Choice Properties Real Est Invstmnt Trst Q3 2025 Earnings Report

Choice Properties Real Est Invstmnt Trst EPS Results

• Actual EPS: C$0.34
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Choice Properties Real Est Invstmnt Trst Revenue Results

• Actual Revenue: $363.22 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Choice Properties Real Est Invstmnt Trst Announcement Details

• Quarter: Q3 2025
• Date: 11/5/2025
• Time: After Market Closes
• Conference Call Date: Thursday, November 6, 2025
• Conference Call Time: 9:00AM ET

Choice Properties Real Estate Investment Trust invests in, manages, and develops retail and commercial properties across Canada. The company's portfolio primarily consists of shopping centers anchored by supermarkets and stand-alone supermarkets. The properties are mostly located in Ontario and Quebec, followed by Alberta, Nova Scotia, British Columbia, and New Brunswick. Choice Properties generate the majority of revenue from leasing properties to its tenants. The company's principal tenant, the large-format retailer Loblaw Companies, contributes the vast majority of the total rent.

Choice Properties Real Est Invstmnt Trst Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong quarter — portfolio occupancy ~98%, overall rent spreads 10.8% (≈23% excluding Loblaw), reported FFO/unit CAD 0.278 (+7.8% YoY) and management raised 2025 FFO/unit guidance to CAD 1.06–1.07.
• Positive Sentiment: Industrial momentum — industrial occupancy 98.3% with renewal spreads ~38%, and Choice intends to start a 1 million sq ft speculative phase at Caledon (delivery targeted Q2 2027; NLS rent commencement Apr 2026).
• Positive Sentiment: Loblaw right-sizing produced ~CAD 10 million of lease-surrender revenue across three properties and enabled backfilling with higher‑rent third‑party tenants, supporting cash‑flow growth (management expects some but not large ongoing volumes).
• Positive Sentiment: Development & intensification — delivered seven retail intensifications (107k sq ft) at a blended 6.3% yield, a ~1.0M sq ft active pipeline at ~6.9% forecasted yield, and a 50% greenfield land acquisition in Ottawa for CAD 9 million.
• Negative Sentiment: AFFO and cash‑flow timing — AFFO was CAD 0.192/unit, impacted by earlier maintenance capex timing and higher net interest expense, and debt-to-EBITDA is 7.1x, which could temper near‑term cash flow flexibility.

Presentation

[Operator]

Good morning. My name is Rob, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Choice Properties Real Estate Investment Trust third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. I'd now like to hand the call over to Simone Cole, General Counsel and Secretary. Please go ahead.

[Simone Cole, General Counsel and Secretary at Choice Properties Real Estate Investment Trust]

Thank you. Good morning and welcome to Choice Properties Q3 2025 conference call. I am joined this morning by Rael Diamond, President and Chief Executive Officer; Niall Collins, Chief Operating Officer; and Erin Johnston, Chief Financial Officer. Rael will start the call today by providing a brief recap on our third quarter performance and provide an update on our transaction activity. Niall will discuss our operational results and our development pipeline, and Erin will conclude the call with a review of our financial results before we open the line for Q&A.

[Simone Cole, General Counsel and Secretary at Choice Properties Real Estate Investment Trust]

Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook, and similar statements concerning anticipated future events, results, circumstances, performance, and exceptions that are not historical facts. These statements are based on current estimates and assumptions and are subject to the risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements.

[Simone Cole, General Counsel and Secretary at Choice Properties Real Estate Investment Trust]

Additional information on the material risks that can impact our financial results and estimates and assumptions that were made in applying and making these statements can be found in the recently filed Q3 2025 financial statements and management discussion and analysis, which are available on our website and on SEDAR+. Finally, new to this quarter, our call will feature presentation slides. If you have joined by webcast, you will see these slides presented on screen. If you have dialed into the call by phone, these slides will be available on our website following the call. With that, I turn the call over to Rael.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Thank you, Simone, and good morning, everyone. Welcome to our Q3 conference call. We delivered another strong quarter driven by strong tenant demand in our national grocery-anchored retail portfolio and new leasing activity across our well-located industrial assets. We maintained near full occupancy of 98%, up 20 basis points from last quarter. We achieved healthy overall rent spreads of 10.8% during the quarter, which included a significant amount of Loblaw renewals that we'll speak more about shortly. Our Loblaw leases continue to be a stable source of cash flow growth and we are equally encouraged with the robust leasing activity from our third-party tenants in the quarter. Excluding the Loblaw renewals, our average rent spread was approximately 23%. This leasing activity underscores the strength of our overall portfolio and our team's ability to manage through uncertainty.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

We delivered ever-proper unit growth of 7.8% this quarter, supported in part by lease surrender revenue from our ongoing Loblaw rightsizing initiative. These initiatives remain a part of our active asset management strategy as we support Loblaw in evaluating space requirements nationwide while creating opportunities to introduce other high-quality, strong-cover tenants that enhance the overall quality of our sites. Excluding lease surrender revenues and other non-recurring items in both comparative periods, FFO per unit growth was a very strong 3.5%. Erin will provide more detail on our financial results and an update on our 2025 outlook later in the call. Our strong performance this quarter comes amidst a backdrop of ongoing macroeconomic uncertainty driven by trade-related risks in Canada and abroad. Despite this, our portfolio continues to demonstrate its resilience, and our commitment to prudent financial management has enabled our teams to execute on our growth initiatives.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Turning to our portfolio, we continue to see a tight retail market nationwide, fueling strong demand for our grocery-anchored neighborhood centers. We also see particular strength among necessity-based and discount retail tenants. Our national portfolio is well-positioned to continue capturing this momentum and benefit from these favorable market dynamics. Our team remains active in new leasing initiatives at our existing assets, while our industry-leading balance sheet and strategic partnership with Loblaw enables us to continue delivering new retail space through intensifications and greenfield development. With a strategic focus on expanding our high-quality retail portfolio and a proven track record of execution, we are well-equipped to deliver sustained growth and maximize value. In the quarter, we delivered seven new retail intensification projects at attractive yields, further intensifying our neighborhood centers, something Niall will expand on shortly.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

In addition to intensifying our existing sites, we also continue to leverage our balance sheet and relationship with Loblaw to pursue new greenfield opportunities. During the quarter, we completed a CAD 9 million acquisition of a 50% interest in a greenfield site in Ottawa. This 13-acre site will feature a new shopping center totaling approximately 120,000 sq ft, anchored by No Frills and a Shoppers Drug Mart, which we will develop and manage on behalf of our partner. Our industrial portfolio remains in excellent shape, and our team delivered another strong quarter of leasing activity as occupancy increased 30 basis points to 98.3%. Leasing spreads were robust at nearly 38%, driven by third-party tenant renewals. While the overall industrial market continues to normalize, our portfolio remains well-positioned to drive further growth given the meaningful gap between in-place and market rents.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

We also maintain a significant industrial development pipeline, including approximately 220 acres of developable land remaining at Choice Caledon Business Park. In the quarter, we announced our intention to begin the next phase of our Caledon project on a speculative basis. This decision was supported by our conviction in the GTA industrial market, the location of our site, the competitive advantage provided by a low land cost basis, and the increased RFP activity we're experiencing on the site. Lastly, in our mixed-use and residential portfolio, we saw a quarter of solid momentum. Our office portfolio is primarily leased to affiliate entities, and occupancy in the quarter was largely stable. On the residential side, we continue to experience some pressure from new supply at certain assets.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

However, looking ahead, we continue to have a strong conviction in the quality of our residential product and are optimistic about the long-term residential fundamentals in major urban markets in Canada. Turning to our transaction activity in the quarter, we remain focused on maintaining our portfolio quality through capital recycling, completing approximately CAD 118 million in total real estate transactions during and subsequent to the quarter. This included the CAD 9 million retail land acquisition in Ottawa that I mentioned previously and CAD 109 million of non-core asset dispositions. On the disposition front, we sold our 50% interest in a non-grocery-anchored shopping center in Edmonton for approximately CAD 9 million. In subsequent to quarter end, we completed three additional dispositions, including a retail portfolio of four assets in Ontario for CAD 67 million, a 50%.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Interest in a retail asset in Camrose, Alberta for CAD 23 million, and a Canadian Tire land lease in a retail site in Fort Saskatchewan, Alberta for approximately CAD 10 million. All transactions were completed at or above fair values. We expect to remain roughly balanced for the rest of the year, positioning us as net acquirers this year in line with our transaction activity to date. Our industry-leading balance sheet continues to support us being net acquirers in the future, complementing our existing cash flow growth and development growth pillars. We will continue to maximize value for unit holders. With that, I'll turn the call over to Niall to discuss our operational results in more detail. Niall.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Thank you, Rael. Good morning, everyone. As Rael mentioned, our portfolio delivered another solid quarter of operational results, and we continue to see strong tenant demand and leasing spreads across each of our portfolio types. Overall portfolio occupancy remained strong, ending the quarter at 98%. This was a 20 basis point increase to the prior quarter. During the quarter, we had over 3.7 million sq ft of lease expiry and renewed approximately 3.6 million sq ft, resulting in a retention rate of 96%. Overall, the portfolio renewals were completed at an average rental spread of 10.8%. Excluding the Loblaw renewals, our renewal spread was a very healthy 23.1%. We also completed 291,000 sq ft of new leasing, resulting in positive absorption of 135,000 sq ft, largely driven by our Ontario industrial portfolio and Quebec retail portfolio.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Turning to each of our asset classes, in our necessity-based retail portfolio, occupancy was unchanged at 97.8%. During the quarter, approximately 3.2 million sq ft of leases expired, including 2.8 million of Loblaw maturities. We renewed approximately 3.1 million sq ft, including 2.7 million sq ft from the Loblaw tranche for a retention of 97%. Given the lack of new retail supply, vacating tenants or early terminations have provided opportunities to backfill space at elevated rental rates with stronger columns. Lease renewal spreads averaged 9% above expiring rents and 12.9% excluding the Loblaw tranche, with broad-based trends across all of our regions and categories led by value retailers. We also completed 148,000 sq ft of new leasing. Average rents over the lease term are 42% higher than our average in-place rents. This largely offsets the 95,000 sq ft of expiries that did not renew in the quarter.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Our team has already backfilled a portion of the space at rents 49% above previous rates and remains confident in the leasing activity on the remaining space. Turning to our industrial portfolio, occupancy increased 30 basis points from our last quarter to 98.3%. This quarter, 491,000 sq ft expired primarily in our Alberta and Atlantic portfolios, and we renewed 430,000 sq ft for a healthy 87.6% retention rate. We had two vacancies in the quarter, one of which has already been backfilled for Q4, and negotiations are underway for the other property. Lease renewal spreads remain strong, averaging 38.3% above prior rents, driven by the Alberta and Ontario portfolios. In the Ontario portfolio, we completed one renewal for 57,000 sq ft at a rent spread of 183%. Excluding the 189,000 sq ft of Loblaw renewal, the average renewal spread for the portfolio was approximately 62%.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

We also completed 142,000 sq ft of new leasing, against 61,000 sq ft of vacates, resulting in positive absorption of 81,000 sq ft. New leasing rents averaged over the lease term are 32% higher than our average in-place rents. Lastly, our mixed-use and residential portfolio continues to perform well with occupancy at 95.5%, which is up 10 basis points from the last quarter and has increased 140 basis points the year-to-date, primarily from strong performance within our mixed-use assets. Turning to our developments in the quarter, our team continues to advance our development pipeline across each of our strategic asset classes, with near-term focus on commercial development. This quarter, our team delivered seven retail intensification projects totaling 107,000 sq ft at a blended yield of 6.3%.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Project deliveries included two Shoppers Drug Marts in Ontario and Alberta, totaling 34,000 sq ft at yields in the mid 6%-7% range, and we have another seven Shoppers Drug Marts currently in active development. A T&T in CRU in Mississauga totaling 44,000 sq ft, two CRU units in Alberta with an international cosmetic retailer totaling 7,000 sq ft at yields in the high 8% range. Finally, two ground leases at a property in Ontario and Alberta totaling 22,000 sq ft at an average weighted yield of approximately 11%. One of the ground leases is with Nautical, with whom we have a deep relationship, and the other ground lease is with a tenant in the automotive sector. As Rael mentioned earlier, this quarter highlights our team's ability to unlock incremental value from existing retail portfolio and land-bound true intensifications in new development.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

These types of retail initiatives remain a cornerstone of our broader development strategy, and we will continue to actively pursue opportunities to deliver high-quality retail projects. Looking ahead to the balance of the year, our major active development project continues to be our industrial pipeline at Choice Caledon Business Park. The NLS building, totaling approximately 624,000 sq ft, of which we own 85%, was transferred to IPP on November 1st, and rent commencement is on track for April 2026. With this delivery, our team is now focused on the next phase of our industrial development at Caledon. This quarter, we announced our intention to begin construction of 1 million sq ft building on spec before the end of the year. Permits are submitted, and delivery is scheduled for Q2 2027.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Overall, our active development pipeline totals 12 projects of approximately 1 million sq ft at an average forecasted yield of approximately 6.9%. Our development pipeline continues to be a reliable source of long-term cash flow and add growth for our portfolio. I will now pass it over to Erin to discuss our financial performance.

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

Thank you, Niall, and good morning, everyone. We are very pleased to report another quarter of strong financial performance. Our reported funds from operations for the second quarter was CAD 201.4 million, or CAD 0.278 on a per-unit diluted basis, reflecting an increase of 7.8% compared to the third quarter of 2024. Included in our results this quarter, we had approximately CAD 10 million of lease surrender revenue. Last year, we had approximately CAD 5 million of lease surrender revenue and CAD 3.3 million of non-recurring G&A expenses related to outsourcing. As Rael mentioned, our lease surrender revenue is mainly due to our right-sizing activities with Loblaw, where we are able to add high-quality third-party tenants to our sites, and Loblaw is able to right-size their store to a smaller footprint. These initiatives demonstrate the benefits of our strategic partnership with Loblaw and do not occur consistently throughout the year.

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

Excluding these items, FFO per unit growth remains strong at 3.5%. FFO growth was primarily due to strong operational results and contributions from net acquisitions and development transfers over the last 12 months, partially offset by higher net interest expense. AFFO this quarter was CAD 0.192 per unit, which was impacted by the earlier timing of executing on our maintenance capital projects. On a full-year basis, we expect our 2025 maintenance capital and AFFO payout ratio to be relatively consistent with the prior year. Turning to our operational results, same asset cash NOI increased by CAD 7 million, or 2.8%, compared to the third quarter of 2024, driven by higher base rents from rent steps and strong leasing activity. By asset class, retail same asset cash NOI increased by CAD 5.8 million, or 3.1%.

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

The increase was primarily driven by leasing activity, which included the impact of our Loblaw lease renewals in the quarter and higher base rent on contractual rent steps. Retail growth was also favorably impacted by higher capital recovery revenue. Industrial same asset cash NOI increased by approximately CAD 0.8 million, or 1.6%. The increase was primarily due to higher base rent from contractual rent steps and leasing activity. Growth in the quarter was tempered by prior-year property tax recoveries and other income items. Including prior-year items, same asset cash NOI growth would have been approximately 3.3%. Mixed-use and residential same asset cash NOI increased by approximately CAD 0.4 million, or 4%. Moving to our balance sheet, our IFRS Net Asset Value, or NAV for the quarter, was CAD 14.53 per unit, an increase of CAD 111 million, or approximately 1%, compared to the second quarter of 2025.

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

NAV growth was driven by a net contribution from operations of CAD 56 million, a net fair value gain on our investment properties of CAD 13 million, and a fair value gain on our investment in the units of Allied Properties. As a reminder, we are required under IFRS to mark to market the investment in Allied to its trading price at each period end. Our fair value gain on investment properties in the quarter was primarily driven by cash flow growth, favorable leasing, and backfill initiatives in our retail segment. This more than offset a fair value decrease related to certain asset-specific leasing adjustments in our industrial portfolio. This quarter, we also completed several successful financings, most notably our CAD 500 million dual tranche unsecured debenture offering in August. The transaction included a CAD 350 million Series W unsecured debenture

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

at a 4.628% coupon with a 10-year term, and a CAD 150 million Series X debenture at a 5.369% coupon with a 30-year term. The dual tranche offering carried a weighted average coupon of approximately 4.85% and a 16-year average term, extending our debt maturity profile to 6.8 years. Our team capitalized on a very strong credit environment, with the issuances representing both the tightest-ever 10-year and 30-year spreads for Choice. We saw exceptional demand for these issuances, with the combined offering being over nine times oversubscribed. This transaction continues to demonstrate our strong position in the market and our ability to source low-cost capital while also accessing the long end of the curve, providing the flexibility needed to prudently manage our balance sheet and maintain a well-structured debt ladder.

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

Proceeds from the offering were primarily used to repay maturing debt, including the redemption at par of our CAD 200 million Series F unsecured debenture in September and approximately CAD 100 million of mortgages that matured in the quarter. The remaining proceeds were used for general purposes and to pay the rebalances on a revolving credit facility. Looking ahead to the remainder of the year, our team has largely addressed the few remaining maturities, with our next significant debt maturity not occurring until our unsecured debenture due in November 2026. We ended the quarter in solid financial position, with strong debt metrics, ample liquidity, including approximately CAD 1.5 billion of available liquidity, including credit on our corporate facility and available cash, and CAD 13.7 billion of unencumbered properties.

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

Our debt-to-EBITDA ratio was 7.1x, which was down 0.1x from last quarter, as we captured earnings related to our acquisition activity earlier in the year. Supported by our strong year-to-date operating performance, including our team's ability to execute on a transaction strategy and deliver on our right-sizing initiatives with Loblaw, we have increased our guidance for 2025 FFO per unit to approximately CAD 1.06-CAD 1.07, representing year-over-year growth of approximately 3%-4%. With that, Rael, Niall, and I would be glad to answer your questions.

[Operator]

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question today comes from a line of Mark Rothschild from Canaccord. Your line is open.

[Mark Rothschild, Analyst at Canaccord]

Thanks, Anne. Good morning, everyone. It sounds like you're comfortable progressing with industrial development now, and I'm just curious your thoughts on undertaking new developments on larger mixed-use projects at a time when general residential development, especially in the condo market, is stopped or slowing. Projects take quite some time. Are you looking at advancing any of these projects now, or still do the numbers maybe just not work right now?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Hang on, it's Rael, I hope you're well. Look, I think the way we think about it is we're a long-term owner of real estate, and if you start one of these projects now, you're only going to deliver it in three or four years, and you're going to be leasing it up in a very different environment than we are today. Given we take that long view, our balance sheet's strong. There are quite a few available incentives at the moment that our team is working on trying to capture. We actually think we're going to be in a position to launch one of these in 2026 because we believe it's the right long-term investment. I don't know if you want to add anything else.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Yeah, just to add to that, Mark, there's been a progressive decline in costs that come down approximately 15% over the last couple of years. It is really improving the dynamics of how we're evaluating some of these performers. There is a lot of appetite in the market for new projects, so we think the schedules will improve as well. Overall, we're seeing a change in dynamics that I think could be accretive very quickly.

[Mark Rothschild, Analyst at Canaccord]

I guess, Rael, we should wait a little bit to hear your announcement on which project it is and what the plan is.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Yeah, so we hope to have something in the early plan of 2026.

[Mark Rothschild, Analyst at Canaccord]

Okay, great. I'll wait on that. Thanks so much.

[Operator]

Your next question comes from a line of Himanshu Gupta from Scotiabank. Your line is open.

[Himanshu Gupta, Director and Equity Research Analyst at Scotiabank]

Thank you and good morning. Your retail occupancy continues to be strong. Should we expect occupancies to be stable from here, or do you expect any uptick in the near term? At the same time, any pockets of softer leasing demand within the retail sector?

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Hi, Himanshu. It's Niall. Just to respond to that, on our retail going into Q4, we're expecting a little bit of growth in occupancy improving. In our industrial portfolio, we see occupancy improving as well.

[Himanshu Gupta, Director and Equity Research Analyst at Scotiabank]

Okay, that's fantastic. On the retail, thanks for the answer there. I mean, in the context of this, population growth has slowed down and GDP growth also slowed down, so it sounds like no pocket of weakness you guys are seeing.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

I'd say, look, there's a lot of catch-up from the immigration that has happened over the last number of years, and retail and residential and industrial are still trying to catch up with that, particularly in retail.

[Himanshu Gupta, Director and Equity Research Analyst at Scotiabank]

Okay, okay. That's fair enough. Thank you for that. Maybe my next question is on that Caledon industrial property. I mean, it sounds like you're making progress on that. 1 million sq ft of development on spec. Do you have a sense of what kind of tenant demand will be there for that kind of product?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Yeah, we're very encouraged by the responses we've been getting to RFPs. It's a mix of logistics, electronics. There's a lot of growth there. We're seeing build-to-suit as well as interest in our spec as well. There is a good variety there for us.

[Himanshu Gupta, Director and Equity Research Analyst at Scotiabank]

What kind of yields will you be underwriting on that project?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Similar yields that we've been achieving to date on our IPP portfolio. Our NLS project is transferring in the next quarter, and we expect to see yields similar to that.

[Himanshu Gupta, Director and Equity Research Analyst at Scotiabank]

Got it. Okay, thank you. Maybe just last question. I mean, on your Allied Properties, and I know it's a small part of the NAV. Any thoughts? If there's a distribution cut, what could be the impact on your FFO cash?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Yeah, look, Himanshu, I think just go back to what we've always said. We've always said that our view that the underlying real estate is great long-term real estate. We also recognize that office fundamentals are starting to improve. We don't need the capital right now. Look, we don't know exactly what the distribution cut is going to be until they officially announce it. It's not going to have a material impact on our business. Our business is strong, and we'll provide an update when we know the magnitude of the cut.

[Himanshu Gupta, Director and Equity Research Analyst at Scotiabank]

Got it. Fair enough. Thank you, guys, and I'll turn back.

[Operator]

Your next question comes from a line of Sam Damiani from TD Cowen. Your line is open.

[Sam Damiani, Equity Research Analyst at TD Cowen]

Thank you. Good morning, everyone. Certainly interested to see the retail shopping center development kick off in Nepean. I'm just wondering if, Niall, perhaps you could share a little bit of sort of thoughts about how you underwrote the opportunity and expected rents versus cost kind of yields. Is this an opportunity that has opened up just in the recent year, let's say, with the rise in market rents? Is this an opportunity that could really expand more so in a bigger way across the country?

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

I want to say, look, we have a number of opportunities for locations across Canada that we're working on for grocery stores and CRU. We are seeing rents improve. To underwrite it, look, they're in the, where they need to be for underwriting, so they're in the 50s. We'll give you more input when we talk to you in Q4.

[Sam Damiani, Equity Research Analyst at TD Cowen]

Okay. That's helpful. Maybe, Rael, I mean, since you guys have been acquiring these industrial outside storage assets over the last few years, the asset class has become more popular. Are you still seeing opportunities in that space to acquire going forward?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Sam, we haven't seen any real interesting new opportunities since we acquired the portfolio. I can tell you that numerous people have reached out to us to acquire portions of that portfolio at significantly higher values than we paid, which I think leads to your comment on the significant investor interest in the asset class.

[Sam Damiani, Equity Research Analyst at TD Cowen]

Okay, that's helpful. Just lastly, Mark asked about, I guess, residential construction. I look forward to, I guess, seeing some details when that's announced. Do you have any initial thoughts on the federal budget announced a couple of days ago and how that sort of impacts the way you look at building new rental residential in Canada?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Look, we've been digesting it as it's been coming out over the last couple of days. You can see that there's a lot of emphasis towards infrastructure, which we feel is very important for some of our very large master plan projects. We're not quite sure how the impact on DCs is going to be trickling down to the provinces and the municipalities. I think we're waiting for more information to come out. Build Canada Homes, we're waiting to see how that's going to work as well. I think there's more information to come out as the budget gets discussed over the next couple of weeks.

[Sam Damiani, Equity Research Analyst at TD Cowen]

That's great. I'll turn it back. Thank you.

[Operator]

Your next question comes from a line of Tal Woolley from CIBC Capital Markets. Your line is open.

[Tal Woolley, Executive Director at CIBC Capital Markets]

Hi, good morning. I was just wondering on the retail business where Loblaw is, where you're sort of terminating some of these leases or looking to downsize. Are they switching banners while they're doing it?

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

Hi, Tal. It's not necessarily them switching banners. I mean, they could. It's more they'll look at a store and say, "We have a store that's 150,000 sq ft-160,000 sq ft. Could we make the same amount or do the same sales on a smaller footprint of, say, 120,000 sq ft, 125,000 sq ft?" It is more of that. What happens is Choice will go out to the market and see if we can find a third-party tenant. Only when we do, we'll tell Loblaw we're okay for them to reduce the space. If we don't have a good third-party tenant, we would never let them reduce the store footprint.

[Tal Woolley, Executive Director at CIBC Capital Markets]

The interesting thing—oh, sorry, go ahead. Pardon me, Rael. Go ahead.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

No, I was just saying I will tell you that the interesting thing, and maybe Niall can also comment, is that our leasing team is saying that on the size that we're backfilling on the downsizings, there's really a lack of available space on the market. We have had really strong tenant interest in that space, which has been a positive to offer that space to tenants. Yeah, and maybe add that at ICSC, we had a lot of interest in our land bank and our opportunities. Trying to find large space is difficult for our tenants that are looking to grow in a number of sectors. Right-sizing is definitely a solution. Also, some of our new developments for Greenfield as well are providing opportunities for them too.

[Tal Woolley, Executive Director at CIBC Capital Markets]

Is there a theme on any of these? Is it a certain region or a certain size store that sort of predominates this group?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

No, I would not call it on a theme. I think we have done ones in Toronto, in Montreal, and in Alberta. I do not think it is a regional theme. That is opportunity as they as well refreshing the interior of their store, we work with them too.

[Tal Woolley, Executive Director at CIBC Capital Markets]

Okay. Perfect. That's it for me. Thank you.

[Operator]

Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Guiliano Thornhill from National Bank Financial. Your line is open.

[Giuliano Thornhill, Equity Research Analyst at National Bank Financial]

Hey, guys. Good morning, everyone. Just wondering on the 8.6% renewals with Loblaw, I'm just wondering what would be required to see this kind of reach the maximum and looking out further after 2027, kind of where is that trending?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Hi, it's Rael. Look, I think you have to understand this. Call it 45-ish leases rolling a year. The nature of our leases is that they can be no less than the expiry rent and no more than 10% growth. We actually think 8.5% is a really healthy lift given the nature of all the leases. We do not have yet visibility on 2027, and we are happy to share it when we have it. I think it would be very difficult to get to the maximum 10% because it would imply that every single lease is at least 10% below market when it is rolling. Remember, these leases were set in 2013 at market ramps.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Guiliano, just one thing to add is the geographic spread on these locations as well. It's across Canada and various markets.

[Giuliano Thornhill, Equity Research Analyst at National Bank Financial]

Right. Just going back to kind of Tal's line of questioning. Just how many more kind of opportunities do you think are for these larger developments? Where has kind of been the lack of grocery under construction in the country over the last little bit?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Look, I think one of our big competitive advantages is that we're working with Loblaw to say, "Where are you trying to expand, and how can we help you find land?" For example, just on the grocery side. We had announced, I think, one or two quarters ago that we were building, call it, six new grocery stores. I think in pretty much most cases, we're building additional CRU as well. I don't want to lean too much into where the locations are. I can tell you where the six are, but I don't want to lean too much into where the locations are of the future opportunities we're looking at with Loblaw. Niall can maybe just comment on where the, call it, the five remaining are.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

Look, currently, they're typically out west in Ontario.

[Niall Collins, COO at Choice Properties Real Estate Investment Trust]

As we go through and look at our pipeline, we think we're going to see more coming in from Quebec as well. We're seeing a national opportunity in Ontario, out west, Edmonton, Calgary, and some opportunities in Quebec that we're evaluating at the moment.

[Giuliano Thornhill, Equity Research Analyst at National Bank Financial]

Right. And then just lastly, there's a Conservatory Group that was kind of put up for sale recently. I'm wondering if any of the assets there kind of catch your interest within the portfolio.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Look, I think we've just signed the NDA to get access to the data room. Hopefully, there'll be something that fits our criteria, but nothing to share yet.

[Giuliano Thornhill, Equity Research Analyst at National Bank Financial]

Great. Thank you.

[Operator]

Your next question comes from a line of Pammi Bir from RBC Capital Markets. Your line is open.

[Pammi Bir, Managing Director at RBC Capital Markets]

Thanks. Good morning. Just on the lease termination income from Loblaw, just how many properties did that relate to? Secondly, just to clarify, has all of that, I guess, terminated space been released?

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

Sorry, it's Erin. It related to three properties, and we actually put in five different CRU tenants across those properties. It would be like a Dollarama, GoodLife, LCBO, and it has all been released. When we do these, they are released before we go ahead and do them.

[Pammi Bir, Managing Director at RBC Capital Markets]

Okay. All right. Should we, as we think about just looking ahead for 2026 and maybe even beyond, is this process likely to continue? Maybe at the similar sort of volume annually, or is this a bit of a unique period in terms of their right-sizing?

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

Yeah. I'd say we've had this for the last couple of years. I think there'll be a few in 2026 and maybe 2027. I wouldn't expect large volumes to continue. It'll all depend on tenant demand, market, and Loblaw looking at their stores and where they're renovating. We do have some in 2026.

[Pammi Bir, Managing Director at RBC Capital Markets]

Okay. And then just lastly, on the CAD 100 million of dispositions, I guess, after the quarter. What was sort of the range or the cap rate range on those asset sales? Maybe just if you could comment on the likelihood of further capital recycling next year.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Yeah. I think the average cap rate or the range was all close to a 7. So a 7 cap. As we said on the call, look, our balance sheet's in great shape. This year, we were unbalanced from a capital recycling point of view, i.e., purchasing more than we sold. We've done a significant number of transactions. I think we're in a position to continue to do that in future years as well.

[Pammi Bir, Managing Director at RBC Capital Markets]

Maybe as an extension to that, would that include perhaps monetizing some of the residential density as it gets zoned, or is that not really on the table at this stage?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

I think in this environment, it's tough at the moment. It's something we may consider in the future, but it's not really something we're considering at the moment.

[Pammi Bir, Managing Director at RBC Capital Markets]

Okay. Thanks very much. I'll turn it back.

[Operator]

Your next question comes from a line of Gaurav Mathur from Green Street. Your line is open.

[Gaurav Mathur, Analyst at Green Street]

Thank you. Good morning, everyone. Just one question on the disposition activity so far. Is it fair to say that there is a lack of liquidity now in the market compared to probably nine to 12 months ago as you were looking through your capital resettlement plans?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

No, look, I think from our standpoint, we wouldn't agree with that statement. We actually think for the product that we've been selling, there's been lots of liquidity. Even the portfolio that was roughly CAD 100 million, the average asset size was each CAD 25 million. The pool of buyers, it's deep, it's institutions, it's advisors, sometimes even it's a private individual. For the product we've been selling, we haven't seen a lack of liquidity.

[Gaurav Mathur, Analyst at Green Street]

By extension, would that also be applicable to the industrial market?

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Again, if you look at this, it hasn't been a lot of trading on the industrial market. I think in this past quarter, there were two significant trades. They were large assets with, from our point, seemed to have good liquidity on it too.

[Gaurav Mathur, Analyst at Green Street]

Okay. Thank you.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

I will share with you as well, I'll also share with you, when we sold the small-bay portfolio earlier in the year, there was strong investor interest and appetite for more of that as well, if we would be willing to sell more assets.

[Gaurav Mathur, Analyst at Green Street]

Thank you, Rael. I'll turn it back to the operator.

[Operator]

Your next question comes from a line of Sam Damiani from TD Cowen. Your line is open.

[Sam Damiani, Equity Research Analyst at TD Cowen]

Thank you. Just a quick follow-up on the Loblaw space that was given back and generated the lease surrender fees. That is all in respect of store downsizings. There were no stores completely closed. Is that correct?

[Erin Johnston, CFO at Choice Properties Real Estate Investment Trust]

That's correct, Sam.

[Sam Damiani, Equity Research Analyst at TD Cowen]

Thank you very much.

[Operator]

I will now turn the call back over to Rael Diamond, CEO, for some final closing remarks.

[Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust]

Thank you, Rob. As I mentioned at the start of our call, our portfolio and balance sheet are in excellent shape, and our team remains focused on achieving our growth objectives. Thank you all for your interest in Choice and for joining us this morning. We look forward to providing you another update on the business in a year.

[Operator]

This concludes today's conference call. You may now disconnect.

Participants

Analysts

• Giuliano Thornhill, Equity Research Analyst at National Bank Financial
• Himanshu Gupta, Director and Equity Research Analyst at Scotiabank
• Mark Rothschild, Analyst at Canaccord
• Gaurav Mathur, Analyst at Green Street
• Sam Damiani, Equity Research Analyst at TD Cowen
• Simone Cole, General Counsel and Secretary at Choice Properties Real Estate Investment Trust
• Niall Collins, COO at Choice Properties Real Estate Investment Trust
• Rael Diamond, President and CEO at Choice Properties Real Estate Investment Trust
• Pammi Bir, Managing Director at RBC Capital Markets
• Tal Woolley, Executive Director at CIBC Capital Markets
• Erin Johnston, CFO at Choice Properties Real Estate Investment Trust