Morning and welcome to PROREIT's fourth quarter and annual results conference call for fiscal 2025. 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 question, simply press the star key then one on your telephone keypad. If you would like to withdraw your question, please press the star key followed by two. For your convenience, the results release, along with fourth quarter and fiscal 2025 financial statements and management's discussion and analysis are available at proreit.com in the Investors section and on SEDAR+. Before we start, I have been asked by PROREIT to read the following message regarding forward-looking statements and non-IFRS measures.
PROREIT'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 may cause actual results, level of activity, performance, achievements, future events, or development to differ materially from those expressed or implied by the forward-looking statements. As a result, PROREIT cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue 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 PROREIT's MD&A, dated March fourth, 2026, available at www.sedarplus.ca. Forward-looking statements represent management's expectations as at March 4, 2026, except as may be required by law, PROREIT 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 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 fourth quarter and fiscal 2025 earnings release and non-IFRS measures section of the MD&A for fiscal 2025 for additional information. I will now turn the call over to Mr. Gordon Lawlor, President and Chief Executive Officer of PROREIT. Please go ahead.
Thank you, Sylvie. Good morning, everyone, and welcome. Joining me today is Alison Schafer, our CFO and Corporate Secretary. Zachary Aaron, Vice President of Investments and Asset Management, is not joining us today as he has a new bouncing baby girl as of last week. Congrats, Zach and Julia on his proud new parents. I'll begin with an overview of our fiscal 2025 and fourth quarter performance before turning the call over to Alison for a more detailed review of our financial results. We're very proud of our performance in 2025, which marked a major milestone for PROREIT as we completed our transition to a pure play industrial REIT focused on small and mid-bay properties. I want to commend our entire team. Achieving this strategic objective established three years ago reflects the disciplined execution and commitment of our employees.
Over the course of the year, we repositioned our portfolio, strengthened our balance sheet, and enhanced the overall quality of our platform to support sustainable long-term growth. At year-end, our portfolio comprised 105 investment properties totaling 6.4 million sq ft of gross leasable area. Weighted average lease term to maturity was 4.3 years, compared to 3.8 years at the same time last year. In line with our capital recycling strategy, we sold a total of 17 non-core properties during the year, for gross proceeds of CAD 71.2 million. We also acquired a portfolio of seven high-quality industrial properties in Winnipeg, Manitoba, from Parkit Enterprise Inc. for CAD 101.9 million. By the same token, we struck a strategic partnership with Parkit to pursue future growth opportunities.
As part of the transaction, we also successfully raised CAD 42.1 million of equity, further enhancing our financial flexibility and positioning the REIT for future growth. As of year-end, industrial assets represented 90.5% of our base rent, compared to 80.8% a year ago. The enhanced earnings profile of our industrial-focused portfolio is reflected in our financial performance. NOI rose by 9.6% in the fourth quarter and 8.4% for the year, despite owning 10 fewer properties. Turning to the portfolio transactions during the year, we completed the sale of a non-core office property located in Saint John, New Brunswick, totaling approximately 51,000 sq ft for gross proceeds of CAD 7.2 million. We continue to manage that property on behalf of the purchaser.
The sale of our non-core retail property in Rocky Mountain House, Alberta, totaling approximately 5,000 sq ft for gross proceeds of CAD 400,000. Net proceeds for these sales were used to repay related mortgages, credit facilities, and for general corporate purposes. Leveraging our partnership with Parkit, we purchased an industrial property in Winnipeg from them for CAD 5.4 million as we continue to increase our presence in this market. Purchase price was financed through CAD 3.2 million of the non-revolving credit facility at approximately CAD 2.1 million of PROREIT equity priced at CAD 6.20 per unit to Parkit. Subsequent to year-end, we engaged in two additional transactions.
First, we sold our 50% interest in a non-core industrial property in Dartmouth, Nova Scotia, totaling approximately 65,000 sq ft, with our share of gross proceeds of CAD 5.7 million. Second, we're in the process of acquiring a 100% interest in a single-tenant, 2024 built, 10-year leased industrial building in Moncton, New Brunswick, totaling approximately 60,000 sq ft of GLA for CAD 12.3 million. Our focused presence in robust secondary markets continues to deliver compelling results. According to CBRE, our core markets of Halifax, Winnipeg, and Ottawa all outperformed the national average in terms of market rent growth in 2025. Turning to leasing activity. Our leasing momentum was sustained throughout the year, driven by contractual rent escalations as well as stronger renewal rates at higher rents on new leases.
As of today, we've secured 80.1% of GLA maturing in 2025 at a positive average spread of 34.2%. Excluding the Saint-Hyacinthe property, which I'll address shortly, we've renewed 95% of our 2025 GLA. We've also secured renewals on 68.2% of GLA maturing in 2026 at a 33.8% positive average spread, reflecting one of the strongest leasing cycles at this stage in our history and providing meaningful embedded growth heading into 2026. This includes, among other transactions, five leases renewed starting in 2026, with rent increases ranging from 40%-45%. Overall, portfolio occupancy was 95.4% at year-end, compared to 97.8% a year earlier.
As noted on previous calls, our occupancy rate was impacted by a single vacancy in a 176,000 sq ft property located at 6375 Picard Street in Saint-Hyacinthe, Quebec. On February 27th, we entered into a non-binding offer to lease for approximately 74,000 sq ft at this property to a new tenant for a term exceeding 10 years at a market rent. Subject to the completion of the binding lease, rent commencement is expected mid-2026. Including this property, our portfolio occupancy would have been approximately 98.1% at year-end. I'll now turn the call over to Alison. Alison, over to you.
Thank you, Gordie. Good morning, everyone. We are pleased with our fourth quarter and full year results. In the quarter, property revenue totaled CAD 26.2 million. That's up 5.4% year-over-year, despite owning 10 fewer properties. The increase is mainly driven by contractual increases in rent and higher rental rates on lease renewals and new leases. For the full year, property revenues amounted to CAD 104.1 million, up 4.9% year-over-year. Net operating income, or NOI, was CAD 16.1 million, an increase of 9.6% compared to last year due to the same factors. For the full year, NOI amounted to CAD 63.4 million, which was up 8.4% year-over-year.
Fourth quarter same-property NOI, representing 98 of our 105 properties, reached $14.1 million. That was up 8.1% year-over-year, driven by robust 9.1% growth in our industrial segment. The increase reflects contractual rent escalations, stronger renewal rates, and higher rents on new leases. This was achieved despite a decline in overall average occupancy related to the single-tenant vacancy Gordie mentioned earlier. For the full year, same-property NOI reached $53.0 million, up 8% year-over-year. Our funds from operations, or FFO, amounted to $7.8 million for the quarter, which was up 14.3%. This was driven by increases in contractual base rent, higher rates on renewals, and excuse me, higher rental rates on new leases.
This was offset by an increase in interest and financing costs. Basic AFFO payout ratio was 99.1% in Q4, compared to 96.1% for the same quarter last year. This is primarily driven by the timing of the sale of 17 properties to be completed in 2025, an increase in interest and financing costs, and the issuance of equity in connection with the Parkit transaction in Winnipeg. We expect improvement on our payout ratio, creating some financial flexibility and some room for future acquisitions. Weighted average capitalization rate of our portfolio was stable year-over-year at approximately 6.7% at December 31st, 2025. Moving on to our balance sheet. Adjusted Debt to Annualized Adjusted EBITDA ratio came in at 9.0x at December 31st, 2025. That was down from 9.2 x at the previous year-end.
While our adjusted debt to gross book value decreased to 48.8% from 50.3% at the same time last year. Our midterm goal is to reduce our adjusted debt to adjusted EBITDA ratio and adjusted debt to a growth book value further as we continue to grow the business. At year-end, our total debt, including current and non-current portions, totaled CAD 525 million, compared to the CAD 531.1 million at September 30th, 2025, and CAD 499 million at December 30th, 2024. Looking at our upcoming maturities, in 2026, we have CAD 157.1 million maturing. We are actively engaged with lenders on these maturities and expect to secure refinancing on competitive terms with robust refinancing proceeds.
In 2027, we have another CAD 48.7 million maturing, mainly tied to high-performing industrial assets in Burnside Industrial Park. For 2028, we have CAD 59.8 million in maturity. The weighted average interest rate on these mortgages is 3.7% for 2026, 4.8% for 2027, and 3.5% for 2028. Finally, our distribution of CAD 0.0375 per unit was maintained for the Q4 of 2025. That wraps up our financial review. Gordy, back to you for closing remarks.
Thank you, Alison. We're entering 2026 with a clear strategy and a focused industrial platform supported by disciplined financial management. Our priority remains the pursuit of high-quality opportunities aligned with our prudent, value-driven approach to growth. Fundamentals across our small- and mid-bay portfolios remain healthy, and we're seeing signs of improving market conditions as we move through 2026. With this strong foundation, we are well-positioned to strengthen our leadership position in the Canadian light industrial sector and create sustained long-term value for our unit holders. Thank you. Sylvie, back to you for the question and answer period.
Thank you, sir. Ladies and gentlemen, as stated, we will now take questions from financial analysts. If you would like to ask a question, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're using your speakerphone, please lift the handset first before pressing any keys. Please go ahead and press star one now if you have a question. Thank you. Your first question will be from Sam Damiani at TD Cowen. Please go ahead, Sam.
Thanks. Good morning. Just on your comments, Gordy, and I guess Alison, too, just with, you know, the NOI growth being very strong and you're seeing improving market conditions as you enter the new year, your leverage did tick down, you know, below 49% with the asset sales that you've completed. I mean, are you seeing, you know, a better path, an easier path, I guess, to bring that leverage, you know, toward those midterm targets now than, let's say, was the case a year ago? Like, are we should we be building in some expectations for, you know, that leverage to stay further below 50% going forward?
Thanks, Sam. I mean, I like us being around the 50%. I know we have that 45% target. You know, to meaningfully get there, you know, we'd need to tie it into a larger deal with some equity. Really what we're focused now is just staying around the 50. You know, and we talk about where we are. I mean, we have room for about $40 million in acquisitions right now, and we'd like to see if we could execute on that. We announced a great $12 million asset here, so probably room for another $25 million or $30 million. You'd probably see that before we focused on the debt reduction.
We've been so focused on the debt reduction since 2022, and we just want to have this opportunity. We see a lot of assets right now out in the market, so there's some opportunities here to add about another CAD 40 million to the math. You know, we're still mindful of the 50%. We wouldn't go above that other than if it was on a short-term basis or anything. The 48.8% is where we ended up the year, but we'd probably pick that up a little bit if there was some good acquisitions.
Thank you. That's helpful. Just looking at the lease expiry schedule, you've got 70% expiring in 2027. I assume the government is a decent chunk of that. I mean, do you have any early prospects on extending those? Are there any larger expected departures within that cluster of leases?
I mean, we're reaching out to everybody in 2027. Well, it's a little early on that basis. We have no real inclinations of any big spaces coming back at this point in time for 2027. You know, a big chunk of that is under market rent as well. We don't really have a negative view of anything on as far as 2027 goes at this point in time, at least we're just getting going on it.
Okay. All right. That's helpful. Last one for me, just on Picard Street in Saint-Hyacinthe. You know, you've got, I guess, that lease that's almost across the finish line. I'm just wondering what's left to finalize there with that. Also, any update on prospects for the remaining 100,000 sq ft at that property.
Yeah. I mean, I just signed the LOI, like, Friday night, so that's fresh. We've been dealing with this tenant for three or four months, so we're well through that. You know, we're crossing lease drafts and things like that. You know, if all things move well, you know, they'll be into the building in April for some setup of some work to be done. You know, it's non-binding, but everybody in good faith is working towards this one. It seems like a very good group we have here. So... Zach's off for a couple of weeks, so it's landed on my plate. I'm pushing through, you know, to get it across the line, obviously.
As far as other prospects, nailing that piece down, if you were to look at the building, that's the half of the building or, facing the 20, the Trans-Canada Highway there. That leaves another 100,000 in the back of the building. There's good shipping in the back right of that building and then a little bit of shipping in the back, bottom of the building. It can be split in two more pieces. We're in initial discussions with another 60,000 sq ft tenant right now. Maybe short-term or mid-term type, storage opportunity on one piece of the space, you know, without having to do anything to the building. Literally, we just started that this week, because we've kinda secured the other piece.
Okay. You're getting rents that sort of in line with the kinds of numbers you were talking about last quarter?
Yep. Higher than nine, lower than 11.
Got it. That's great. I'll turn it back. Thanks, Gordie.
Thanks.
Next question will be from Mark Rothschild at Canaccord. Please go ahead, Mark.
Thanks, good morning.
Good morning.
Just following up onto this discussion of the Same Property NOI growth and leases. You started answering or talking about 2027. To what extent do you believe that this, you know, these wide leasing spreads that you're achieving, will continue past 2026?
We have four to five-year cash flow, Mark. I think we told you that before. We still see the 7%-9% cash flow growth across 2026, 2027 and 2028, you know, at this point in time. You know, then you get out to 2029 and 2030, and you're four and five years old, so you're into other leasing assmptions and terms. We see good strength for 2026, 2027 and 2028 for sure.
When you just said cash flow growth, do you mean Same Property NOI growth, or do you mean actual cash flow FFO?
Cash flow FFO.
Okay, great. Maybe just one more for me. Quite a bit of debt maturing this year. Can you just give a little more clarity on what rates you're seeing now, and what we should expect based on the current market?
Yeah. I mean, it's a great time to have debt coming due it seems, other than all the, the terrible things going on in the world, like, three lenders are a big piece of that. We're trying to secure some of that now. We've got good competition among the lenders. We just signed a CAD 29 million, seven-year, brand new piece with a new lender at 158 over seven years. I mean, that's a pretty solid rate for us. I think 155 over is the best rate we've ever had on a margin basis. Depending on when we pick the terms, we're trying to break this CAD 150 million up in the next number of years.
We may take, you know, some three-year piece of this, some five obviously, and then there was an attractive seven here. We're trying to split this one up a little bit more. We bought CAD 300 million of assets in 2021, which got us to the point where, you know, it was mostly all five-year money that was available then. We're trying to split that up. The long story short, I'd say we'd be at about 4.5 on all of it. We'll probably get some 4.3s and then, you know, 4.6s for the longer-term stuff.
Okay, great. Thanks so much. I'll turn it back.
Thanks.
Next question will be from Brad Sturges at Raymond James. Please go ahead, Brad.
Good morning. Just maybe switching gears a bit, you know, the asset sale that you completed to start the year in Halifax, just curious to get a bit more color in terms of. The decision around or what drove that decision to sell that asset, is it kind of a one-off or do you see potentially, more rebalancing within the industrial portfolio?
Yeah, that give or take, a one-off. I mean, that's a joint venture asset with our partner who has a view on the portfolio, obviously. This asset was a little lower ceiling height than the rest of it, kind of orphaned in a different spot in the park. So, which we agreed with at the time, just because I've known the asset for several years. We've got it secured now with some longer-term leases, so kind of full value. Thought it was a good time to see if we could sell it, and we sold it just a slight premium above our IFRS value. You know, I think it was CAD 125 a foot or something like that.
We don't have significant discussions with twirling of assets out of the JV. I mean, we sold a small CAD 3 million-4 million retail asset, that type of thing. Just culling on the edges more than a sale program on the JV entirely, Brad.
Great. Can you comment on what the exit cap rate might have been?
Don't exactly know. I would say it would have been slightly below 7. I don't have, Zach here today with the math on it, but, I'd say it would have been, just below a 7. Three quarters, perhaps.
Obviously, you bought something in Moncton. Maybe just expand on the opportunities either with that acquisition and then maybe, what else could be in the pipeline from a acquisition opportunity?
Yeah, that's an asset, brand new built asset that we've been monitoring. I think we gave our first offer on that back in April of 2024. We couldn't agree on a price. It came up again. There was a rent step that happened, which made it easier to make the math work. That was just a one-off asset that we've been watching. We saw it being built and leased, and we like it a lot. That's a long-term hold for us. As far as other assets, we publicly, you know, the Artis has 1.2 million sq ft portfolio came out here a month ago. There's Winnipeg assets in there, which is obviously be of interest to us.
I've been on single tenant asset in Quebec City last week, just a quiet offer. like there's a couple million, CAD 100 million of real estate kind of sitting around my desk that we're getting quiet looks at or things like that some of it'll stick. It's a very interesting time, actually. It seems like things are loosening up, and we're gonna see some real estate come out here in the next six months, which is positive.
Sounds good. I'll turn it back. Appreciate it.
Thanks, Brad.
Next question will be from Tal Woolley at CIBC Capital Markets. Please go ahead, Tal.
Hey, good morning. Apologies, if you answered this before, but just any significant dispositions planned for 2026?
No, not for 2026. We're. Do I have any, dude? I just looked at Alison to ask her. You can't keep track of what's coming in and out the door anymore.
No, we don't have any.
No, no, we don't have any plans. I mean, what we have left on the retail basis is grocery anchors on our line of credit, honestly. Just like, honestly, just a pain to sell it. You'd have to replace it with other things. We might have one more office building towards the end of the year, small office. You can figure that one out. Then we're still holding the 60,000 sq ft Ottawa office building. That's got down on it, 2.9% until 2029. Good solid asset. I think it's still 80% occupied. I think we leased a floor, but there was some other tos and fro. It's still performing very well. We have no need to fire sale that. That's a good asset.
Yeah, nothing big planned at this time. Like I said, gonna try to put a few more assets on the books here with a little bit of room we have, let the cash flow growth do its thing and keep these buildings leased, obviously.
Got it. Then maybe, you can talk just a little bit about... There's been a lot of chatter around defense spending, and that matters a lot in, you know, markets in the east. I'm just wondering, you know, are you seeing sort of anything really translate on the ground yet in terms of demand? Or how should we think about that tailwind, you know, maybe coming to the market over the next few years?
Yeah. I sat in on the Burnside leasing call Tuesday. Every two weeks, we have a detailed call where you go through every 2,000 ft, which is a bit painful, but in Zach's absence. I think there's some RFPs out there for some larger space and that. You know, I go around the country talking about the defense spending too. You know, I think where it'll help Halifax is construction around all of that. That's what Burnside is, construction related. You know, they're gonna let more people back in this country again, and they'll land in Halifax as well. I think it's really the defense spending because of what will go on around it versus, you know, a specific defense contractor taking space from our small-bay standpoint at least, right?
I think Killam would probably have that same view on that. I didn't listen to their call, but I think that's the piece of it. Just defense spending in general. I mean, we have 128,000 sq ft leased in Canada, Ontario. That's Thales, a French contractor that's related to the Halifax project, but, you know, they're in Ontario, so it's not specific to Halifax. It's just in general, it could help, you know, defense contractors across Canada taking more space. I think it'll be helpful.
Okay. Just lastly on, you know, are you looking at any sort of developing more new nodes? Like, I think of something like Quebec City where, you know, I think you've got one property right now. Any interest in building out other sort of nodes within the portfolio over the next couple of years?
Yeah. I mean, Quebec City's been on my list for like 15 years. It's just been hard to buy there. For those of you who have followed, you know that through Cominar, Blackstone Pure has like 3 million sq ft there. We have an interest in getting into that market eventually, as we think some of that real estate will come to fruition. That's definitely an area that we're interested in. I bid on a single tenant building here just last week. The ask was ridiculous, I don't suspect we'll get anywhere. Yeah, we're cognizant of that market. We've been trying to understand the market rent in the last three to six months, because the rents were pushed there for a while, and we think we've got that figured out now.
We're happy to look there a little more.
Okay. Anywhere else across the portfolio, Western Canada?
Yeah. I mean, I was out west. I was in Calgary for a few days last week. liked the Calgary small-bay market. Spent a whole day driving that. You know, there's some big bombers there out in Balzac area, north. All very fancy, all very shiny, but kind of not our real estate. The Calgary small-bay market seems to be doing quite well. I've got a trip planned to Edmonton in the next couple of weeks as well to just test that back out. You know, the concept, as I said at the board yesterday, if we're trying to get to CAD 2 billion in assets, we have to look at some of these other, secondary markets. You know, if you call Calgary and Edmonton secondary, and Quebec City, you do, I guess.
Yeah, we're just looking at those opportunities to see if any of it fits in our wheelhouse. It's an interesting time.
Okay. Thanks, everyone. Appreciate the time.
Thank you.
A reminder to please press star one if you do have any questions. Thank you. Next is Lorne Kalmar at Desjardins. Please go ahead.
Hi. Good morning. On 2026 lease maturities, very encouraged to see the strong lease spread so far for almost 70% of those maturities. Do you expect to achieve similar spread for the rest of the 2026 maturities? Do you see any material non-renewal risks?
I think we're gonna... I mean, if I look back to 2024, 2025, 2026 yesterday, we've had +30% across all of those years. We don't see any indication of that changing significantly. The 70% that's done, a big piece of that is, I think it comes in in September. It's about 325,000 sq ft from single tenant, temperature control building. That'd be more September that we'd see that cash flow. I think we may get 80,000 sq ft back in a building in Woodstock, Ontario, probably in Q2. That's just recent. That's great space. We've already got some interest in it already, some tours, like, just in the last number of weeks.
That would be the only thing that's hitting us right now, probably mid Q2.
Okay. Yeah. Thanks for the comment. Lastly, just on the acquisition, like, what's your acquisition pipeline look like this year and in 2027? Like, which markets and type of assets that, like, you are targeting, if any?
Yeah. I mean, we're small-bay, mid-bay folks. That's what we're targeting. I mentioned briefly there's some Winnipeg assets in the market right now. We're gonna look at that. Quebec City is an area that's of interest. It's two and a half hours down the road from our head office here in Montreal. Halifax, you know, we'd look. We have 35%+ of the market there with our partners, no need to do too much unless there was something interesting there. We have room for about CAD 40 million in acquisitions right now. We announced a brand new asset, CAD 12 million in Moncton, you know, at a seven cap. That was really attractive brand new building for us.
It's just a mix of small and mid-bay assets around our regions. Ottawa is of interest, it's just hard to get assets there. We're gonna be poised and looking at it all.
Okay. Thank you. Thank you very much. I'll turn back. Thank you.
Thank you.
Ladies and gentlemen, this concludes our question and answer period for today, as well as the conference call. We would like to thank you for attending and ask that you please disconnect your lines. Enjoy the rest of your day.