Good morning. I would like to welcome everyone to Plaza Retail REIT Q3 2025 Earnings Conference Call. At this time, all participants are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to advise everyone that this conference is being recorded today. I will now turn the conference over to Kim Strange, Plaza's General Counsel and Secretary. Please go ahead, Ms. Kim Strange.
Thank you, Operator. Good morning, everyone, and thank you for joining us on our Q1 2025 Results Conference Call. Before we begin, we are obliged to advise you that in talking about our financial and operating performance and in responding to questions today, we may make forward-looking statements, including statements concerning Plaza's Retail REIT objectives and strategies to achieve them, as well as statements with respect to our plans, estimates, and intentions, or concerning anticipated future events, results, circumstances, or performance that are not historical facts. These statements are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements.
Additional information on the risks that could impact our actual results and the expectations and assumptions we applied in making these forward-looking statements can be found in Plaza's Retail REIT most recent annual information form for the year ended December 31st, 2024, and management's discussion and analysis for the Q3 ended March 31, 2025, which are available on our website at www.plaza.ca and on SEDAR plus at www.sedarplus.ca. We will also refer to non-GAAP financial measures widely used in the Canadian real estate industry, including FFO, AFFO, EBITDA, Adjusted EBITDA, NOI, and same asset NOI. Plaza Retail REIT believes these financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the trust. These financial measures do not have any standardized definitions prescribed by IFRS and may not be comparable to similar titled measures reported by other real estate investment trusts or entities.
They should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. For definitions of these financial measures and where to find reconciliations thereof, please refer to Part 7 of our MD&A for the Q3 ended March 31st, 2025, under the heading Explanation of Non-GAAP Measures. I will now turn the call over to Jason Parravano, Plaza's President and CEO. Jason Parravano.
Thank you, Kim Strange. Good morning. We appreciate you joining us today as we review our financial performance and key achievements for the Q3 of 2025. We're pleased to report that 2025 is off to a solid start. We entered the year with strong momentum and have made meaningful progress in executing our strategy to optimize, intensify, and consolidate our portfolio. In Q1, we successfully increased our ownership interest in Tacoma Plaza, a grocery pharmacy-anchored open-air center located in Halifax, from 50% to 100%. This acquisition positions us to fully capture the value creation opportunity at this asset. Subsequent to quarter end, I'm also pleased to announce that we have entered into an agreement to increase our ownership in three already owned and managed Shoppers Drug Mart locations in Ontario from 25% to 100%. We expect this transaction to close later this month.
The IFRS value of the properties is approximately CAD 23 million at 100% ownership. We delivered strong same property performance, with same property NOI increasing 1.5% year- over- year, driven by solid leasing activity and disciplined expense management despite a more challenging winter. Leasing fundamentals remain robust, with blended leasing spreads of 15.4% over the renewal term. Our occupancy remains at all-time high levels, underscoring sustained tenant demand and the strategic positioning of our portfolio in markets with constrained retail supply. As renewals take effect during the year, it will continue to positively affect our same property NOI. We are beginning to see intensification and optimization initiatives materialize as retailers respond to the growing mismatch between supply and demand. We commenced the conversion of approximately 40,000 sq ft of existing space into grocery use, expected to generate CAD 1 million of incremental NOI, approximately CAD 600,000 at our share.
We also signed a lease and will begin the construction on a new grocery store on excess land at one of our properties, which will contribute an additional CAD 700,000 of NOI upon completion, with our share at 50%. While space conversions require significant capital, the resulting return on cost and NAS creation fully justifies these investments. However, since these costs are capital in nature, they will impact our AFFO in the short- term. We also continue to advance towards a Q2 2026 delivery of our 96,000 sq ft Longo's anchored new development in Welland, Ontario, a project that we launched in Q4 2024, where we hold a 50% interest. As part of our 2025 recycling program, we listed several properties for sale during Q1.
This initiative is in line with our ongoing efforts to increase the average property size, reduce the average age of assets, and enhance the overall portfolio quality. We are encouraged by the strong purchaser demand and remain optimistic about execution. During the quarter, we also completed the sale of our 50% interest in a parcel of development land in Barrie, Ontario. As Plaza's Retail REIT focus has always been retail, we know it very well. We remain focused on being a best-in-class owner and operator of retail properties. We're the only REIT on the TSX offering investors access to pure-play essential needs, value, and convenience of retail. I'll now turn the call over to Jim Drake, our CFO.
Thank you, Jason Parravano. Good morning, everyone. I will expand on a few of Jason's Parravano comments and highlight our results. First, for operating results, although same asset NOI increased 1.5%, we were impacted by a tougher winter this year, resulting in higher snow removal costs. Given many of our existing leases include CPI escalations on CAM recoveries, this creates some seasonality in our results, where typically Q1 and Q4 NOI are a bit lower given those winter costs. Going forward, we would anticipate slightly stronger performance on same asset NOI. FFO per unit, excluding some minor restructuring costs incurred, was consistent with last year. AFFO per unit was up 12% versus last year on lower maintenance CapEx and leasing costs. On the balance sheet, our debt-to-assets ratio is down 30 basis points versus last year and consistent with last quarter at 50.5%, excluding land leases.
Net debt-to-EBITDA, excluding land leases and the restructuring costs, was eight times, down 60 basis points versus last year and consistent with last quarter. We maintain a balanced mortgage maturity ladder, with CAD 38 million of fixed-rate mortgages rolling for the remainder of the year at a weighted average rate of 4% and overall loan-to-value of 50%. Although government and Canada bonds have been volatile, we are still seeing strong interest in our mortgage offerings, with competitive spreads of 180 basis points to 200 basis points over bonds or current all-in rates in the mid-fours to low-fives. Our liquidity remains healthy at CAD 64 million, including cash, operating line, and debt facilities. This will allow us to take advantage of upcoming opportunities, including the projects Jason Parravano mentioned. Finally, for the fair value of our investment properties, we took a CAD 2 million write-up during the quarter, with our weighted average cap rate at 6.84%.
Those are the key points for the quarter. We will now open the lines for any questions. Operator.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Marc Rothschild from Canaccord Genuity. Your line is now open.
Thanks, Dan. Good morning, guys. You'd spoken previously about the opportunities to buy out joint venture partners and properties. To what extent is whether it's the Tacoma Deal or the Shoppers deal from this opportunity or these other transactions that other opportunities that come up to increase ownership and assets?
Sorry. Just to confirm, Marc Rothschild, your question is, what are the other opportunities?
No, it's more about how these opportunities came up. Was it buying out JV partners?
Oh, sorry. My.
Small business deals.
Yeah. In certain instances, like the Tacoma Deal, for example, we had an institutional partner who wanted to exit the asset. We obviously ran a process, and as the market for 50% non-managing interest in properties is, I would say, slimmer for this type of asset, we were able to capitalize on attractive pricing and consolidate our interest. For the Shoppers Drug Mart portfolio, which we are closing on in the coming weeks, these three assets sat in a syndication that was developed by Plaza Retail REIT about 15 or so years ago, which included an option for us to purchase the assets at fair market value, an option that we exercised, and that is how the opportunity came about.
Okay. Great. Thanks. Maybe just one more from me on development. Obviously, this hasn't been enough of a drop or much of a drop, and the cost still stays. To what extent is this impacting the returns that you get from new developments as you look at the projects you have ongoing or in planning over the next year?
We actually, on our project, the new development project or the greenfield development that we are finishing in Welland, Ontario, costing has actually come in slightly below our budget amount, so we are happy about that. We had room in the project in terms of the yield on cost was attractive prior with the initial budget and is just a little bit more attractive as a result of the pricing we are achieving. On the intensification project, so adding density or new square footage onto our properties, given the fact that we own the land already, the yield on cost is attractive as well. We are able to make it work.
We are not going to enter into projects where the returns do not work for us because at that point in time, the only person benefiting is the tenant, and this needs to be a win-win situation with the tenant and the landlord, and that is our approach.
Okay. Great. Thanks so much.
As a reminder, if you have a question, please press star on your telephone keypad. Your next question comes from the line of Lorne Kalmar from Desjardins. Your line is now open.
Thanks. Good morning. Maybe just sticking with Marc's Rothschild line of questioning, can you give us a rough idea of what type of yield you expect on the Shoppers deal, and how much equity are you going to need to fund this?
The Shoppers Deal, the cap rate will be in excess of our existing average IFRS cap rate, so call it just slightly north of 7%. The equity required to fund this deal will be through a second mortgage top-up, as well as approximately just under CAD 2 million of equity from the REIT standpoint.
Okay. That's very helpful. Thank you. Maybe just shifting to the two grocery projects you spoke about earlier, just wondering in terms of timing, spend, and then again, yield to the extent that you can provide.
The $40,000 of conversion right now that's happening, the 40,000 sq ft of conversion is underway, so that's great. Timing of the spend should be in the next—some has started already, and bulk of it will come over the next two or three months, if I'm not mistaken. That being said, on the two of them together, cost is approximately CAD 4 million at 100%, so call it CAD 3 million-CAD 3.5 million at our share. Look, on one of them, the yield is extremely interesting. I don't want to get too much into detail on it, but generally, there is a double-digit return on our cost for these conversion projects, excluding the cap rate compression of now bringing in a grocery operator onto the properties.
Okay. Can you just give me a little color on the timing of when these will start generating income?
By the end of this year.
Perfect. Thank you very much.
Once again, as a reminder, if you have any questions, please press star on your telephone keypad. There are no further questions at this time. I will now turn the call over to Jason Parravano. Please continue, sir.
Thank you, Operator. Thank you all for joining us today and for your continued support and trust. We remain committed to creating long-term value for our unit holders, our tenants, and the communities they serve. We're also proud to announce the publication of our latest ESG report, which highlights our continued progress in advancing sustainability, community impact, and responsible governance across the organization, which is available on our website. We appreciate your time and look forward to the journey ahead. Take care and talk soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.