Good morning, ladies and gentlemen, and welcome to the Slate Grocery REIT second quarter 2023 financial results conference call. At this time, all lines are in a 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, August 3, 2023. I would now like to turn the conference over to Paul Wolanski, Senior Vice President, National Retail Sales and Investor Relations. Please go ahead. Thank you, operator. Good morning, everyone. Welcome to the Q2 2023 conference call for Slate Grocery REIT. I am joined this morning by Blair Welch, Chief Executive Officer, Andrew Agatep, Outgoing Chief Financial Officer, Joe Pleckaitis, Incoming Chief Financial Officer, Connor O'Brien, Managing Director, Allen 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 disclosure, including our Q2 2023 investor update, which is now available. I will now hand over the call to Blair Welch for opening remarks. Thanks, Paul. Our Q2 results highlight our team's continued operational excellence and ability to drive consistent organic growth across our portfolio. Our team achieved a record 1 million square feet of total leasing at attractive spreads that drove occupancy and revenue growth. New deals were completed at 23.7% above comparable in average in-place rents, and non-option renewals at 10.9% above expiring rents. New leasing drove a 70 basis point occupancy gain from the beginning of the year. Our occupancy at the end of the quarter was 93.9%, with no grocery expiries for the remaining of this year. Our strong operational performance continues to drive same-property NOI growth, which has increased 2.7% on a trailing twelve-month basis. Throughout the quarter, we further strengthened the REIT's balance sheet to create liquidity and financial flexibility. To maintain our fixed debt that helps keep our cash flow strong, we entered into a $175 million forward swap and amended an existing $137 million swap that was set to mature in July 2027. At the close of the quarter, 96.6% of the REIT's total debt is fixed. No debt maturities remain for the remainder of this year. Year to date, the REIT has repurchased nearly 1 million units at a significant discount to our net asset value. We have strong conviction in the value of our grocery-anchored real estate. Fundamentals for grocery-anchored centers remain strong. Limited availability, coupled with the lack of new supply coming into the market, is creating a favorable dynamic for owners to grow rents. As consumers continue to spend more on goods and services that are close to home, tenant mix has become increasingly important. Centers like ours, with a strong anchor tenant that drives foot traffic and a high proportion of essential tenants, are benefiting. We believe our portfolio is well positioned for continued stable growth. At $12.29 rent per square foot, average rent in our portfolio remains well below market. This provides significant runway for us to increase rents and grow the overall value of our business. We also continue to actively underwrite compelling single asset portfolio opportunities that would be accretive to unitholders, enable us to grow further strategically through high-quality acquisitions. On behalf of the Slate Grocery 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, as a reminder, if you wish to ask a question, please press Star, followed by the 1 on your telephone keypad. All right, please wait a moment while we compile the question and answer. First question comes from Sairam Srinivas with Cormark Securities. Please go ahead. Thank you, Operator. Good morning, guys, and congrats on a good quarter. Just looking at the renewals for next year, how should we be thinking about any options that are there in those leases? How would those options impact our spreads next year? Hey, good morning, Sairam. Can you, can you repeat the question? Sorry, I didn't hear the, on the options, sorry. Hey, lad. Just looking at the renewals for next year, I noticed that we say you had some of the renewal options come in. Are there similar options coming in next year as well, and how does that impact leasing spreads on renewals next year? Oh, yeah, sure. I'll, I'll take a stab at it. So you know, I think the, the biggest thing, most leases obviously have options, and most of them are done at market. That's why we keep on driving home the fact that our rent across our entire portfolio at $12.29 is significantly low. We feel at a lease expiry, when the tenant has the option to reset to market, there will be continued growth as we're, you know, we've performed in the last bunch of quarters. I think we'll remain consistent, and we're optimistic, actually, because in the entire space, there's a lack of... of space available. I think there's going to be more continued pressure on rents, which is a good news story for pure-play grocery. Thanks for the call. Just following back on that. In terms of, you know, like, let's say, proportion of leases that are probably heavy, would you say all of the major leases, the grocery anchor leases, have the options next year? No, no, no, no, no. I just-- in general, I mean, like, next year, I, I don't know how much of our spaces grocers are renewing next year. It's probably- 8% of GLA. 8% of GLA. They would all most of them would go to market, and there would be a negotiation on that. You know, I think where we're really seeing significant growth is what we in call the inline or shop space. You know, I think you'll get more consistent, steady growth from our anchors when they come up, and it's 8% isn't a big number. We're seeing very significant rental spreads in the shop space, and because of the occupancy is strong, there's not many options for the tenants to go anywhere else. It is still at a significant discount to new construction or new build. They can't build new and pay these rents, and there's no space to go in other space, in other malls or other shops. It's really kind of a perfect storm for rental growth. Actually, that's a great segue to my next question. I know you mentioned, you know, lack of supply, and, as you said, you know, no, no new builds coming into those markets. How does the new supply cost come in, in terms of, you know, build, build cost per square foot, and what does that mean for implied rents? Yeah. I'll let, I'll let the guys talk about that. Yeah. New construction costs for kind of a blank shell would be roughly $275-$300 per square foot, depending on market, and that does not include kind of tenant inducements or the cost of land. That would translate to a grocer needing to pay $15-$20 per square foot, which really emphasizes the value of our portfolio in the under-market rents, that we can offer our grocers to be profitable in our locations. I also think, if correct me if I'm wrong, the Green Street says market rents for these kind of centers is $23 or $24. That would be across both existing supply and new supply. I would say, when you look at the inline rents for new construction, it's probably $25-$35 for inline space. Yeah. That's going to be market dependent as well. Awesome, Connor. Thank you so much for the call. I'll turn it back. Thanks. Thank you. Your next question comes from Brad Sturges with Raymond James. Hey, guys. Good morning. Hey, Brad. I guess in the theme of acquisition environment or transaction environment, I, I guess, curious to get your updated thoughts on whether or not you're starting to see bid-ask spreads start to narrow, any green shoots in, in the transaction market that we're, you know, starting to see a little bit more pricing discovery in the market at this stage? Yeah, I'll, I'll do a high level, and I'll pass it off to the team again. You know what? I think that what we're finding in this space, the real estate specifically, if you didn't have any debt on these assets, the fundamentals from the real estate are extremely strong. Rental growth is strong, performance of the tenants is strong. You can still finance a positive leverage, all that stuff. What we're, what we're feeling and what we think will happen is, you know, there's 40,000 of these types of assets in the U.S., there's no really big owner. It's a lot of, I'd say, onesie-twosies, moms and pops, and a lot of those have been financed through regional banks or, or securitized CMBS or what have you. We are finding that the capital structure on some of these assets is going to need to be reset. We think there's going to be compelling opportunities because of capital structure, not the underlying real estate fundamentals. We're excited about that. Connor, maybe you can provide some color on the market. Yeah. You, you mentioned the bid-ask spread. That was certainly the theme for the first half of this year. Transactions volume were, were substantially down. As you alluded to, I, I do believe that the bid-ask spread is starting to narrow. We would expect more transaction volume in the second half of this year. In terms of kind of where positive leverage is, you can finance grocery-anchored real estate at roughly 5.5%. You're seeing well above 100 basis points of positive leverage from there. Both are kind of in place. IFRS values is where... as well as new acquisition opportunities are, are quite compelling at this point in time. Okay. It sounds like there could be, I don't know if you want to use the term distress, but there could be some sort of balance sheet-related, or leverage-related opportunities, as, as we go forward from here. I, I guess from the, from the opportunity set now that you're seeing, it's, it's, more of an expectation than what you're seeing specifically in the market right now. I would... I guess, is that a fair characterization? Yeah, I would say we're certainly trying to identify those motivated sellers and provide a solution that would be compelling for us at an investment opportunity today and going forward. Would you see-- Would you think that there could be some better portfolio opportunities that, that come about too? Or would it be more the, the onesie-twosies that you alluded to? I would say we've had a lot of success buying great portfolios historically and are continuing to try and identify those opportunities. The competitive set from a purchase standpoint, when we're looking at a portfolio, is certainly more limited than a one-off. I could certainly see that being an area we focus on in the second half of this year, if possible. Okay, great. Thank you. Thank you. Your next question comes from Gaurav Mathur with iA Capital Markets. Thank you. Good morning, everyone. Congrats on the strong quarter. You know, you've mentioned the retail supply that's coming into the market at about 11 million square feet, in 2023. Could you, could you provide some color on how much of that could be potentially grocery-anchored related versus some of the other asset class types? Sure. Morning, Gaurav. Maybe to put in a context, just the size of the market and how little of the spaces would be helpful for him. Yeah, I think, if you look at that 11 million sq ft, that represents kind of roughly 50 basis points of total inventory, so it's quite limited. While I don't have the breakdown between grocery and kind of non-grocery development, the vast majority of that new development is associated with kind of residential growth. Where a new subdivision would be built, and there will be additional retail supply to serve that new market, as well as additional intensification on existing sites through pad development. Our team has done a great job identifying those pad development opportunities, and we continue to add GLA to our existing sites across our portfolio. Yeah, just one additional point, Gaurav. It's really just single tenant and, and small multi-tenant builds we're seeing. We're really not seeing, like, net new grocery anchor centers going up. Okay, fantastic. you know, that, that does lead me to my next question, and you may have touched upon this earlier, but, as you're looking at the product and, you know, some of these portfolios that you could start thinking about, is there a chance that you'll also bring in the North American fund to go after larger, portfolios here? Yeah, I, I think we'll look at all sorts of ways just to, you know, look at doing accretive acquisitions for the REIT. You know, I think we're, we're a creative group at Slate. If there's a compelling deal, I think we need to do what's, what's in the best interest of the unitholders. That's first and foremost. If there's large deals, we can call on, you know, other investing partners the REIT has to, to look at things. At this time, you know, there's, there's more than enough stuff that the REIT can do. I'd also like to point out that we have been active in buying our own units back because we traded a discount to the market, but we're extremely comfortable with our NAV, and we've traded that discount. We can look at other external ways of growth, but we also think we're pretty attractive and cheap, so we have to balance all that when we, when we do stuff. Okay, great. Thank you for the call, gentlemen. I'll turn it back. Thanks. Thank you. Next question comes from Jenny Ma with BMO. Wanted to get a sense on how inflation may be changing, how you approach leasing negotiations. I think we've mentioned that, you're going to see some of the anchor leases go to market next year. Could you talk about how leases are being structured, if that's changing? And maybe also the mark-to-market gap that you would be seeing on that 8% for next year. Sure. Thanks, Jenny. It's great to have you back. Thank you. You know, I, I think that what we believe is real estate's pretty simple. We try and buy cheap rents, and, you know, there hasn't been a lot of inflation, but there is now. That being said, our grocers pay on average around $9 a square foot. As Connor mentioned earlier, a new build would require $15-$20 rents. When you think of a $9 rent, and we look at grocery as food logistics, think about what the main warehouse rent would be in industrial. We actually own the spoke of the hub at $9. It's pretty much an industrial rent in an infill location around the rooftops. That is a very, very important piece of real estate and logistics for these grocers. I think we will see growth. It could be significant growth in those rents over time. What we try and do is, is balance the, the grocer rent with the shop space rent, because the shop space and other nationals want to be around the anchor that provides, you know, that traffic. We're seeing good growth, and because we're at $9 rents for our grocers, that's significantly cheap real estate for them, and it's a tight margin business, we will get growth there as they come up. We're also seeing significant growth from the shop space. You know, I think it's really, inflation is important and, and we'll see it. It almost makes the conversation easier with the tenant for rental growth. The reality is, they don't have many options, and that they don't have many options at this rent. I guess my question is, I'm trying to triangulate what the opportunity would be for you then, because your occupancy is fairly healthy. There's rent, you know, rent inflation. There's inflation, there's higher construction costs. When you go to negotiate these renewals, how hard are you gonna push on this growth? I think first off, given the lack of a new supply, there's very few options. Our view is we have the ability to be aggressive on these lease negotiations, and I think that's represented in that kind of 11% non-option renewal spread. How that ties into inflation, if you look back at kind of our renewal spreads historically, we have kind of outperformed inflation in a high inflation environment, as well as had positive rent spread, even in a lower inflation environment. I think that just speaks to buying under market rents and being able to create that mark-to-market going forward. I think as an asset management team, we plan to be aggressive on all renewals going forward and are hoping to maintain these really attractive rental spreads, on all leasing going forward throughout the rest of this year and into next year. Okay, when you look at your renewal options, how much of them would be going to market versus how much of them have fixed terms that you would just renew for? Like, what would be the proportion in your portfolio? Roughly half our portfolio is, is grocery-anchored, so often they like to be able to control their sites long term. That being said, when a grocer has, say, 10 years of term left, they come to us with a conversation around potentially how they can control the site even longer, and often that leads to the ability to push rents. We'll certainly have those conversations with limited grocers. Where a lot of the rental growth will occur is in the non-grocer shop spaces, where we can have outsized rental growth year-over-year. You know, I think just to add to that, Jenny, like, if our grocers are at $9 a foot, you know, if you add $0.50, that's, that's not a lot for them, but it's still on a percentage basis, a pretty big increase. Right. I, I think that's, you know, I, I would say, like, that's kinda how we think about it. You're not gonna. The rents aren't gonna go $9 to $16. What you do is you, you kind of increase the grocer rent over time, so you can keep them, so you. Most of the grocers, when they go to market on expiry, they have a 5-year option at market. You increase it that 5% or 10%, and then in 5 years, another 5% or 10%. You try and get steps in the rent every year. Right. That's, that's kind of how we look at it. That's, that's the deal. It's, it's a fine balance, and I think one of the benefits that we have is, we have multiple locations with these grocers, so we do think of every asset in isolation. However, it's a bigger conversation when you own, like, 20 Krogers. Right. You think about, you know, it's like: Hey, I got you here, and I'm going to put you over here. It's like, I would say that's sort of, like, that's kind of how we think about it. Like, at nine dollar rents, you add $0.50, that's, that's significant on a percentage basis, but not that much in nominal dollars for the tenant, and you just increase it over time. Okay. Well, to the latter point about it not being that much of a nominal, I'm just trying to figure out if you're going from $9.00 to $9.50 or from $9.00 to $10.50, right? Which would be a meaningful difference, so. Well, I mean, We're trying to go to $16, but I mean, it's just all a negotiation. Yeah. Well, I was thinking you'd meet there somewhere in the middle, but okay. No, that's, that's fine. During the pandemic, you talked a lot about the grocers using the grocery space in sort of more, you know, future forward ways, in terms of maybe carving out some of it to distribution, what have you. With the world having sort of gone back to normal, quote, unquote, has that chatter continued at the same pace? Are these efforts still going ahead, or do you find it sort of reverting back to where things used to be and it's quieted down? Like, are, are your grocer tenants looking to still evolve the space towards the future of grocery as opposed to traditional grocery? Sure. I'll let, I'll let Allen Gordon talk about it a bit more, but I, I think what's really important, and it's a very good question. We provide the grocer a shell or a box or industrial shed, 20- to 30-foot clear height, clear height with loading bay doors. What they do inside is, is what they do. So, depending on the local neighborhood, they will change what they offer inside. Like, maybe, maybe they do do 2 rows of prepared foods in a higher income market, or maybe they do do 2 rows of click-and-collect. 100% of our grocery stores, it's like grocery. Every grocer has invested capital to do click-and-collect or other types of things in the box. They, they, they pivot their use depending on the local demographic. That cost is cheaper for them, changing two aisles, in my example, than having to go get new real estate, 'cause in that $9 rent, they can change those two aisles. It's not that much square footage. They, they respond to the local demographics. I'll let Allen talk about it a little bit more. Yeah, I think simply said, and as Blair was alluding to, you're close to the rooftops, and, and that's our, that's our main advantage, is the last mile logistics, and, and that's where our grocers. It's cheaper for them to operate, cheaper for them to deliver food, and closer to the rooftops. The biggest cost for a grocer is transportation. It's about 45%-55% of their costs. When you think about a grocery store, if that's the spoke to the hub, if there's 3,000 people that live around that grocery store, a food drop gets dropped by truck from the main warehouse to these spokes. If you actually had individual drivers and clients, it would increase the cost so much they can't do it. It's almost like how they do it, they know how much food or what the locals are doing because they load that store every day, say. They'll change the offerings depending on what they're seeing, but from a Slate Grocery perspective, it doesn't change the need for the box. They, they kind of pivot to what the consumer is demanding. Right. Are those efforts still going ahead at the same pace? Yeah. I mean, it's, it's always been that way. It's never, it's never changed. I would say that, you know, I think, I think the biggest change we've seen in the last decade is, you know, the, the second biggest cost behind transportation is labor. We've seen, and you've seen it here, way more self-checkout, and that really just means less humans. Right. It makes increased margins. I think we'll continue to see the evolution of the box. I mean, most of our grocers are, you know, 30,000-50,000 sq ft. We like that size of box because it is important, and if they can kind of pivot it, it's not like a 500,000 sq ft box you got to repivot. I mean, I think, I think we like the optionality of our portfolio, and the grocers do, too. Maybe anecdotally, Jenny, we are seeing grocers in our portfolio sort of retrofit, either expand or, or sort of reallocate existing square footage within stores with an omni-channel lens. They might, you know, allocate 5,000 sq ft, sorry, just for cold storage, robotic sorting for their omni-channel pickup and click-and-collect at stores, right? We're seeing that. They're investing significant capital in the stores, which is obviously good for the value of our real estate as well. Okay. That doesn't require any capital commitment from you, right? You just- Correct. Got it. Yeah. That's, that's grocery funded within their four walls. Yep. Okay, perfect. Thank you very much. I'll turn it back. Thank you. There appears to be no further questions. I will return the conference to Paul Wolanski for closing remarks. Thank you, everyone, for joining the Q2 2023 conference call for Slate Grocery REIT. Have a great day. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.