A year after Primaris REIT was spun off as a separate publicly traded entity by its former parent H&R REIT, chief executive officer Alex Avery offered up a long list of accomplishments for his fledgling retail trust.

“We closed an $800-million acquisition concurrent with the spin-out,” Avery told RENX, adding he's proud of the progress that has been made.

“We onboarded 100 new employees. We created a public company reporting template from scratch that investors really like. We got an investment-grade credit rating. We issued $350 million worth of unsecured bonds.

“We bought back four million units at a more than 30 per cent discount to NAV. We increased distributions two-and-a-half per cent. 

“All of those things were pretty significant accomplishments for a REIT that was brand new, and the market responded. We delivered a 22 per cent total return, which was just about 40 percentage points ahead of what the TSX REIT Index delivered.”

Primaris (PMZ-UN-T) also recorded 10.3 per cent same property cash net operating income growth through the first nine months of 2022, while its committed occupancy rate rose to 91.7 per cent with positive leasing spreads during the third quarter of the year.

Increasing investor interest

All of these things have led to a growing volume of calls from institutional investors interested in Primaris, according to Avery.

Primaris owns and manages 22 enclosed shopping centres and 13 unenclosed shopping centre and mixed-use properties. The portfolio totals 10.9 million square feet and is valued at approximately $3.2 billion at Primaris’ share.

Primaris has a market cap of $1.5 billion. Its share price closed at $14.97 on Feb. 23, on the higher end of the scale between its 52-week low of $11.93 and high of $16.38.

Avery said the Canadian mall business is coming off of seven difficult years, which has resulted in depressed rents, occupancies and values. He believes, however, that “there's a lot of runway for improvement over the foreseeable future in the next few years, if not longer.”

Avery said Primaris also has the lowest leverage in the sector by a wide margin, as well as a low payout ratio, which contributed to enabling the REIT to increase its distribution at the end of 2022. The plan is to keep increasing it on an annual basis.

More acquisitions are expected this year

While bid-ask spreads for other asset classes have been widening over the past year, slowing deal activity, Avery said there’s been a modest increase in retail property transaction volumes of late and he expects to see more in 2023.

Things have been quiet on the acquisition front for Primaris since it purchased six shopping centres and two related properties from Healthcare of Ontario Pension Plan (HOOPP) for $800 million following the spin-off from H&R.

Avery said there are discussions with a number of parties regarding potential acquisitions and he’s optimistic about executing on some of them this year.

Avery said unenclosed shopping malls performed well through the COVID-19 pandemic, with few tenant fallouts and little downward pressure on values, rents or occupancies.

It was a different story with enclosed malls, which were ordered closed by governments due to public health concerns.

“That had a dramatically different impact on the tenant base and the investment appetite that institutional investors had for the property type and that led to depressed valuations,” Avery noted.

Intensification opportunities

Primaris has received final approval from the City of Toronto regarding the development of four acres of land north of its Dufferin Mall property.

The fully entitled, zoned and severed Dufferin Grove site is close to the Dufferin subway station and can support 1,300 residential units.

There have been preliminary talks with a number of developers interested in the site, according to Avery, but there’s no rush to sell.

“We've got a fabulous balance sheet and time on our side,” Avery said. “We love it and I think someone will love it as much as we do. When the time is right, we'll find that partner.”

Primaris has a number of other intensification opportunities throughout its portfolio, including Orchard Park in Kelowna, Place d’Orleans in Ottawa and Marlborough Mall and Sunridge Mall in Calgary.

Its primary focus remains on acquiring and managing shopping centres, however.

“There are residential intensification opportunities, but that's really not our wheelhouse,” Avery said.

“So we’ll look for partners who can either entirely acquire those properties from us or joint venture in some form.”