Primaris builds ‘robust liquidity’ as revenues, sale rise • RENX

May 3, 2024
3 mins read
Primaris builds 'robust liquidity' as revenues, sale rise • RENX


Primaris REIT CEO Alex Avery. (Courtesy Primaris)
Primaris REIT CEO Alex Avery. (Courtesy Primaris)

Primaris REIT (PMZ.UN-T) is coming off a strong first quarter and has significantly increased its war chest for further shopping centre acquisitions, its CEO said during the trust’s May 2 quarterly investors and analysts call.  

The REIT’s net income rose by $10.3 million from a year earlier to reach $45.88 million in its first quarter ended March 31, one in which positives outweighed negatives.

Primaris is Canada’s only enclosed shopping centre-focused real estate investment trust and the country’s largest owner of enclosed malls by property count.

“The acquisitions completed in 2023, our larger national footprint and high asset quality continues to increase our relevance with both existing tenants and new and exciting new-to-market retailers,” chief executive officer Alex Avery said during a May 2 conference call to review the trust’s financial and operational performance.

“We have robust liquidity and are finding lots of attractive opportunities. We have capacity for more than $1.5 billion of acquisitions and require no financing conditions in our deals. 

“This profile as a well-capitalized and credible counter-party in the market is a real differentiator in what is a currently challenging transaction market for many participants.”

First quarter highlights

In comparison to the first quarter of 2023, Primaris saw:

  • its investment portfolio rise to 39 properties from 35;
  • gross leasable area increase to 12.5 million square feet from 10.9 million;
  • in-place occupancy improve to 92 per cent from 90.6 per cent;
  • committed occupancy rise to 94.1 per cent from 91.3 per cent;
  • weighted average net rent per occupied square foot increase to $25.10 from $24.30;
  • same-property cash net operating income growth of two per cent;
  • and same-store sales productivity per square foot jump to $628 from $607. The sales number increases to $677 with the inclusion of the REIT’s two major 2023 acquisitions, Conestoga Mall in Waterloo, Ont., and Halifax Shopping Centre.

Primaris was spun off from H&R REIT through a non-taxable distribution of units on Dec. 31, 2021. Concurrently, Healthcare of Ontario Pension Plan (HOOPP) contributed six large-format shopping centres in exchange for approximately 26 per cent of Primaris’ units.

Primaris’ total assets were valued at $3.93 billion and unencumbered assets at $3.3 billion in the first quarter. Total assets were valued at $3.28 billion and unencumbered assets at $2.71 billion a year earlier. 

Total available liquidity rose to $684.33 million from $468.3 million during the same period 12 months earlier. The total-debt-to-total-assets ratio was 38.9 per cent compared to 33.5 per cent during the first three months of 2023.

Steady leasing activity

The Conestoga Mall in Waterloo, Ont. (Courtesy Ivanhoe Cambridge)
Conestoga Mall in Waterloo, Ont. (Courtesy Ivanhoe Cambridge)

Primaris completed 149 leasing deals totalling about 500,000 square feet in the first quarter and the tenant renewal rate was 82.3 per cent. There were 26 lease deals with new tenants covering 150,700 square feet.

President and chief operating officer Pat Sullivan said Primaris is in advanced negotiations with a number of large-format tenants and he anticipates those deals closing over the next two quarters.

Primaris has 883,000 square feet of 2024 expiring leases remaining to deal with and Sullivan claims to have no concerns about completing those negotiations.

“Our leasing and operations teams work diligently to identify new brands that would complement and enhance our tenant mix, while proactively working to reduce exposure to those tenants that are losing relevance with the consumer,” Sullivan said.

Rent growth

There was a 7.4 per cent weighted average spread on renewing rents across 277,000 square feet. Primaris typically pushes for two per cent annual increases in its leases, but it varies depending on the tenant, according to Sullivan.

The macro environment for malls — including a declining supply of retail gross leasable area, population growth, rising tenant sales and increasing tenant demand for space — creates a significant opportunity to drive rent growth and higher occupancy to quality tenants with the ability to pay increasing rents over time, Sullivan explained.

“The financial health of tenants continues to be quite favourable and the dialogue with tenants looking for new expansion opportunities remains robust.”

The $54-million redevelopment of the former Sears store at Halifax Shopping Centre was completed last year. A 56,200-square-foot Simons, a 38,500-square-foot Winners, a 13,000-square-foot Dollarama and a 15,000-square-foot PetSmart opened in the space during the first quarter of this year.

Garden City Square and other dispositions

Primaris entered into an agreement to sell Garden City Square — an open-air, non-grocery-anchored retail property in Winnipeg — for $31 million during the quarter. The deal is expected to close on May 23.

“This is our first non-core, income-producing property disposition entered into since the spin-off and aligns with our strategy to focus on a growing high-quality portfolio of market-leading enclosed shopping centres in Canada,” Avery said. “This disposition improves our overall portfolio quality and growth profile and further demonstrates Primaris’ ability to transact. We are currently engaged in discussions with prospective purchasers for further dispositions. 

“Our capital recycling program is a key pillar supporting our profile as a buyer of market-leading malls and positions us well to capitalize on future opportunities.”

The majority of assets for sale are smaller, unenclosed retail properties, but an industrial building and land parcels are also available. The assets, including Garden City Square, are valued at $124 million.

Primaris continues to buy back units

Primaris’ net asset value per unit was $21.86 at the end of the first quarter while its unit price closed at $13.49 on the Toronto Stock Exchange on May 2. Its 52-week low price is $12.11 while the 52-week high price is $14.24. The REIT has a market cap of $1.3 billion.

Primaris has continually been repurchasing units since March 2022 because they’ve been trading at a significant discount to net asset value.

“We are very comfortable in continuing to buy back units,” Avery said.



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