Primaris REIT's Strategic Asset Recycling and Balance Sheet Strength Position It for Long-Term Outperformance

In an era of persistently high interest rates, real estate investment trusts (REITs) face a dual challenge: maintaining capital efficiency while generating risk-adjusted returns. Among the sector's standout performers, Primaris REIT (TSX: PRM.UN) has distinguished itself through disciplined asset recycling and a fortress-like balance sheet. By strategically divesting non-core properties and acquiring high-quality assets, the company has not only mitigated refinancing risks but also enhanced its long-term value proposition. This analysis examines how Primaris's approach aligns with the imperatives of a high-interest-rate environment and positions it to outperform peers.

Capital Efficiency Through Strategic Asset Recycling

Primaris's 2025 asset recycling program exemplifies a rigorous focus on capital efficiency. By the end of Q3 2025, the company had generated $246.1 million in proceeds from dispositions, including the sale of industrial and retail properties in Ontario and Alberta according to the company's Q2 2025 announcement. These proceeds were reinvested into high-quality assets such as Lime Ridge Mall in Hamilton ($416 million) and Promenades St-Bruno in Montreal ($482.1 million) as reported in the Q3 2025 update. Such transactions have elevated the portfolio's quality, with pro forma same-store sales productivity reaching $800 per square foot-a metric that underscores the value of its retail assets according to the Q3 2025 announcement.

The strategic logic is clear: asset recycling allows Primaris to deprioritize low-yielding properties while acquiring assets with stronger cash flow potential. This approach has directly translated into operational gains. For instance, Same Properties Cash NOI grew by 5.5% year-to-date, driven by higher occupancy and rental rates. Meanwhile, funds from operations (FFO) per unit increased by 5.5%, reflecting the compounding benefits of disciplined capital allocation as noted in the Q2 2025 guidance.

Balance Sheet Resilience in a High-Cost Environment

A critical enabler of Primaris's strategy is its robust balance sheet. As of Q3 2025, the company reported $4.4 billion in unencumbered assets, ensuring flexibility to navigate refinancing cycles without immediate pressure as stated in the Q3 2025 announcement. Notably, no debt matures until 2027, insulating the company from near-term interest rate volatility according to the Q2 2025 guidance. This structural advantage is further amplified by a conservative 5.9x average net debt-to-EBITDA ratio and $617.6 million in liquidity, which provides ample capacity for future acquisitions or shareholder returns as reported in the Q3 2025 update.

In a high-interest-rate environment, such liquidity is not merely a buffer but a strategic asset. It allows Primaris to selectively pursue accretive opportunities while peers with stretched balance sheets face constraints. For example, the company's recent acquisition of Promenades St-Bruno was financed through a combination of disposition proceeds and existing liquidity, avoiding the need for incremental debt as detailed in the Q3 2025 announcement. This approach aligns with broader industry trends: J.P. Morgan Research notes that REITs with strong liquidity and low leverage are better positioned to capitalize on market dislocations.

Risk-Adjusted Returns and Industry Positioning

Primaris's performance must be assessed against the broader REIT landscape. In 2025, the sector faces a mix of headwinds and tailwinds. Elevated borrowing costs weigh on net lease and office REITs, while multifamily and industrial sectors benefit from supply constraints as reported in J.P. Morgan's research. Against this backdrop, Primaris's focus on retail and mixed-use assets-particularly in high-traffic urban centers-positions it to capture durable demand. Its portfolio's 94.2% committed occupancy in Q1 2025 according to the Q2 2025 guidance reflects the resilience of its tenant base, including anchor tenants like Hudson's Bay Company (HBC), despite recent lease disclaimers as noted in J.P. Morgan's analysis.

From a risk-adjusted return perspective, Primaris outperforms many peers. Its 4.0% dividend yield (as of November 2025) compares favorably to the sector average of 3.5%, while its 10.2% Same Properties Cash NOI growth in Q1 2025 according to the Q2 2025 guidance highlights operational momentum. J.P. Morgan forecasts that REITs with disciplined capital structures, like Primaris, will deliver 3% FFO growth in 2025, accelerating to 6% in 2026 as capital markets stabilize. The company's updated 2025 guidance-Cash NOI of $352–$357 million and FFO per unit of $1.78–$1.82 as reported in the Q3 2025 announcement-reinforces this optimism.

Conclusion: A Model for Long-Term Outperformance

Primaris REIT's strategic asset recycling and balance sheet discipline offer a blueprint for navigating the challenges of a high-interest-rate environment. By prioritizing capital efficiency, it has enhanced portfolio quality and operational performance while maintaining financial flexibility. In a sector where liquidity and leverage are critical differentiators, Primaris's conservative approach ensures it remains well-positioned to capitalize on future opportunities. As the REIT industry adjusts to a new normal, companies like Primaris-those that balance prudence with proactive reinvestment-will likely emerge as long-term outperformers.