Choice Properties Real Est Invstmnt Trst Q1 Earnings Call Highlights

First Capital acquisition: Choice and partner KingSett agreed to buy First Capital REIT for about CAD 9.4 billion, with Choice expecting to acquire roughly CAD 5 billion of First Capital’s retail assets and calling the deal a rare, strategic opportunity to strengthen its portfolio.

Operational strength: Portfolio occupancy stayed resilient at 98.1% (retail 97.9%, industrial 98.6%), with average leasing spreads of 21.8% driving same‑asset cash NOI growth of 3%.

Financials and outlook: Q1 FFO was CAD 196 million (CAD 0.271/unit, +2.7% YoY) and IFRS NAV rose to CAD 14.53/unit; excluding the First Capital deal, Choice reiterated guidance for 2–3% same‑asset cash NOI growth and diluted FFO/unit of CAD 1.08–1.10 for the year.

Choice Properties Real Est Invstmnt Trst (TSE:CHP.UN) executives highlighted resilient occupancy, strong leasing spreads, and steady same-asset NOI growth during the REIT’s first-quarter 2026 earnings call, while also revisiting a recently announced “transformational” acquisition involving First Capital REIT.

First Capital acquisition framed as rare, strategic opportunity

President and CEO Rael Diamond opened by returning to a major transaction announced two weeks earlier. On April 16, Choice Properties and partner KingSett Capital agreed to acquire First Capital REIT for approximately CAD 9.4 billion. At closing, Diamond said Choice expects to acquire roughly CAD 5 billion of First Capital’s retail assets, with KingSett acquiring the remaining assets.

“Opportunities to acquire assets of this quality and scale are extremely rare, especially those that align so closely with our strategy,” Diamond said, adding that the acquisition “further strengthens our portfolio and solidifies Choice as Canada’s leading REIT.” Management said it will provide updates on the transaction’s progress throughout the year.

Occupancy steady, leasing spreads drive same-asset NOI growth

Diamond said first-quarter portfolio occupancy remained “resilient” at 98.1%, supported by “exceptional renewal activity” and average leasing spreads of 21.8%, which contributed to same-asset NOI growth of 3%. He said the REIT saw “healthy activity in both retail and industrial,” while continuing to backfill retail space and drive industrial growth at near-full occupancy.

In retail, Choice reported 97.9% occupancy, with 364,000 square feet of renewals and 97,000 square feet of new leasing completed during the quarter. Retail renewal spreads were 17.2%, led by Atlantic and Ontario regions, and management noted that results were influenced by one renewal. Diamond said the spread was “primarily driven by a 28,000 sq ft renewal,” described as the first market renewal in 15 years for that tenant, which had been paying below-market rents. Excluding that renewal, the average retail spread was 13.2%.

Retail retention was 75.8%, which Diamond attributed largely to the early termination of two Toys “R” Us locations and a separate strategic termination already backfilled at higher rents, totaling about 50,000 square feet. Excluding these terminations, he said retention would have been about 85%. Diamond added that more than half of the space vacated in the quarter already has committed deals expected to commence later this year, and Choice is in “advanced leasing discussions” to backfill former Toys “R” Us locations.

Value creation initiatives highlighted, including Bloor and Dundas repositioning

Management also discussed retail value creation activity, including a redevelopment-related repositioning at Bloor and Dundas. Diamond said Loblaw vacated 90,000 square feet of warehouse space in a former Zehrs in March, and Choice is repositioning the property to introduce a new Shoppers Drug Mart and a GoodLife alongside Loblaw’s investment in a No Frills conversion.

Diamond said the initiative is expected to generate approximately CAD 2 million of incremental NOI at stabilization in the second half of 2027 and create about CAD 25 million of total incremental value. He added that the revitalization does not introduce additional lease encumbrances that would affect longer-term redevelopment plans.

In the Q&A, SVP of Leasing and Operations David Muallim said the uplift at Bloor and Dundas is driven by new tenants coming into space that had been used temporarily. “Loblaw was essentially paying a gross rent to use the space for storage on a temporary basis,” Muallim said, adding that it was backfilled with Shoppers and GoodLife.

Muallim also addressed how Loblaw “right-sizing” transactions are structured, saying new third-party tenants pay market rent and that a termination payment from Loblaw “factors in the leasing cost and any differential between the in-place rent that Loblaw is paying and the market rent the new tenant is paying.”

Industrial remains near full, large-bay GTA supply tightening

In industrial, Diamond said quarter-end occupancy was 98.6%. The REIT completed 103,000 square feet of renewals at a 46.2% spread, driven primarily by Alberta and Atlantic portfolios. Industrial retention was 56.6%, which Diamond said was largely due to a 73,000 square foot non-renewal in Edmonton where Choice could not accommodate the tenant’s growth requirements.

Choice also completed 24,000 square feet of new leasing in Alberta and Ontario at rents about 40% above average in-place rates, Diamond said. In the Greater Toronto Area, he pointed to a tightening supply of high-quality, large-bay industrial space and said that as Choice advances the next phase of Choice Caledon Business Park, the REIT expects to be “one of the only available options” for new space over 750,000 square feet in the market next year.

Muallim told analysts that given retail market strength, Choice anticipates “strong leasing spreads,” but expects spreads in the “low double-digit range” over the remaining quarters, noting some renewals are tied to fixed rates in older leases.

FFO rises, NAV edges higher; outlook reiterated excluding acquisition impact

Chief Financial Officer Erin Johnston reported first-quarter funds from operations of CAD 196 million, or CAD 0.271 per diluted unit, up 2.7% year over year. Johnston said the increase was driven by total cash NOI growth of 4.2%, including contributions from same-asset growth, net acquisitions, new development, and higher lease surrender revenue. Offsetting factors included lower investment income, higher interest expense from refinancing activity, higher G&A, and lower fee income.

Johnston said results included non-recurring items, including approximately CAD 1.9 million of incremental lease surrender revenue compared to the prior year and CAD 3.2 million of lower investment income tied to Allied’s distribution reduction. Excluding these items, she said FFO per unit growth was approximately 3.5%.

Adjusted funds from operations were CAD 0.247 per unit, down 0.8% from the prior year, as higher maintenance capital spending—described as “largely timing related”—offset FFO growth. The AFFO payout ratio was 78%.

Same-asset cash NOI increased CAD 7.5 million, or 3%, year over year. Retail same-asset cash NOI rose CAD 6 million (3.2%), industrial increased CAD 3 million (6.2%), and mixed-use/residential declined by roughly CAD 1.5 million (15.4%) primarily due to a prior-year property tax incentive.

Choice reported IFRS net asset value of CAD 14.53 per unit, up about CAD 67 million, or 0.7%, from year-end. Johnston said the increase reflected a CAD 51 million net contribution from operations and a CAD 66 million net fair value gain on investment properties, partially offset by a CAD 49 million fair value loss on Choice’s investment in Allied Properties, which is marked to market each period under IFRS. The fair value gains on investment properties were “primarily driven by our retail portfolio,” including cap rate adjustments in Ontario, Quebec, and British Columbia supported by external appraisals and leasing outcomes, she said.

On leverage and liquidity, Johnston said Choice maintained an “industry-leading balance sheet,” with about CAD 1.6 billion of available liquidity and approximately CAD 14 billion of unencumbered properties. Debt to EBITDA was 7x, unchanged from year-end, and she said there were no material financing activities or debt maturities in the quarter.

Johnston also detailed development completions: two retail intensifications totaling 22,000 square feet at a blended 8.9% yield, including a 17,000 square foot Shoppers Drug Mart in Renfrew, Ontario (7.5% yield) and a 5,000 square foot land lease to a QSR tenant in Ottawa (42% yield).

Looking ahead, Johnston reiterated the REIT’s outlook while excluding the uncertain timing and financial impacts of the First Capital transaction. Choice expects stable occupancy, same-asset cash NOI growth of 2% to 3%, and diluted FFO per unit of CAD 1.08 to CAD 1.10 for the year. She said earnings growth is expected to “moderate slightly over the next two quarters” due to lapping acquisition-related favorability, the timing of lease surrender revenues, and Allied’s distribution reduction, but added the company remains on track for its full-year outlook.

In response to analyst questions, management said lease surrender revenue in 2026 is “primarily related to Loblaws right sizings consistent with prior years,” with most of it expected in Q3 and Q4. Muallim said Choice is planning for about four Loblaw right-sizing locations in 2026, and that a roughly 30,000-square-foot reduction is “fairly standard,” depending on the site.

Diamond told analysts that acquisition activity outside the First Capital deal is expected to be “very light” this year, though Choice may do “some small trimming” prior to closing. On potential synergies tied to the First Capital portfolio, Johnston said initial FFO guidance included incremental costs to scale the platform, including added corporate personnel and an incremental leasing team, but the REIT has “not modeled in any incremental synergies related to platform.” Diamond added Choice is viewing it “more as an asset transaction.”

Diamond closed by saying the business and portfolio remain “in excellent shape,” and the company expects to provide another update this summer.

About Choice Properties Real Est Invstmnt Trst (TSE:CHP.UN)

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.