PRO REAL ESTATE INVESTMENT TRUST (TSX:PRV) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.
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Summary
PRV.UN reported an increase in revenue, NOI, and AFFO despite owning 8 fewer properties than the previous year, driven by a 6.8% growth in the industrial segment.
The company completed key transactions, including the sale of a 50% interest in an industrial property and the acquisition of a new industrial building in Moncton, New Brunswick.
Portfolio occupancy was 96% at quarter end, with significant lease renewals at positive spreads and notable increases in rent for new leases.
Management highlighted a focus on reducing leverage, with adjusted debt to gross book value improving to 47.8%, and discussed securing financing commitments to address 2026 mortgage maturities.
Future outlook remains positive with plans to scale the industrial platform, supported by strong demand in targeted markets and ongoing evaluation of acquisition opportunities.
Full Transcript
OPERATOR
Good morning and welcome to ProRead's first quarter results conference call for fiscal 2026. At this time, all lines have been placed on mute to prevent background noise. Management will make a short presentation which will be followed by a question and answer period open exclusively to financial analysts. To ask a question, simply press the star key, then the number one on your telephone keypad. If you would like to withdraw your question, please press the star key followed by the number two for your convenience. The results release along with First Quarter financial statements and Management's discussion and analysis are [email protected] in the Investors section and on SEDAR Plus. Before we start, I have been asked by PRV.UN to read the following message regarding forward looking statements and non IFRS measures. PRV.UN's remarks today may contain forward looking statements about its current and future plans, expectations, intentions, results, levels of activity, performance goals or achievements or other future events or developments. Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable. In the circumstances, however, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events or developments to differ materially from those expressed or implied by the forward looking statements. As a result, PRV.UN cannot guarantee that any forward looking statement will materialize and you are cautioned not to place under reliance on these forward looking statements. For additional information on the assumptions and risks, please consult the Cautionary statement regarding Forward Looking Statements contained in PRV.UN's MDA dated May 13, 2026, available at www.crplus. forward looking statements represent management's expectations as at May 13, 2026 and except as may be required by law, PRV.UN has no intention and undertakes no obligation to update or revise any forward looking statement whether as a result of new information, future events or otherwise. The discussion today will include non IFRS financial measures. These non-IFRS financial measures should be considered in addition to and not as a substitute for or in isolation from the REIT's IFRS results. For a description of these non IFRS financial measures, Please see the first quarter earnings release for fiscal 2026 and non IFRS Measures section in the MDA for the first quarter of fiscal 2026. For additional information. I will now turn the call over to Mr. Gordon Moeller, President and Chief Executive Officer of PRV.UN.
Gordon Moeller (President and Chief Executive Officer)
Thank you Jenny Good morning everyone and welcome. Joining me today is Allison Schaefer, our CFO and Corporate Secretary. Also joining us for the Q and A session is Zach Aaron, Vice President of Investments and Asset Management. We are pleased with our start over 2026 as a pure play industrial REIT. We continued to execute on our strategic plan and delivered sound operating performance despite owning 8 fewer properties than at this time last year. We increased revenue, NOI and AFFO while further reducing leverage, building on several years of strong growth momentum. Same property NOI increased 6.4% during the quarter driven by 6.8% growth in our industrial segment. These results reflect the strength of our tenant base and the embedded lease growth within our portfolio. At quarter end, Our portfolio comprised 104 investment properties totaling 6.4 million square feet of GLA with a weighted average lease term to maturity of 4.3 years compared to 4.5 years at the same time last year. Industrial assets represent 90.7% of our base rent compared to 81.8% a year ago. As we continue to redeploy capital towards this segment geographically, we further diversified the portfolio across Canada, Manitoba and Western Canada increased to 19% of base rent up from 9.6 a year ago, while Atlantic Canada declined to 44% from 52.4. Our targeted markets continue to demonstrate strong industrial fundamentals. In Winnipeg, CBRE reported continued growth in industrial rental rates during the quarter. In Ottawa, increased federal defense spending is supporting near term demand for both small and mid bay industrial space. Meanwhile, Halifax industrial rents reached a record high of $15.18 per square foot reflecting a strong start to the year. Turning to the portfolio transactions, during the quarter we completed the previously announced sale of a 50% interest co ownership interest in an industrial property located in Dartmouth, Nova Scotia totaling approximately 65,000 square feet for our share of gross proceeds of $5.1 million. Sorry, $5.7 million. Subsequent to quarter end we engaged in two additional transactions. First, we completed the acquisition of 100% interest in a single tenant 2024 built 10 year leased industrial building in Moncton, New Brunswick totaling approximately 60,000 square feet of GLA for $12.3 million and representing a going in capitalization rate of 7%. This acquisition was financed through a combination of draws on the revolving credit facility and cash on hand from the Dartmouth property sale I just mentioned.
Gordon Moeller (President and Chief Executive Officer)
Second, we entered into a binding agreement for the sale of 100% interest in a retail property located in Bathurst, New Brunswick totaling approximately 15,000 square feet of GLA for gross proceeds of 1.4 million. Net proceeds from the sale are expected to be used for general business and working capital purposes the transaction is scheduled to close in the second quarter, subject to customary closing conditions. Turning to leasing activity, momentum remains strong during the quarter.
Gordon Moeller (President and Chief Executive Officer)
As of today, we've renewed approximately 76.9% of 2026 lease maturities at positive average spreads of 34.8%. Notably, five lease renewals commencing in 2026 include rental increases ranging from 40 to 45%. Lease renewals negotiated in 2024 and 2025 and kicking in in 2026 will provide for incremental cash flow as 418,000 square feet of space realizes new rental rates on September 26th and fully in Q4 overall portfolio occupancy was 96% at quarter end compared to 97.7 a year earlier.
Gordon Moeller (President and Chief Executive Officer)
As noted on previous calls, this change was prominently driven by the temporary vacancy at our 176,000 square foot single tenant industrial property located in Saint-Jean-sur-Richelieu, Quebec. Following the tenant's decision not to renew its lease in July of 2025. On May 6, 2026, the REIT entered into a binding lease for approximately 74,250ft of the 176,000 square foot facility located at 6375 Picard street again in Saint-Jean-sur-Richelieu. The new tenant will have a 15 year term at least term at market rent commenced in mid-2026.
Gordon Moeller (President and Chief Executive Officer)
The new base rent on the 74,000 square feet, which is 42% of the total property GLA, represents an increase of over 122% compared to the rent paid by the previous tenant for the same GLA in the prior lease. The new lease will provide for incremental cash flows for Q3 and Q4 2026. We continue to actively market the remaining vacant space. Excluding this property vacancy. Portfolio occupancy would have been approximately 97.6% at quarter end. With that, I'll now turn the call over to Allison.
Gordon Moeller (President and Chief Executive Officer)
Allison, over to you.
Allison Schaefer (Chief Financial Officer and Corporate Secretary)
Thank you Gordy and good morning everyone. We are pleased with our first quarter performance. In the quarter, property revenue totaled $26.9 million, up 4.5% year over year despite owning 8 fewer properties. The increase is mainly driven by contractual increases in rent and higher rental rates on lease renewals and new leases. Net operating income or NOI, was $16.1 million, an increase of 8.1% compared to last year due to the same factors. Same property NOI represents 97 of our 104 properties.
Allison Schaefer (Chief Financial Officer and Corporate Secretary)
This reached $14.1 million. That was up 6.4% year over year, including a 6.8% growth from our industrial segment. The increase was driven by contractual rent escalation, stronger renewal rates and higher rents on new leases and this was achieved despite a decline in overall average occupancy related to the single tenant Quebec vacancy. Gordon mentioned earlier, our funds from operations or ffo amounted to $8.7 million for the quarter. This was up 10.6% and it was driven by increases in contractual base rent, higher rates on renewals and higher rental rates on new leases. This was offset by higher general and administrative expenses due to timing impact of certain professional fees and an increase in interest expense on a per unit basis. Sorry, On a per unit basis, basic FFO was relatively stable year over year at approximately $0.13. Basic AFFO payout ratio was 96.6% in Q1 compared to 93.8% for the same quarter last year. This higher ratio was due to the AFFO dilution related to the sale of 15 properties over the past 12 months and the ongoing redeployment of capital towards higher quality industrial assets. Based on leasing renewals already completed in 2026, we expect the AFFO payout ratio to improve as the year progresses. Net cash flows provided from operating activities were $10.0 million in the quarter, up 34.1%, mainly impacted by the timing of cash receipts and the settlement of payables. The weighted average capitalization rate for our portfolio remained stable year over year at approximately 6.7% at March 31, 2026. Moving on to the balance sheet, we continue to focus on reducing leverage. Adjusted debt to gross book value improved to 47.8% compared to 49.5% a year earlier. Adjusted debt to annualized adjusted EBITDA ratio came in at 8.8 times at March 31, 2026. This was down from nine times at December 31, 2025 and in the same period last year. We continue to target further reductions in both adjusted debt to annualized adjusted EBITDA and adjusted debt to gross book value as we continue to scale the platform. At quarter end, our total debt, including current and NonCurrent portions, totaled $521.3 million compared to 525 million at December 31, 2025 and $495 million at March 31, 2025. Looking at upcoming maturities in 2026, we have $157.1 million maturing. Subsequent to quarter end, we secured financing commitments and term sheet totaling $146.2 million on competitive terms addressing $108.3 million of our 2026 mortgage maturities and supporting the acquisition of the industrial property in Moncton that we just closed on. The financing is expected to be completed in the second quarter of 2026 and will carry fixed term market interest rates with terms to maturity ranging from three to seven years. In 2027, we have another 46.1 million maturing mainly tied to high performing industrial assets in Burnside Industrial Park. And for 2028 we have $59.8 million in maturities. The weighted average interest rate on these mortgages is 3.9% for 2026, 4.8% for 2027 and 3.5% for 2028. Finally, our distribution of 3.75 cents per unit was maintained for the first quarter of 2026. That wraps up our financial review. Gordie, back to you for clos.
Gordon Moeller (President and Chief Executive Officer)
Thank you, Allison. We remain well positioned to continue executing on our strategy and to scale our industrial platform in high performing secondary markets across the country. Mark to market rent increases are rolling through our quarters and provide incremental cash flows as we move through the year. Demand for well located, small and mid bay industrial properties remains healthy across several of our core markets, supported by limited supply and solid tenant demand. We continue to actively evaluate acquisition opportunities while maintaining a disciplined approach to capital allocation, always with the aim of creating long term value for all stakeholders. Thank you Operator, back to you for the question and answer period.
OPERATOR
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on a touch-tone phone. Should you wish to cancel your request, you may press Star two. Once again, that is Star one. Should you wish to ask a question, Your first question is from Sam Damiani from TD Cowan. Your line is now open.
Sam Damiani (Equity Analyst at TD Cowan)
Thank you and good morning everyone. Congrats again on the good quarter. So you've got a lot of leases either coming online or renewing at significant steps in around middle of the year into September. Are there any known pending move outs over the course of 2026 that could offset that step up in rent that the REIT's set to receive?
Gordon Moeller (President and Chief Executive Officer)
The only thing we have real knowledge of now is we have 80,950 square feet in Woodstock, Ontario. That tenant didn't renew so they moved out March 31st. That's two of our best buildings in the portfolio. 30 foot clear heights, eat off the floor type stuff. So that's, that's moving. Ready? The Southwest Ontario market's a little slow right now, but that said, you know that would negate some of the, you know, the new acquisition, if you will and you know, a bit of the. But when you take the puts and calls, you know, the new acquisition, the incremental upside in the Saint-Jean-sur-Richelieu property and then you know, some significant leasing steps in end of Q3 and Q4, it shouldn't be that much noticeable as they compared to this quarter. Okay, and just, and just that's great color. And just for clarity is that March 31st vacancy, is that included as occupied at Q1 or it was occupied at Q1, they vacated April 1st. Okay, got it. Okay, fair enough.
Sam Damiani (Equity Analyst at TD Cowan)
Okay. And so there was a small drop in in-place occupancy in the quarter from Q4. Is there any notable or trend or color to share on that movement?
Gordon Moeller (President and Chief Executive Officer)
I'll turn it over to Zach who manages the multiple multitudes of leasing there and you can probably quite a bit of color.
Zach Aaron (Vice President of Investments and Asset Management)
Yeah, thanks Gordy. And thanks Sam. Nothing, nothing noticeable or really pertinent in terms of larger spaces that came empty in Q1 from Q4. I would say just a few small base spaces, mix of Halifax and Winnipeg, but all of our typical kind of plus minus 5,000 square foot units that you know, we're 20, 30% below today's market. So some of these units we already have deals in the works on that, you know, we hope to sign up in Q2 and you know, cash flow Q2, Q3, but nothing significant overall.
Sam Damiani (Equity Analyst at TD Cowan)
Okay, I'll turn it back. Thanks very much guys. Thanks Sam.
OPERATOR
Thank you. Your next question is from Kyle Stanley from dayjardhome. Your line is now open.
Kyle Stanley
Thanks. Morning everyone. Just going back to the post quarter financing activity. Alison, are you able to disclose the
Allison Schaefer (Chief Financial Officer and Corporate Secretary)
average interest rate that you've got there? The average interest rate in terms of the new financing? Yes, in terms of the new financing, the 146 million, it's a bit hard to give an actual all in rate. Some of these rates aren't fixed yet. But we're getting financing terms for One example on seven year money we're getting 157 basis points over the seven year bond. On another deal priced over quora, we're getting 165. And then I think there's another one which is though I think we have a term sheet for maybe 160 over 7 year money. 160 over 7 year money as well. So we're seeing really good spreads overall on our financing and healthy Appetite to get 65, 70% LTV kind of with no problem and just using kind of the five year bond as a standard point, we seem to be getting pricing in and around the kind of 160, 165 over, give or take.
Kyle Stanley
Okay, perfect. That's good color.
Allison Schaefer (Chief Financial Officer and Corporate Secretary)
Thank you. We have some flexibility on when we fix that. You know, these, these documents, letters for two of these three finances. So it's just kind of watching almost the week really. And you know, maybe we get a 10 basis point break from. It's been a little rough the last week or so. But yeah, you know, we're in the four and three quarters to just below five range. So maybe we get a good week and save 10 basis points on that. But you know, that's kind of where the ring.
Kyle Stanley
Okay, fair enough. No, no shortage of volatility in the rate markets. I agree with you there. Just moving over to acquisitions. So last quarter, obviously and maybe for a few quarters now, you've highlighted seeing some opportunities in Winnipeg, Quebec City. Obviously your leverage did improve again this quarter. So just wondering where the acquisition opportunity set stands today. I think you've indicated in the past that you'd be willing to take leverage up for the right deal. So in addition, how much acquisition capacity do you see in your existing kind of equity base?
Gordon Moeller (President and Chief Executive Officer)
Yeah, I mean, we'd like to stick around the 49 to 51% range. I mean it took a lot to get there. So we're not going to unless we have a plan to reduce it again significantly above that. Obviously we don't get the benefit of that anyway. So right now, you know, we have 30 to 40 million of acquisitions room, if you will, on our balance sheet. So, you know, we're actively looking at those. There's a lot of deals out there, you know, and we're working on some of them. And so, you know, so that room 30 to 40 million would be hopeful that we could land that in the next little bit. Okay, thank you.
Kyle Stanley
And then just going back to one of Sam's questions. You know, you talked about all the puts and takes on, you know, the timing of leases starting and some vacancy in the acquisition. As we look at your same property NOI growth this quarter and the high 6% from the industrial portfolio. When we kind of look at all those puts and takes, is it fair to assume that we should expect that to start to ramp towards year end as some of those bigger renewals come online?
Gordon Moeller (President and Chief Executive Officer)
Yeah, I mean again, there's, there's lots goes on in the quarter with 104 tenants here. I mean the 6.8 on the industrial basis, you know, you're comparing the Santiago vacant building to when it was fully leased. So it would be then above 6.8%, you know, if that was excluded from the math or fully leased. So, yeah, I think we're looking for some, you know, we've talked about mid to high single digits, so hopefully we'll see a bit more of that. We do have the 80,000 square feet, which will be a negative, obviously, on Q2, but. And the acquisitions don't go into the same store, obviously, so I can't see why we be below, you know, the mid of the pack there. So we're hopeful to see some 6.8 strong. Strong. So, you know, but we'd like to hope to see that shows a little bit higher. But we just honestly haven't done the math like in Q4 yet.
OPERATOR
Okay, thank you for that. I will turn it back. Thank you. Once again, that is Star One, should you wish to ask a question. And your next question is from Brad Sturges, from Raymond James. Your line is now open.
Brad Sturges
Hey, good morning. Just, you know, continuing on with the acquisition theme. I think you've talked about in recent quarters, there's been a bid ask spread in the market, and that's kind of held back some of the opportunities that you could execute on. Now that you're, I guess, talking about a little bit more opportunity, does that suggest the bid ask spread has been narrowing and you're seeing vendor expectations change, you know, moving more towards where you guys might be underwriting assets?
Gordon Moeller (President and Chief Executive Officer)
Yeah, I think there's some public deals out there that, you know, that have been marketed and, you know, whether we won the deal or a piece of the deal or not, you know, there's assets under contract. So I think that would say. And Zach can comment about some deals that have gone on that we weren't involved in, but they would say that, you know, there's a meeting of the middle there to get some transactions done. So I think that's. That's pretty positive. Zach, do you have any comments on that?
Zach Aaron (Vice President of Investments and Asset Management)
Yeah, at a high level, my answer is kind of yes and no. I think we've definitely seen some deals come to market in and around our core markets where the pricing seems to be at a level that we would expect and be interested in that. But at the same time, we'll still get off market opportunities again in our markets and not our markets where the pricing still seems to be at a level that just doesn't match today's reality. So the answer is a bit of both. But from what we see in the market in terms of bid depth on some of the opportunities that have been brought to market. On industrial, call it in GTA or Winnipeg or Montreal, there still seems to be a very healthy amount of capital and institutional capital bidding and chasing these opportunities just with more discipline on pricing.
Brad Sturges
At this point, are you mainly looking at existing markets or have you changed your strategy a bit and kind of looking at new markets, you know, Alberta being an example?
Gordon Moeller (President and Chief Executive Officer)
No, I mean we're still focused on the existing markets. We'd like to eventually move to Alberta. We kick the tires on some stuff there. That would be an example where pricing expectations don't align, you know, at this point. So yeah, it's in around our current markets. I mean, if you haven't noticed in our MDMA this quarter, we isolated Manitoba instead of calling it Western Canada just because we have 1.3 million square feet there, you know, and then we have assets in Quebec, Atlanta, Canada, Ottawa. So I mean that's still our focus. Alberta's this just discussion of, you know, if we could get a significant portfolio of small mid bay assets there, we'd be interested in setting up a platform. It's just whenever we look there's, there's just always a disconnect on value. So that's a frustration we have there.
Brad Sturges
Gotcha. Last question. Just to go back to the financing activity on the 108 million that's being refinanced, what's the expiring, the average expiring rate on that
Allison Schaefer (Chief Financial Officer and Corporate Secretary)
Allison? Like 3.8 or something like that? Yeah, approximately 3.8%.
Brad Sturges
Okay, thank you. I'll turn it back.
OPERATOR
Thanks. Thank you. The next question is from Sam Damiani from JD Cowan. Your line is now open.
Sam Damiani (Equity Analyst at TD Cowan)
Thanks. Thanks for the second chance here. I did notice that the walt on the government of Canada tenancy did increase by about a year from Q4, but it's still less than three years. Can you. Is there any color to share there in terms of, you know, why didn't it go longer or what sort of is going on there?
Zach Aaron (Vice President of Investments and Asset Management)
I'll chime in. I mean we have several government of Canada tenants in the portfolio across Ottawa and Halifax. So it's not tied to any one deal. There are some spaces larger that their expiries are just coming up soon in 27, 28 and conversations haven't started yet. And there are some spaces, particularly in Burnside where we've just recently completed or yeah, completed some renewals, but on relatively smaller spaces. So I think that's really the story there. Not that there is a Story, frankly, just. Yeah, we've completed some renewals and then on some larger spaces. Just those discussions haven't started yet as there's still a year or two away.
Gordon Moeller (President and Chief Executive Officer)
That is, we haven't. We haven't done like less than five year deals or anything like that. Right, Zach?
Zach Aaron (Vice President of Investments and Asset Management)
Like, it's just like on Burnside. They're all. They're all standard term, if not longer term deals.
Sam Damiani (Equity Analyst at TD Cowan)
Okay, well, that's helpful. And just finally, I guess, you know, the lease rule does take higher in 2027. Is there anything in that year that is, I guess, more concerning than the rest?
Zach Aaron (Vice President of Investments and Asset Management)
As of right now, I have nothing to speak to in terms of any known coming vacancies. We're just starting to engage some of the larger 2027 expiries. From the few conversations I've had so far, all very preliminary, more positive than negative, but again, still very preliminary. No paper has been traded yet, but I expect and hope that we'll start to get some action on some of these groups in the next quarter or two.
Gordon Moeller (President and Chief Executive Officer)
Zach, a lot of that's Winnipeg, right?
Zach Aaron (Vice President of Investments and Asset Management)
Yes, there's a decent chunk coming due in Winnipeg. Some of it from the latest acquisition we did last summer and then some just in our historic portfolio. Yeah, all those rents too are as you can kind of expect, you know, still below market with healthy upsides.
Sam Damiani (Equity Analyst at TD Cowan)
Okay, that's all helpful, thank you. And just last one, on the interest expense, was there anything unusual in there that might have offset the reported sort of net expense number? It just seemed to have dropped a bit versus the Q4 run rate.
Allison Schaefer (Chief Financial Officer and Corporate Secretary)
We did have a small correction in the quarter. It was about 80,000. That reduced our interest expense. That was overstated in the. In the last quarter.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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