Primaris REIT: A Strong Q2/24 Performance and Increased FFO Guidance

Primaris Real Estate Investment Trust (Primaris REIT) (TSX: PMZ.UN) recently announced its financial and operating results for the second quarter ended June 30, 2024, showcasing a strong performance and increased FFO guidance. The company's robust financial health and strategic acquisitions have contributed to its growth and financial stability. This article will delve into Primaris REIT's Q2/24 performance, key drivers behind its increased FFO guidance, and the role of acquisitions in its growth and financial stability.



Q2/24 Financial Performance

Primaris REIT reported a total rental revenue of $120.0 million in Q2/24, an increase from the $119.2 million reported in Q1/24 and $110.5 million in Q4/23. The company achieved a +1.3% Same Properties Cash Net Operating Income (Cash NOI) growth, an improvement from the +2.0% growth in Q1/24 and +0.8% growth in Q4/23. Primaris REIT's FFO per average diluted unit grew by +6.8% to $0.422, compared to +5.2% in Q1/24 and +3.5% in Q4/23. The company's committed occupancy increased to 94.4% in Q2/24 from 94.1% in Q1/24 and 93.0% in Q4/23. Primaris REIT achieved a +6.8% weighted average spread on renewing rents across 178,000 square feet in Q2/24, an improvement from the +7.4% spread in Q1/24 and +5.5% in Q4/23.

Key Drivers Behind Increased FFO Guidance

Primaris REIT's increased FFO guidance for 2024 is driven by several key factors:

1. Strong performance of 2023 shopping centre acquisitions: The outperformance of the 2023 shopping centre acquisitions has contributed significantly to the increased FFO per unit guidance for 2024. These acquisitions have been successfully integrated into Primaris' larger national footprint and platform, increasing relevance with both existing tenants and new-to-market retailers.
2. Rising occupancy and rent growth: Primaris REIT has experienced rising occupancy across its portfolio, driving higher recovery ratios and strong leasing spreads. This is evident in the +1.3% Same Properties Cash Net Operating Income (Cash NOI) growth and +5.9% Same Properties shopping centres Cash NOI growth excluding contributions from property tax recoveries from prior years.
3. Robust financial health of tenants: Primaris REIT has reported very good visibility into the performance of a wide network of stores across many retailers and banners, nationwide. The financial health of tenants continues to be quite favourable, with robust dialogue with tenants looking for new and expansion opportunities.
4. Differentiated financial model: Primaris REIT's differentiated financial model, represented by low leverage, a low payout ratio, and significant free cash flow, positions the company very well with excellent financial capacity for opportunities in the market. The company has access to significant liquidity, with unencumbered assets of $3.3 billion, full availability on its $600 million operating line, and no remaining debt maturing in 2024.
5. Acquisitions and dispositions: Primaris REIT has been actively engaged in discussions with prospective counterparties for further acquisitions and dispositions, continuing to build its portfolio of leading enclosed shopping centres in Canada. The company has also completed the sale of Garden City Square, an open air, non-grocery anchored property, for $31.0 million.

Acquisitions Contributing to Growth and Financial Stability

Primaris REIT's acquisition strategy plays a significant role in its growth and financial stability. The company focuses on acquiring leading shopping centres in growing mid-sized markets, which aligns with its mandate for growth and its differentiated financial model. By targeting high-quality assets in growing markets, taking advantage of market conditions, reducing competition, and maintaining a strong financial position, Primaris REIT has been able to expand its portfolio, enhance its financial performance, and create value for its shareholders.

In conclusion, Primaris REIT's strong Q2/24 performance, driven by rising occupancy, rent growth, and strategic acquisitions, has contributed to its increased FFO guidance for 2024. The company's differentiated financial model, robust financial health of tenants, and acquisition strategy have all played a role in its growth and financial stability. As Primaris REIT continues to execute on its strategic plan, investors can expect the company to maintain its strong performance and create value for shareholders.