Primaris REIT Q3 leasing momentum as profitability rises

Key Concepts

• Primis Reed: A company whose shares are trading lower despite positive outlook and guidance.
• 2025 Outlook & 2026 Guidance: Financial projections for future performance.
• Acquisition: The act of purchasing another company or assets.
• Same Property NOI Growth: Net Operating Income growth from existing properties.
• Occupancy Improvement: Increase in the percentage of leased space.
• Sales per Square Foot: Revenue generated per unit of retail space.
• Bricks and Mortar Retail: Physical retail stores.
• E-commerce: Online retail.
• CRU (Commercial Retail Units): Smaller retail spaces within a mall.
• Anchor Tenants: Large, well-known retailers that draw customers to a mall.
• Bank of Canada: Canada's central bank, influencing economic policy.
• Retail Sales per Capita: Average retail sales per person in a population.
• Aggregate Retail Sales: Total retail sales for a given period.

Primis Reed's Performance and Outlook

Primis Reed's shares are currently trading lower, despite the company's reaffirmation of its 2025 outlook and the release of 2026 guidance that projects steady growth. Alex Avery, CEO of Primaris, addressed investor concerns, stating that the market's reaction might be due to the company's recent large acquisition and the proactive guidance provided three weeks prior. He highlighted Primaris's track record of meeting or exceeding expectations.

Driving Success in the Mall Business

Despite skepticism surrounding the mall sector, Primaris has experienced remarkable internal growth over the past three to four years, recovering from a challenging decade. The company has achieved an average same property NOI growth of approximately 5% annually. Furthermore, Primaris has been active in acquisitions, having purchased over $1.5 billion in properties in 2025 so far.

Factors Fueling the Mall Resurgence:

• Overstated "Death of the Mall" Narrative: The challenges faced by malls were attributed to factors like the decline of major retailers (Target, Sears), the proliferation of e-commerce, and the pandemic. However, post-these challenges, it has become evident that bricks and mortar retail remains a crucial component of a successful retail strategy.
• Consumer Shopping Preferences: Consumers desire flexibility in how and where they shop, encompassing online, desktop, and in-person experiences. Retailers recognize the necessity of a physical presence.
• Occupancy Improvements: Primaris has seen a significant occupancy improvement of 700 to 800 basis points over the last few years.
• Record Sales and Rising Rents: Sales in Primaris malls have reached all-time highs as of September, with rents also increasing.
• Strong Demand for Retail Space in Canada: A decade-long period with minimal new retail space construction, coupled with population growth, has created a distinct shortage of retail space in Canada.

Managing Acquired and Vacated Spaces

Primaris has recently acquired several spaces, including those previously occupied by HBC. The demand for these spaces has exceeded expectations.

Leasing Successes:

• HBC Spaces: The company announced nearly half a million square feet of leasing activity. Following HBC's bankruptcy in March 2025, Primaris regained five of ten Bay locations in June. More than half of this space has already been leased.
• St. Bruno Acquisition: An additional Bay location was acquired with the St. Bruno acquisition earlier this month.
• Upcoming Vacancies: Primaris will regain five more Bay locations at the end of November, for which extensive discussions and plans are already underway.

Leasing Strategies:

The strategy for utilizing these spaces depends on the specific mall's needs and retailer interest.

• Large Single-Tenant Retailers: In some cases, large retailers are willing to occupy entire large, single-floor or two-floor spaces. These retailers often invest their own capital into renovations and enhancements, which is economically beneficial for the landlord.
• Carving Up Large Spaces into CRUs: For smaller malls with high demand from multiple retailers, large box spaces are often divided into CRUs (Commercial Retail Units). These smaller stores typically command significantly higher rent per square foot, leading to better returns for Primaris, despite requiring additional investment.

Economic Outlook and Retail Sensitivity

Regarding the Bank of Canada's cautious stance on the economy for the upcoming year, Alex Avery acknowledged the perceived economic sensitivity of retail and malls. However, he emphasized that from a landlord's perspective, the shortage of space is a more critical dynamic.

Key Economic Observations:

• Retail Sales per Capita vs. Aggregate Sales: While retail sales per capita have declined in Canada over recent years, aggregate retail sales have continued to climb due to population growth.
• Sales per Square Foot Growth: On a per-square-foot basis, Primaris has seen consistent growth in sales, reaching all-time highs.
• Rent Growth Potential: Current rents as a percentage of tenant sales are significantly below historical averages. This indicates that even if sales were to stabilize, Primaris has substantial room to increase rents in the coming years.

Conclusion

Primaris Reed is navigating a dynamic retail landscape with a strategy focused on leveraging the fundamental demand for physical retail space in Canada. Despite broader economic uncertainties, the company's strong performance in occupancy, sales, and strategic acquisitions, coupled with a clear path for rent growth, underpins its positive outlook. The CEO, Alex Avery, conveyed confidence in the company's ability to capitalize on the current market conditions, particularly the shortage of retail space.