Q2 2021 Artis Real Estate Investment Trust Earnings Call
Okay and.
And part of the next phase of our business transformation plan.
We've accomplished a lot since the announcement of our new strategy and March but theres still a lot of work to be done.
We continue to focus on identifying and optimizing operational efficiencies.
Both with respect to our portfolio of properties and internally as it relates to our policies procedures and realigning roles and responsibilities to support our new vision and strategy.
In June we published our annual ESG report and under the stewardship of our Chief operating Officer, Tim Reilly, we've taken significant strides towards prioritizing and enhancing our ESG initiatives, while determining how we can better serve our tenants and create value for our own R. O.
Owners.
We are pleased with what has been accomplished so far and we're confident in the strategy and the team we have in place at artists.
We look forward to continuing to demonstrate our ability to execute our plan and to deliver on our commitment to create long term value for our owners.
That concludes my remarks, I will turn it back to Heather to moderate our Q&A session.
Thank you for that.
Just as a reminder, if you'd like to ask a question. Please click on the right hand button at the bottom of your screen and you'll be placed in the queue and brought into the meeting when it's your turn.
There may be a momentary delay, while your audio and connecting and please remember to and mute their line at the appropriate time.
Okay. Our first question is from Jonathan and culture with TD Securities.
Jonathan you can go ahead.
Hi, good morning.
Okay.
First question just.
On the Toronto and industrial Y O Y was up 1 property dropped.
We had.
In the late stages of the process, we had a couple of technical related items that came up specific to 1 property that we're confident can be addressed but in collaboration or conversation with the buyer. We collectively agreed that we didn't want to delay closing and.
And it was best for us to simply remove that asset from the mix so as to stay with the timeline and the agreement that we had with the buyer so to wrap up by July 15th.
Maybe practical sense to remove the asset from the overall mix.
Okay.
And at any issues selling assets this year.
Okay.
And you talked about.
Having to do a special distribution and so the amount and form <unk>.
To be determined what what form could it take what are the different forms it could take.
I think the the practical reality is that.
It could it would likely be a cash distribution.
But there have been examples in the past where special distributions have taken in the form of units as you are aware Jonathan.
With then a consolidation of the units on the other and.
But we're still working through all of that and display will be able to report back towards the back end of the year.
Okay, and then I guess my and my last question you started buying securities this quarter and bought some more post quarter.
But didn't and say what they were so and our best and Youre not going to tell me now but at what.
And.
And at what level of investment as the board decided that.
Unitholders should know what the company is volume for what artist was by day.
And just in terms of the strategy with respect to investing and public securities and we're mindful of a number of factors at play there and under the guidance and stewardship of the board of trustees.
We intend to remain muted in.
Publicly declaring or disclosing the specific securities for obvious reasons, including.
The ability and we want to continue to have in the interest of unit holders of artists.
To be able to accumulate at optimal our prices and we wouldn't want to come out prematurely.
To disclose what we are acquiring <unk> and.
Knowing that there is a possibility that doing so could cause potential fluctuation in the price of <unk>.
The shares or units of the.
Investing.
Company and so I think for the time being 1 should anticipate that.
And in all likelihood, we would only come out and declare the name of a specific investment company.
And when we were required to.
From a regulatory perspective, and generally that would translate into us if at any point getting too.
A point, where we've crossed 10% ownership in net invested company 2 to then come forward and provide that disclosure I think generally once you make that assumption and it could change, but I think.
That would be my expectation.
Okay and so.
Now I'll share and paper and sandpiper buying alongside artists and this investment and it's the.
And your example.
2 entities combined that 10% aside from just caused or can and bulk quota and die.
And without it without.
And without disclosing anything.
Okay.
The first part of the question.
It'll vary.
<unk> to investment at the end of the day, we have a process that has been established with the investment committee of the board and.
<unk> for it as a whole to ensure that <unk>.
1 there is full disclosure and so far as.
Sandpipers involvement with any prospective investors and.
Entity, and secondly, and so far as the strategy that we choose to pursue on the artist front in some instances it would entail a co investment and and other instances it wouldn't will insure.
In that regard debt there is adequate disclosure.
Based on what has been agreed to between artists.
And and sandpiper.
Okay. So its sandpiper core investing in and this investment with artists.
Yeah.
Yes.
Okay is it a 50.50 or what's the and what's the split yes 50.15.
Okay.
And the 2 entities, you bought 36 or $37 million.
Sure.
Okay.
I think subsequent to quarter and Jonathan and there was a second investing company identified and so there there wouldn't be.
Separate breakdown net.
And would not relate just to the first investing company.
And in the second investing company.
There is not a co investment.
Agreement or arrangement in place.
Okay. Thanks, I'll turn it back.
Thank you.
Yeah.
Okay. Our next question is Mount Logan with RBC capital markets.
Okay.
Oh, sorry, just a minute here.
Right.
And.
Hello.
And.
Yes.
Ma'am. Please go ahead with your question.
And good morning.
In terms of the special distribution.
Can you tell us the taxable income and.
Inclusive of the recapture and the capital gains.
Okay.
I'm, not sure where and when.
And to provide those details, but I will pass for over to Jacky to see if she'd like to comment.
We have we're working with our advisors and the initial estimates and but again I don't think and we had that for detailed green to vehicles.
Yeah.
Okay, maybe changing gears in terms of your ire for us cap rate for your GTA industrial portfolio.
Can you talk about how that compares to the transaction cap rate.
For the deal because it seems like the IRS cap rate is a little bit higher than.
What we've heard or I've calculated and ourselves.
And can take now and that and.
And the cap rate that we discussed previously it was based on in place income the rates disclosed in our MD&A cable and are based on stabilized income and that factored in and increase and our in place rents and the corner.
And in comparison to our market rents.
And shake our Jackie.
In terms of the proceeds from that sale.
Lot of that seems to be allocated towards deleveraging do you have a specific leverage target for say year end 2021 year and 2022.
Sure.
We don't have a specific target what we had previously conveyed Matt was that there was a desire to see leverage.
Be well below 50% and.
We are certainly now sub 50 and on our way further down from where we are at quarter end.
I would say that more importantly, what this allows for as we had net presented in our March presentation on the go forward plan and strategy is.
Fortifying the balance sheet and providing us with.
Our strong level of flexibility financially to be able to pursue and explore investment opportunities and we think would provide significant above average risk adjusted returns and value creation for unit holders.
And last question for me is Jonathan asked about your level of disclosure with respect to public securities.
While you are not going to disclose until you hit a regulatory threshold is.
Is there a point, where the materiality of the securities investments.
And I don't know if thats in the tens of millions or hundreds of millions.
Is there a point, where you'd consider disclosing more to unit holders.
And it's a good question by the way I didn't cover 1 piece of Jonathan's earlier question related to whether that 10% threshold would be.
Artis alone or in situations, where there is a co invest with sandpiper.
It is the aggregate because in our view there would be.
Joined influence.
In light of the relationship between artist and Sandpiper. So if at any point on a specific investor.
Entity collectively we cross 10%.
Whether it would be required from a regulatory and security standpoint, or not we're going to take the more conservative approach and provide that disclosure and then Mac going to your question.
I think it's early days and we have $4.9 billion of assets a quarter and on our balance sheet and so with a $6 million line item at June 30th.
And even if that were to.
Go into the tens of millions of dollars I don't think from a materiality standpoint relative to our overall asset base.
And that would happen in the near term, having said that certainly if over a period of.
And number of years this were to become under the board stewardship and strategic direction.
And a larger proportion of the overall asset base. Then of course, you know that may change the thinking and methodology that we choose to pursue.
Appreciate the commentary I'll turn the call back thank you.
Okay.
Okay. The next question is from Mike Martinez with Dave and Dan.
Line keeping go ahead.
Yes, just wanted to and new Thank you Heather and then.
Good day to everybody and so I was just wondering it's been incredibly active while for the first of all you guys executed extremely rapidly and monetizing your GTA portfolio I know you've talked about wanting to monetize most of it and in some way shape or form and a relatively quick time manner and and south of the border we're seeing a tremendous.
Amount of activity both in terms of.
Entire portfolio sales and creation of funds.
Which seem to.
And my opinion.
Perhaps.
Disadvantage unit holders. So just wondering if you've been reviewing those transactions, which has seen and that has.
Influenced your strategy with respect to how you look at the U S industrial for oil.
Going forward. Thank you.
And Mike can you clarify how you made reference to being disadvantageous Tina.
And can you just expand on that.
Sure I would just make the comment that it would seem to me that.
Sales of complete portfolio is 100% interest seemed to be done at higher values lower cap rates better price per foot than perhaps some day.
And funds would.
Okay.
I'm not sure I am clear on the call on that point, but that's okay. I I'll simply make a quick comment and I'll pass it over to Phil to provide some additional color on the U S industrial market and which I think most are familiar with.
Our decision to.
Embark on.
The GTA industrial sale as part of that and critical first step in executing our go forward strategy and plan.
And we've spoken about previously and had a very strong motivation on our part to be able to as you noted.
Accelerating initially.
First set of steps we were taking.
From an implementation standpoint, and I think.
And as they say the rest of history I think we achieved a very positive outcome for the owners of the REIT and.
And we achieved a very solid outcome and so far is that objective of solidifying and fortifying the balance sheet and our liquidity position.
And that that affords us today incredible flat.
Flexibility, but also.
Firepower and.
To be able to explore and potentially capitalize on opportunities that surface and or are presented to us.
With a level of nimbleness and.
Yes.
Our strategic.
Benefit debt.
Should overtime, if were successful and allow us to achieve things that frankly.
I don't believe would otherwise be achievable.
And when it comes to that value investing scene that we've spoken about previously, but I'll I'll leave my comments to your question, there and I'll pass it over to Phil to talk about U S industrial.
It's a big topic and the <unk>.
There's a lot of markets right now that are very interesting to investors and 1 of the things that we have enjoyed a courses how the Phoenix market has moved up to the top 5 of overall interest we've seen some substantial amount of influx and demographics because of COVID-19.
And how different states respond to it has actually had quite as sumit impact on how industrials perceived in various markets.
Would say that being in Texas, and its been and Arizona, Colorado has been very good for us that isn't to say that Minnesota has any different Minnesota, we've had different.
Types of positive impacts, particularly with a certain buyer.
<unk> got a lot of space and allowing market rents be pushed up and that's emboldened us not only to raise their own rents there and make our portfolio that much more.
Profitable, but also we've also continued to like some you had mentioned 2.
Exercise our development arm, so to speak in that markets and yes, industrial or multifamily are very very strong throughout the U S and yet the appetite is strong we're seeing rent rates also matching D. What you're also probably hearing from the supply chain difficulties issues such as.
From a middle and some cases timber for industrial and wholesale installation and so we're happy to see that day.
The Mount of activity both in sales, but also and leasing are working well together.
And I can't really speak to overall and in.
Generalizations because for 1 utilization is and pump is at once so we're nonetheless very excited that we're focusing our development activities right now in Texas and <unk>.
Resona and Minnesota.
Okay, and I guess previous thank you for that and I guess previously you guys have talked about.
Can't remember exactly but I think you said you want to monetize or unlock the value and industrial portfolio within a fairly rapid timeframe.
So notwithstanding your comments and your about.
Being now having that flexibility to start executing on other elements of your plan.
What would you update in terms of the industrial portfolio, which should we still be expecting most of that to be disposed of within the next 6 to 12 months.
I think.
And thanks for clarifying that part of your question, Mike I don't anticipate that in the near term, we are going to be and any rush.
Having achieved the outcome that we did with 2 day GTA industrial sales and also we talked about nimbleness earlier, having also observed what even and the last few months post our March announcement, we have continued to witness, including what Phil just referenced.
We're going to.
Take our time going forward now that we've got.
Our close to $800 million and liquidity on our balance sheet.
We're going to take our time and be opportunistic in terms of both deployment of capital, but also in so far as a further significant dispositions there are smaller dispositions of a strategic nature that are underway.
And that will continue but and so far as large scale portfolio based divestitures that we.
Would be considering on a preemptive or proactive basis, that's not something we expect certainly not for the balance of 2021.
Okay. Thank you and last 1 and for me before I turn it back and realize there's still a lot of uncertainty and the office world, but it would seem that.
The U S is ahead of Canada and are reopening front and I was wondering.
If any of the artist scheme could compare and contrast, what they are seeing with respect to office leasing activity and the <unk>.
U S portfolio and Canada.
Sure I'll, let I'll, let Kim start with Canada, and then we will invite Phil to talk about the U S.
Thanks, Dan.
The other day.
Agree that the U S is ahead of Canada, but were catching up for vaccination rates are higher and so we're starting to see things open up honestly, Alberta has opened lineup and and Manitoba has followed recently on Saturday and I guess, we're announcing that we're removing or mass mandates and even the returns.
And the office. So the government is actually recommending that businesses get people back in the office and that's vacant E and I think that'll boost activity and it is relatively slow it's generally flow over the summer, but we're starting to see it pick up and.
But I think as we head into the fall so artis, particularly had a return to the office planned for September. So we're excited to get people back in the office and September and see activity pickup downtown and and the leasing market. So I think as and move into the fall, we'll see that activity pick up.
I'll turn it over to Phil to comment on what he's seeing and Nina.
Okay.
And the last I would say 6 to 8 months, yes, there's been a lot more activity in office for us leasing and also occupancy and our buildings.
We're now add another strange moment with this next surge and so there is and heightened caution and the last 2 weeks here and the U S. Overall.
Again, how states handle it has been very different.
And for example, the difference between Minnesota and Texas.
It's quite different and so we are watching that so far we are still seeing that for a larger tenants September 1 is still the goal to return to the office, we don't know currently whether or not and this.
Variant is going to delay that we won't be surprised if it does.
But we're watching that closely.
Not to say that and then we have had some good leasing done in the office markets and Phoenix and we're having.
Good activity, and Madison, and Minneapolis, as well and that and does include even and Minneapolis near CBD market. So.
Where and I am encouraged actually how busy this summer was beer also industrial but clearly also office and watch them very closely.
Oh.
Yeah.
Yes.
Michael just on mute and case, you're trying to if you have a follow up.
Thats It for me Mahindra lower thank you.
Thank you Mike.
Okay. There are no further questions at this time for well conclude todays webcast and do you have any further questions. After the current please don't hesitate to recap from New York, Danielle and thank you all for joining US we wish you a wonderful rest of your name.
Thank you.
Thanks.