'22: WATM: 1.7 yrs WAIR: 4.87% Unsecured Debt: 0.0% WATM: 3.2 yrs Nov'23: Acquire Halifax Aug'24: $500M of Total Debt
Slide 7: Halifax, It's All Here
Halifax, It's All Here Mayor Mike Savage Wendy Luther, President & CEO Ian Munro, Chief Economist Mayor of Halifax Regional Municipality Halifax Partnerships Halifax Partnerships 7
Slide 8: Halifax
HALIFAX
Slide 9: Halifax Partnership
Halifax Partnership Lead Halifax’s Sell and market Help business and Track and report on economic strategy. Halifax to attract talent reach their Halifax’s economic business, talent, full potential. progress. and investment.
Slide 10: WAP
WAP Hey we we
Slide 11: Slide 11
Slide 12: Connect. Collaborate. Prosper.
=> ‘CONNECT. COLLABORATE, PROSPER.
Slide 13: Slide 13
Slide 14: Record Population Growth
Record Population Growth Source: Statistics Canada, Annual Demographic Estimates, Table 17-10-0150-01
Slide 15: Slide 15
Slide 16: The area's thriving academic community and tech talent
“ The area's thriving academic community and base of tech talent make Halifax an attractive place for us expand. - Jay MacIsaac, Cognizant's Canadian head of delivery centres
Slide 17: Labour Market Forecast 2024 - 2028
Labour Market Forecast 2024 - 2028
Slide 18: Se
Se
Slide 19: Housing Forecast 2024-2028
Housing Forecast 2024-2028 Housing Starts Per One-Thousand Population | | | \ | 2024 2025 2026 2027 2028 HALIFAX Halifax mToronto NS m Canada PARTNERSHIP ‘CONNECT. COLLABORATE, PROSPER.
Slide 20: Income and Retail Sales Forecast
Income and Retail Sales Forecast
Slide 21: Halifax
HALIFAX
Slide 22: Retailer Affordability "Malls 101"
Retailer Affordability "Malls 101" Patrick Sullivan, President & COO
Slide 23: Evolution of the Canadian Mall
A blank slate to design a best- in-class vehicle to take advantage of the recovery in Evolution of the Canadian Mall enclosed shopping centres Consolidation of Malls by Pension Funds 1950 1990-2000 2000-2015 2015-2022 2024+ • 1990-1995 Bankruptcies • Strong fundamentals: • Post WWII - pent up • The
Slide 24: Rental Revenue Drivers
Rental Revenue Drivers
Slide 25: Strong Leasing and Operational Leadership Teams
Experienced senior leadership Strong Leasing and Operational team with significant real estate investment, leasing and Leadership Teams operations expertise Patrick Sullivan President & Chief Operating Officer Operations Leaders Leasing Leaders Graham Procter Leigh Murray SVP, Asset Management Head,
Slide 26: Enclosed Shopping Centre's Unique Lease Structure
Property operating costs are Enclosed Shopping Centre's Unique recovered from tenants who absorb the impact of rising Lease Structure inflation Lease Structure Primaris' unique lease structure provides the opportunity to + • Long-term contractual net rents Net Rent • Incremental rent escalation grow
Slide 27: Landlord Beneficial Lease Clauses
Leases with clauses carving out freedom to the landlord in managing CAM contributions and tenant movement are key to Landlord Beneficial Lease Clauses our strategy Excluded Tenants • Enables the Landlord to provide tenants with market competitive gross rental rates Amortization of • Landlord manages
Slide 28: Leasing Strategy: Fill up First, Upgrade Later
Continued focus on the optimization of all rental revenue with attention to market Leasing Strategy: rents, occupancy level targets Fill up First, Upgrade Later and merchandising mix Below Grow Occupancy • Recover all eligible proportionate tenant expenses Above Drive• Net Rents Leverage national re
Slide 29: Proactive Merchandising Mix Drives Traffic and Ultimately Rental Growth
Managing the tenant mix is a Proactive Merchandising Mix Drives continuous optimization Traffic and Ultimately Rental Growth process Merchandise Mix Considerations • Existing vacancies • Current market conditions • Category size and property position in market place • Foot traffic • Destination reta
Slide 30: Mall Merchandise Mix has Evolved, De-risking the Tenant Base
With the rise and ultimate fall of Mall Merchandise Mix has Evolved, anchor tenants Primaris' merchandising mix has lower De-risking the Tenant Base exposure Anchor Weighted Balanced Tenant Mix Change in Gross Rent by Category, 2009 - 2024 Apparel (11) % Large Format Fashion (7) % Large Format Non-F
Slide 31: Case Study: Orchard Park
Case Study: Orchard Park - Blending Orchard Park benefits from the the Distinction between a Power Centre mix in its ability to attract a wide diversity of its merchandising and Mall consumer base Large format tenants have become more productive, generating higher rental revenue 2009 2024 Large Form
Slide 32: Large Format Tenants Contributing More to CAM and Tax
Over time, large format tenants are contributing more to the Large Format Tenants Contributing CAM and Tax pools, enabling better affordability for CRU and More to CAM and Tax ability to drive net rents • Anchors historically were 100,000+ square feet • Large format tenants today favour a smaller fo
Slide 33: Percentage Rent: Icing on the Cake
Percentage rent is profit sharing between the tenant and landlord, above and beyond gross rent, that comes from Percentage Rent: Icing on the Cake retailer outperformance Aspirational brands have a superior ability to drive NOI**, foot traffic, sales productivity, and leasing momentum while deliveri
Slide 34: Many Retailers are Growing their Footprint in Canada
Our growing portfolio and lease up brings significant Many Retailers are Growing their opportunities to expanding tenants with an ability to pay Footprint in Canada higher rents 35
Slide 35: Case Study: Devonshire Mall - Demolition of 185,000 SF Sears Box
Anchor boxes present a unique Case Study: Devonshire Mall - opportunity to transform and revitalize the shopping centre, Demolition of 185,000 SF Sears Box and drive NOI** • $26.8M total project cost ◦ 9.5% IRR ◦ $7.5M = Sears demolition ◦ $6.9M = Site works & new mall entrance ◦ $12M = New tenant b
Slide 36: Case Study: Stone Road Mall - Re-merchandised Sears Box
Case Study: Stone Road Mall - Reimagining an anchor space as Re-merchandised Sears Box driving large format tenants diversifies rental income, increases centre traffic and rent performance, and reduces risk Impact of Sears Box Significant opportunity to increase rents and reduce operating costs and
Slide 37: The Last Anchor Standing - HBC
Primaris's exposure to HBC presents significant opportunity to re-merchandise and redesign key shopping centres for long The Last Anchor Standing - HBC term NOI** growth 7 Store Count 1.4% of Total Annualized Minimum Rent 6.2% of Occupied GLA 720K Square Feet in Portfolio 5 WALT at share Opportuniti
Slide 38: Specialty Leasing - Unique to Enclosed Malls
Specialty Leasing - Specialty leasing is a critical piece of the mall merchandising Unique to Enclosed Malls strategy What is Specialty Leasing or SL? • Critical piece of merchandising strategy for promotional and branding opportunities • Primarily short-term leases • Provides flexibility and additi
Slide 39: CRU will Drive Occupancy Growth going Forward at Higher Average Rent
Opportunities for NOI** growth in the next 2-3 years will be CRU will Drive Occupancy Growth fueled by CRU leasing and rent commencement going Forward at Higher Average Rent 88.4% Q1 2022 87.1% 87.2% 86.7% Q1 2022 Q1 2022 Q1 2022 84.3% Q1 2022 78.7% Q1 2022 Average $12.88psf $14.29psf Average $35.19
Slide 40: The Path to 96% In-place Occupancy
Opportunities for NOI** growth in the next 2-3 years will be fueled by the uptick in leasing momentum and as centres are The Path to 96% In-place Occupancy leased up 96% Target Occupancy 0.8-1% Guideline Increase in Occupancy 150bps Increase in In-Place Occupancy Since Inception 1.4% Committed Lease
Slide 41: Expense Management
Expense Management
Slide 42: Improving Recovery Ratios are a Significant Driver of NOI and FFO Growth
Improving Recovery Ratios are a Improving recovery ratios in the Significant Driver of NOI** and next 2-3 years through strong leasing is a key NOI** and FFO** FFO** Growth growth driver Recovery ratios measure the landlord's ability to recover mall operating and maintenance costs, such as common ar
Slide 43: Capital Expenditure Programs Enable Prudent Cost Management
Properties maintained to a high Capital Expenditure Programs standard while keeping focus on Enable Prudent Cost Management controlling costs and adherence to our long-term capital plan Prudent 15-Year Capital Plans • All properties have a 15-year capital plan • Allows Primaris to properly manage CA
Slide 44: Proven Success of the Primaris Management Platform
Proven Success of the Primaris Proven track record of Management Platform delivering strong results • Very strong leasing 7.1% spreads on renewals, as of Q2 2024 • Optimizing footprint through demolition, • 2% annual contractual rent increases included Positive Leasing Rightsizing and strategic land
Slide 45: Acquisitions Driven Opportunity
Acquisitions to date have shown NOI**, sales and occupancy Acquisitions Driven Opportunity growth Primaris has acquired 7 high quality shopping centres since Jan 2022 Portfolio Performance Through Acquisitions Conestoga Jul 2023 5 HOOPP1 Properties Jan Halifax 2022 Nov 2023 Occupancy Growth HOOPP 92
Slide 46: Tenant Performance
Tenant Performance
Slide 47: Tenant Key Performance Indicators Closely Monitored to Assess Tenant Health
Tenant key performance Tenant Key Performance Indicators indicators closely monitored to Closely Monitored to Assess gain insights on tenant relevance, profitability, and Tenant Health ultimately ability to grow rent All Store Sales Sales Productivity Volume Shopping centre Shopping Centre performan
Slide 48: Sales Reporting Supports Focus on NOI
Total sales and sales Sales Reporting Supports productivity analysis are used in tandem to assess performance Focus on NOI** and drive leasing decisions Sales Productivity Case Study: Impact on Reporting Pros • Provides a frame of reference to compare Sephora at Peter Pond Mall among centres and bet
Slide 49: Room to Grow Rents as GROC Ratios Are Low
Room to Grow Rents as GROC GROC provides insight into affordability, helping gauge the Ratios Are Low health of a tenants’ business Gross Rent Occupancy Cost (GROC) = Gross Rent All Store Sales • Thresholds vary by retail category and depend on various factors such as the type of business, location,
Slide 50: GROC is Category Specific
GROC is a key measure in arriving at a watch list for tenants who may be struggling and for evaluating where rents GROC is Category Specific could be lifted GROC Guidelines by Category GROC varies by category, based on margins and sales volume Category GROC Target Telecom Guidance • Typical to see a
Slide 51: Case Study: Sales Reporting Allows Management of Tenant Watch List
Deal terms are actively renegotiated and space taken back to strategically reduce Case Study: Sales Reporting Allows exposure to select tenants Management of Tenant Watch List ultimately replaced with strong tenants Example - Higher risk tenant exposures are proactively managed, reduced, and ultimat
Slide 52: François Roberge, President & CEO
François Roberge President & CEO 56
Slide 53: Consolidation Opportunity
Consolidation Opportunity Alex Avery, CEO
Slide 54: We spend a lot of time thinking about capital allocation...
Capital allocation is an ongoing discussion "We spend a lot of time thinking about where management is continuously capital allocation..." evaluating investment opportunities Disciplined Capital Allocation Uses Sources Cost of Capital • Acquisitions • Dispositions • NCIB • VTB1 Equity at NAV** Risk-
Slide 55: Primaris Has Identified High Quality Target Assets
High Quality Target Primaris Has Identified High Quality Assets in Growing Target Assets Target Markets Sources: ICSC Canada Mall Property Performance Report, 2023. 61
Slide 56: Acquisition Deal Structure Overview
Acquisitions further demonstrate Primaris as an attractive buyer for Canadian pension fund vendors of market leading Acquisition Deal Structure Overview Canadian shopping centres Conestoga Mall Halifax Shopping Centre Complex (in millions of Canadian dollars unless otherwise indicated) Acquisition D
Slide 57: Dave Black, Head of Value and Risk Advisory, JLL Canada
Dave Black Head of Value and Risk Advisory, JLL Canada 64
Slide 58: Mall Valuations & Appraisals
Mall Valuations & Appraisals Primaris Investor Day September 24, 2024
Slide 59: JLL Overview | Key Capital Market Themes
JLL Overview | Key Capital Market Themes Sales volume surges in Q2 with 37% Falling interest rates should help Performance bifurcation by quality and q-o-q increase stimulate private and public markets micro-location will continue to accelerate Likely due to a combination of falling bond yields and
Slide 60: JLL Overview | Investment Volumes
JLL Overview | Investment Volumes Despite Q2 bump, 2024 still on pace for relatively slow year • Despite recording the third-highest investment total on record in 2023, with challenging market conditions and shifting investor sentiment, 2024 started off slow due to the lagging impact of rising inter
Slide 61: JLL Overview | Investment Volumes
JLL Overview | Investment Volumes Commercial Real Estate Investment Volumes by Market, Quarterly Commercial Real Estate Investment Volumes by Sector, Quarterly $9 $9 CAD, Billions CAD, Billions $8 $8 $7 $7 $6 $6 $5 $5 $4 $3.8 $4 $3.5 $3.6 $3.3 $3 $3 $2.3 $2 $2 $1.4 $0.9 $0.9 $0.9 $1 $0.7 $1 $0.5 $0.
Slide 62: JLL Overview | Deal Size & Buyer Type
JLL Overview | Deal Size & Buyer Type Smaller deals are driving the market velocity, as are private investors Investment Volumes by Buyer Profile ($) Commercial Real Estate Investment Volumes, Price Range Composition $70 100% Foreign Investment Fund Manager 90% sales above $60 Pension Fund $50m are
Slide 63: JLL Overview | Valuation Process: What goes into our values?
JLL Overview | Valuation Process: What goes into our values? Property Data 1 2 Cash Flow Projection 3 Parameter Selection 4 Valuation Methods ❑ All property-related information is ❑ Cash flow developed in Argus ❑ The Internal Rate of Return (IRR), ❑ Three main valuation methods used typically provid
Slide 64: JLL Overview | Cash Flow Projection: Retail Highlights
JLL Overview | Cash Flow Projection: Retail Highlights Sales per square foot, 2007-2023 All enclosed malls (Super-Regional and Regional), by Mall Profile Canadian mall sales had their Non-core Suburban and best one-year growth since Secondary malls $1,600 2016, both on a nominal outperform $1,400 ba
Slide 65: JLL Overview | Cash Flow Projection: Sales & Population Growth
JLL Overview | Cash Flow Projection: Sales & Population Growth 40% 1 2 Halifax S.C. Sunridge Mall Higher Sales Growth 30% 20% 10% Devonshire Mall 0% 0% 2% 4% 6% 8% 10% 12% 14% -10% Conestoga Mall Pct. growth in sales, -20% 2023 vs 2019 -30% Marlborough Mall -40% 3 4 -50% Cumulative population growth
Slide 66: JLL Overview | Parameter Selection: Enclosed Mall Transactions
JLL Overview | Parameter Selection: Enclosed Mall Transactions CF CARREFOUR LAVAL PROMENADES BEAUPORT LAURIER QUEBEC Laval, Quebec Quebec City, Quebec Quebec City, Quebec Aug-24 | Confidential Price Aug-23 | $80,000,000 Jul-22 | $309,000,000 (Adj.) TD Asset Mgmt. → OTPP / CF (50%) Cominar REIT → Gro
Slide 67: JLL Overview | Parameter Selection: JLL REIS
JLL Overview | Parameter Selection: JLL REIS 74 74 | JLL/Primaris Presentation (Sept. 24, 2024)
Slide 68: JLL Overview | Parameter Selection: Global Bid Intensity Index
JLL Overview | Parameter Selection: Global Bid Intensity Index Source: JLL Research 75 75 | JLL/Primaris Presentation (Sept. 24, 2024)
Slide 69: JLL Overview | Parameter Selection: Financial Indicators
JLL Overview | Parameter Selection: Financial Indicators Historical Retail Analysis (Quarterly) $6,000 9.0 Millions 8.0 $5,000 7.0 $4,000 6.0 5.0 $3,000 4.0 $2,000 3.0 2.0 $1,000 1.0 $- 0.0 Q4 2017 Q2 2018 Q4 2018 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 201
Slide 70: Thank you!
Thank you!
Slide 71: Differentiated Financial Model
Differentiated Financial Model Rags Davloor, CEO
Slide 72: Highly Differentiated Financial Model
Best-in-class structure built with flexibility, optionality and liquidity, enabling minimized Highly Differentiated Financial Model cost of capital 5.7x1 38.6%1 $3.3B BBB (high) 2.8x Total Average Net Debt** Total Debt** to Unencumbered Unencumbered to Adjusted Total Assets** Assets Assets to Stable
Slide 73: Drivers of FFO and NAV Growth
Primaris' success measures are cash flow and NAV** per Unit Drivers of FFO** and NAV** Growth growth SPNOI** Growth • Occupancy • Recoveries • Contractual Rental Steps • Merchandise Mix Growth in FFO** per unit Acquisitions Growth in NAV** per unit Redevelopments and Expansions Retained Free Cash Fl
Slide 74: A Clear Path to Compelling Total Unitholder Returns
Primaris' strategic plan is designed to deliver attractive A Clear Path to Compelling returns to Unitholders over the next 3 years as occupancy levels Total Unitholder Returns return to historic norms 1%-2% 2%-4% 3%-4% Average 13%* 4%-6% 1 2 1 Based on a Unit price of $14 to $20 and an annual distri
Slide 75: Financial Targets
Designed to provide significant financial flexibility and create a differentiated investment Financial Targets profile among Canadian REITs 2024 Guidance 1 3 Year Targets In-place Occupancy Growth 0.8% to 1.0% 96% Annual Same Properties Cash NOI Growth 3% - 4% 3% - 4% Annual FFO** per unit Growth 2.
Slide 76: Asymmetrical Risk Profile
Primaris is positioned to be defensive against downside risks while capitalizing on Asymmetrical Risk Profile opportunities in the mall space • Strong enclosed shopping centre fundamentals • Occupancy increase and lease conversions Going-in yr-1 • Very low leverage cap rate would need to increase by
Slide 77: Primaris Screens Well Against Retail REIT Peers on All Metrics
Primaris is very attractively Primaris Screens Well Against priced with a focused strategy, Retail REIT Peers on All Metrics Differentiated Financial Model and Disciplined Capital Allocation 1. Based on analyst estimates. 2. Primaris reports Average Net Debt** to Adjusted EBITDA. The debt ratios are
Slide 78: Thank You for Joining Us
Halifax Shopping Centre Thank You for Joining Us
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