Good morning, ladies and gentlemen, welcome to the Slate Grocery REIT First Quarter 2023 Financial Results Conference Call. At this time, all lines are in listen-only mode, following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 4, 2023. I would now like to turn the conference call over to Mr. Paul Zagaria. Please go ahead. Thank you, operator. Good morning, everyone. Welcome to the Q1 2023 conference call for Slate Grocery REIT. I'm joined this morning by Blair Welch, Chief Executive Officer; Andrew Agatep, Chief Financial Officer; Connor O'Brien, Managing Director; Allan Gordon, Senior Vice President; and Braden Lyons, Vice President. Before getting started, I would like to remind participants that our discussion today may contain forward-looking statements, and therefore we ask you to review the disclaimers regarding forward-looking statements as well as non-IFRS measures, both of which can be found in management's discussion and analysis. You can visit Slate Grocery REIT's website to access all of the REIT's financial disclosures, including our Q1 2023 investor update, which is now available. I will now hand over the call to Blair Welch for opening remarks. Thanks, Paul. Our grocery-anchored real estate portfolio continues to demonstrate strong performance in today's high interest rate and inflationary environment. Market fundamentals in the grocery-anchored real estate sector are favorable. The availability of neighborhood retail space is at historic lows in the U.S., and the cost of construction remains high. These conditions make our tenancies sticky. The cost for our tenants to relocate or build new is prohibitive. This dynamic also give landlords leverage to increase asking rents. For Slate Grocery REIT, the weighted average rent across our portfolio is well below market at $12.24 per square foot. We are well positioned to grow through steady increases to our below-market rents, which will in turn drive sustained valuation increases for our business. Our leasing performance in Q1 demonstrates the embedded growth in our portfolio. We completed 590,000 sq ft of total leasing at attractive spreads that drove up occupancy and revenue growth. New deals were completed at a 17.1% above comparable average in-place rent, and renewals at 8.4% above expiring rent. Our new leasing drove a 50 basis point occupancy gain from the 2022 year end. Occupancy at the close of the quarter was 93.7%. As a result of our strong leasing momentum, same property net operating income increased by 3% year-over-year. We also enhanced the REIT's financial flexibility and balance sheet to create liquidity for continued accretive growth. In Q1, the REIT closed a $56 million mortgage loan with a 2033 maturity. We used net proceeds from the loan to pay down the REIT's nearest term debt maturity in 2023. Post-refinancing, the REIT has no remaining debt maturities in 2023. We have also repurchased over 240,000 units at a 30% discount to the REIT's net asset value, which provides the REIT with additional liquidity. We believe the disruption and dislocation we are seeing on the broader market will create attractive buying opportunities for the REIT. We continue to underwrite well-located grocery real estate anchored by strong grocers at below market rents. The REIT's partnership with Slate North American Essential Fund provides a source of private equity capital in addition to the REIT's public funding strategies. This allows us to be nimble in today's environment. We are well positioned for growth, we will continue to allocate capital strategically in ways that are accretive for the REIT. On behalf of Slate Grocery REIT team and the board, I'd like to thank the investor community for their continued confidence and support. I will now hand it over for questions. Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will then hear a three tone prompt acknowledging your request, and your questions will be pooled in the order that they are received. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. one moment, please, for your first question. Your first question comes from Mr. Brad Sturges from Raymond James. Please go ahead. Hi. Good morning. Good morning, Brad. Starting on the IFRS value change there, you made a, I guess, a small adjustment. Just can you walk through what was driving the change on the IFRS value? Is that tied to internal assumptions, or are you tying that to some transactions you see in the market? Yeah, it's a little bit of both, Brad. Good morning, by the way. I think that, you know, we feel really confident in our valuation, and it was a little change. We have below market rents. When we compare our rents to our peers, we are below them. We also feel that we have a conservative cap rate. Put another way, we are in a positive leverage territory at our IFRS value that I think rewards investors. We feel comfortable that our assets would trade at that value. I think as a management team, that's what we try and always do. Really do we think we could value our portfolio this, and we think we're being fair? I know in the market it's challenging right now, but I think the team's done a really good job of showing that we can finance assets like we did with the Life Co financing of $56 million, and, you know, where that was done in the, in the mid 5%. You know, I think it all kind of holds together. We don't anticipate significant changes going forward because of our below-market rents and how we're seeing rental growth. I guess the adjustments were called broad-based across the portfolio, but sounds like you're starting to see some pickup in transaction activity that allowed for some of those sort of tweaks as well. Yeah. I mean, obviously we do also use third-party appraisals, so it's like there's a bunch of data points. I would say investment activity has been subdued, but there are some. I think, you know, what we try and do is we see where financing is, we see what's happening. There haven't been many, and I think perhaps in the tail of 2023, given, you know, refinancings, there might be more visibility. I think what we wanna do is really focus on the cash flow that this company throws out and the below-market rents and the occupancy. You know, I think that's how we look at it. We kind of put it all together, work with appraisers, work with our auditors and, you know, just we're in the market all the time, so it's just trying to reflect that in our, in our IFRS now. Okay. Just maybe switching gears to on the leasing side. Obviously, you know, good start to the year in terms of the, you know, the renewal and the new leasing spreads that you're achieving. How should we think about the type of spreads you get for what's coming, what's rolling over for the rest of the year? I guess my tie-in question to that is, you know, for the grocery anchor renewals, has there been much change in terms of the TI packages required for a longer-term deal? No, we're not seeing much change on what is required from the grocery boxes. You know, we see things being pretty consistent moving forward on our small shop space as well. And on the, on the- We would really love to have more space to lease, let's just say that. In terms of spreads you're expecting, like, could we see kinda similar kinda blended spreads for the rest of the year? You know, was there something specific in Q1 that was driving some of the spreads you realized? I think we see those things remaining pretty consistent. Historically, we've had leasing spreads within this range, so it's not nothing unusual, 6%-10% since inception. Just thinking about having limited availability in the market and just demand for our spaces, I think we're gonna continue to drive positive spreads in the future. Yep. Sounds good. I'll turn it back. Thanks. Thanks, Brad. Thanks, Brad. Thank you. your next question comes from, I do apologize for the pronunciation, Gaurav Mathur from iA Capital Markets. Please go ahead. Thank you and good morning, everyone. Good morning. Good morning, Grav. Just on the tenant base, with the ongoing Albertsons-Kroger merger, do you foresee any store reductions across the portfolio? I'll take a stab and I'll let the people on the ground answer it probably more correct than I can. You know, when we look at this merger, across the entire space, we don't see it really impacting real estate values for a bunch of reasons I can go into. Moreover, we look at it as Kroger and Albertsons are gonna be forced to sell assets in markets that they like, but that's a competition thing. I think what they're really trying to do is protect one of their competitors to getting access to these locations at a cheaper rent or cheaper price where they can off be price competitive in the grocery business. They're actually playing defense. It's not necessarily... I'm not trying to geek the question, Gaurav, but it's really those that merger are forced to sell some assets, and there's not that many, and they don't wanna give them away to a competitor. You know, that there hasn't been much chatter of late. They have until 2024, like next year, so there's still some time, and we are still renewing leases, and it's business as usual with both tenants. I'll pass it on to the team for some more color there. In terms of kind of the SGR total exposure, it's quite limited. We did an analysis as soon as the announcement was made, and there are roughly 15 stores where there's Albertsons and Kroger overlap within a five-mile radius, which is quite substantial distance in terms of catchment area for the competition. Most importantly, what we really see limiting our downside is the low in-place rents that these tenants have. If they're determining which center they're gonna stay in regarding closure, they're gonna look at what rent they're paying. And the average rent for both the Kroger and Albertsons, with these kind of overlap, is around $8 per square foot. We find ourselves really comfortable with that rent basis and give us a lot of optionality and negotiating power with these tenants going forward. Okay, great. Just switching gears on capital allocation. We saw, you know, the NCIB use, which added to the cash flows. Just how you're thinking about capital allocation going forward between the NCIB acquisitions and the development pipeline? Yeah. I mean, I think that it's something that we are continuously reviewing, whether we buy an asset, redevelop an existing asset, or use liquidity to buy back our own stock if we think it's at a discount. We're always talking to our board about all three of those because I think, you know, the market is always changing, and we're in the market looking to buy, and we're in the market, you know, developing our assets, and we're trying to create the best return for all unitholders. I would say it's probably going to be a bit of both or all three. It's really more fluid than that. You know, there was a question from Brad, which is a good one, on our IFRS NAV. I feel 100% confident in that value at our rents. You know, if we're trading at a discount to that's pretty compelling because we have a good team. We know all the assets. If you can get a good return, you know, that might be a good investment. It's something we're always talking to our board about, Gaurav, and it'll change quarter-to-quarter. Okay, great. Just staying on the cash flow theme, you know, we also noticed the uptick in the AFFO payout ratio. Is there a certain range which you're targeting for 2023? Slight uptick in our payout ratio, just simply because we had dispositions last quarter, which is just fully baked into this quarter. We have liquidity there, which we look to deploy later in the year. In terms of where we see payout ratio heading towards, it's positive. There is a lot of leasing activity that we see, which is good, so occupancy is expected to tick up. Mm-hmm. In turn, we think the payout ratio is probably gonna go down. You wouldn't be comfortable in giving some sort of guidance on that at this time? Yeah. We're targeting around mid-95. Okay, perfect. Just on your comment on occupancy, is any guidance towards where you think occupancy will be by the end of the year? Higher. No, I think, I think, you know, I mean, you know, the team did a really good job of buying assets that had low occupancy compared to the market, and that was a strategy. Now we're, you know, in some of the specific portfolios, the team's done an excellent job increasing that occupancy, which gives portfolio-wide occupancy gains. You know, I think we'll continue to gravitate towards the mid-90s over time just because of the demand, you know. However, like we've never seen a leasing market this strong and, you know, we want it to last forever, but it usually never does. But I would say, you know, we're pretty confident that it will continue to uptick, and we're trying to get to that mid-90 range as quickly as possible. Okay, great. Thank you for the color, gentlemen. I'll turn it back to the operator. Thanks. Thank you. Your last question comes from Manish Garg from Laurentian Bank Securities. Please go ahead. Thank you, good morning, everyone. Morning, Manish. On the mark-to-market in the portfolio, I was just wondering if you could provide some color on how do you see, in terms of timelines to realize that mark-to-market? Do you mean the discount between our stock price and our NAV, or what do you mean specifically? No, I mean the rents, because you mentioned- Oh. The rents are significantly below the market rents. Sure. Sure. I mean, I think that, you know, we feel we're probably plus or minus half of market rents and for new builds and everything else. You know, I think over time you get there. I think what we like to do and Andrew stated it, historically, we've achieved 6%-10% rental spreads, and I think we're confident that that will continue. What we like to do is we like to get lifts from our anchors, and then all the shop space wants to be around that activity that the grocery anchor provides, and you can get increased spreads from them. I think that blends out to that 6%-10%. What we're seeing, and I think we talked about this last time, you know, inline anchored inline like space had its traditional tenants, but now we're seeing tenants come from B and C enclosed malls that want to be around this activity. We're also seeing tenants that were typically wanted to be in their own pad in the parking field, realizing that that costs too much, so they're coming in line or into the strip. That demand is exceptional for us. I think we're confident that we'll be able to achieve the leasing spreads. It's going to take some time, but, you know, if you kind of run it at 6%-10% on a year-over-year basis, that's how we'll get there. I think what it does is it shows revenue growth. Are we gonna get to market anytime soon? No, but it's great durability of cash flow with growth, and I think that defensive nature really is something that, say, grocery has that some of our peers don't. Okay, great. Just one more for me. In terms of supply for grocery anchored, what sort of scenarios are you guys seeing for 2023 in your markets? Like new supply of competitive space coming in? Yep. Yeah. I mean, again, I'll let the team jump in, but it's at historic lows. I mean, there's not a lot of new supply. Where you are seeing grocery done would be perhaps in new subdivisions and growing towns in the southeast and other, you know, towns I'm sure you would recognize. However, those would be done at higher market rents. What we like to do is buy the existing infill at low market rents because, you know, I mean, the sales don't change, and it's a tight margin business, so the grocer is very focused on cost, of which rent is one. That stickiness is kinda how we focus. There's not a lot of new space. Maybe a question you would then answer, well, what about, you know, bankruptcies, and is there existing space that's vacant? You know, as we've said in this call, that's all being taken up, like the health of the retail sector, like there's no new build. You know, big kind of competitors of existing boxes has kind of been backfilled. That's what's, that's what's creating this occupancy uptick and, you know, rental increases in our portfolio. Okay, great. Thanks a lot. I'll turn it back. Thanks. Thank you. Your last question comes from Sairam Srinivas from Cormark Securities. Please go ahead. Hey, guys. My apologies if you hear some background noise. I'm just walking on the street. Blair, thanks for your comments on the supply. I'm just gonna kind of double down on that one. When you look at, you know, the reasons for the supply not coming up, obviously one is there's not much space available, but would you say it's only construction costs versus, interest rates? Like, what's driving the lack of supply in the, in those markets? Well, I think it's all the above. I, you know, I just really wanna focus it. We own 100% grocery anchored real estate. When someone says the word retail, that's a big word and has a bunch of different assets in that. We focus on grocery. It's essential good. In good times and bad, people go to the grocery store. The grocery stores fulfill omni-channel distribution. Either go to the store, you click and collect, or they deliver it to your home from that store. You know, that activity is different than a lot of other retail. What I would say is, you know, the cost to construct new can be prohibitive for new tenants, so they like to get into cheaper space because of... You know, this is simply put, if there was an empty field across from our grocery store or an empty box, and they wanted to build a new store or pay market, the grocer would have to pay double the rent from one of the Slate Grocery REIT sites. In simple math, would they get double the sales moving across the street? The answer typically is no. In a tight margin business, that's why they like focusing on the cheap rent. Costs are prohibitive to construct. We feel that we're probably at, you know, when you include fit out and land, less than half of replacement costs for a comparable center, which is good. From a financing side, we can finance our assets through traditional means, either banks or Life Cos. You know, the tenants are, you know, some of the tenants have to deal with regional banks and other things to fund their businesses, and we are watching that. Look like construction financing is a little bit tighter, but we're really happy we're in the grocery space, not in some of the other sectors, because we are seeing liquidity, we are seeing financing, and our tenants are healthy. Yeah, it's cost, it's availability of capital for construction, it's, you know, what's gonna happen to other types of real estate. All that's being factored in, but we're feeling good and stable about our assets. That is exactly what I'm looking for, Blair. Thank you. My other questions have been answered, so turn it back. Thank you. Thank you. There are no further questions at this time. Mr. Paul Zagaria, you may proceed. Thank you everyone for joining the Q1 2023 conference call for Slate Grocery REIT. Have a great day. Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines. Have a great day.