Q3 2021 Artis Real Estate Investment Trust Earnings Call

To determine our taxable income were not in a position right now where we're able to kind of give a range on the special distribution.

Yeah.

Okay.

Some of them over to a question so far so I'll go one more.

I guess just on operations and I.

I guess this ones maybe for you Phil the U S. Same property NOI was was weak in the quarter can you maybe give us some some color on that and then your near term expectations for it.

Hey, Jonathan.

The hard thing with.

Measuring by quarter is bad you get a little snapshot snapshot and yet what we're seeing generally ways.

Decrease in the NOI came from an asset in north Scottsdale, and Thats temporary that we had two tenants in this particular asset one went to another one of ours. The other one left yet before they even left we had we signed the entire building.

And so this particularly new tender, which is a credit tenant will be taking the entire building, but that's only until June of 2022, So we have that asset handled.

Another asset is in Minneapolis.

And I can't yet report, but.

I'd like to at least make a comment about the quality of our leasing team in Minneapolis, both office and industrial as well as Madison Office and Phoenix Office, We've got a really great team and I'm looking forward to sharing some good news in the upcoming quarters on how some of those vacancies are being handled.

Suffice to say despite the concerns of the pandemic.

How it impacts our office users, we're seeing that some of the bigger users are coming off the sidelines and starting to make decisions and we're quite pleased I'm quite pleased right now on how our assets are.

Performing in that environment.

Okay.

So timing related I guess on the Phoenix, one and then.

Sure.

Okay.

That's helpful. Thanks, a lot I'll turn it back.

Okay.

Oh.

Our next question is from Matt Logan from RBC capital markets.

Thank you and good morning.

In terms of your investment in common all or at least the continuing entity.

You can't provide any details could you maybe speak to the type of assets that are in the continuing portfolio.

And you know some sort of general range on what sort of leverage the consortium plans to employ.

Hello.

We are not going to comment on financial metrics at this point, Matt, but again as I mentioned to John we will be happy to provide more details post transaction.

Yeah.

As it relates to the portfolio.

It has been disclosed the industrial portfolio.

Forward sold a portion of the office and retail have been committed.

That leaves us with <unk>.

Still a sizeable portfolio of.

And office assets in.

In our view a good quality assets that we look forward to owning and sorting.

With our consortium partners.

So would these be principally enclosed malls with some value add on the office side or how should we be thinking about kind of the.

The operating strategy for this entity.

Well if you if one knows that the details of the premier portfolio.

I imagine she can just go on mute, while I'm answering that that'll be helpful. I think for sound purposes. Thank you.

If you look at the overall portfolio of 310 assets.

It's already been noted that the industrial have been forward sold and that will reduce your asset base too.

Just south of 120, and then a portion of those 120 are being sold to group market and that leaves still a sizeable portfolio, which includes everything from value add.

Retail.

Which could include enclosed malls two office assets.

Sizeable portfolio, including the key portfolio at the backend of the transaction that.

Includes a mix of assets.

And on a go forward basis, what sorting.

<unk> do you think private investments such as this could make up perhaps as a percentage of your balance sheet.

I think it's difficult to say at this point, Matt. It's early days, we haven't even hit the one year Mark of.

Our business transformation plan announcement, and we feel.

Alongside our board of Trustees, we feel very good at the management team with what we've been able to achieve to date from an implementation and execution standpoint.

And the fact that we enjoy today the level of financial flexibility, we have on our balance sheet will allow us on behalf of our owners the unitholders to be opportunistic as we have been.

With E com and our <unk>.

Transactions to be able to pursue opportunities of varying degrees and we announced in our quarter.

The development in <unk>.

Blaine, which is a suburb of Minneapolis, while we were there a few weeks ago the entire.

Executive.

With Phil and.

These are these are opportunities and initiatives that we are both excited about but also confident are going to create and add significant value for our unitholders.

And with respect to the <unk> investment is that a transaction that will result in fees paid to sandpiper and if so what role did sandpiper has an underwriting that investment.

There are no fees that artists will be paying to sandpiper. The details of again the transaction.

Artists is ownership position Sandpipers ownership position, we will be happy to provide those details on the other side of the transaction and suffice it to say that.

Together artist and Sandpiper will have a meaningful ownership position.

In the new entity that will own commoner and alongside that ownership, but we will have meaningful role to play in the governance of the.

Private entity again, alongside our consortium partners at <unk> on Board.

And last question for me just on the disposition front, how should investors be thinking about the cadence of potential asset sales in Q4 and over the coming year.

As we as we conveyed in the last quarter call at this point.

We anticipate that.

Further dispositions in the near term, including Q4 will be.

At a single asset level opportunistic there is no near term intention to undertake a sizable portfolio disposition similar to what we did in the GTA with our industrial assets.

Yeah.

Okay I appreciate the commentary thank you very much I'll turn it back thanks, Matt.

Okay.

Okay. Our next question Thats kind of tomorrow.

CIBC capital market.

Okay.

Okay.

Thanks, Good morning.

I'm not sure I'll get Bob I, just wanted to ask about the comment on the transaction.

Wanted to just get more color on your broader I guess investment framework and philosophy and if he can.

Pinpoint where you're seeing the biggest value creation opportunity and any thoughts so far on returns and that whole period.

Thanks, <unk> and good afternoon, I think you prefaced your question appropriately we're not going to comment at this point on those sorts of details, but look forward to sharing some thoughts and context around those specifics and others that have been raised by.

Your.

Colleagues in the analyst community post transaction.

Okay, and then move to switch over to our current portfolio and I guess on the remaining industrial.

You don't have some decent footprint.

On a pad from cities in Houston, just given the demand what do you think other prospects for selling more industrial and the timeline for that.

Okay.

Again, we were very pleased with the.

Progress, we're making operationally on both sides of the border across the portfolio within each of our three asset classes.

And some IR you're right our industrial in particular as we know in the broader industry context is.

Where we're seeing the strongest demand and.

Commensurate results operationally and financially.

At this point again, there is there is no near term intention to do anything of a substantive nature on the M&A side with respect to disposing of.

Industrial assets.

Okay, and then can you give us an update on Hardie Calgary office sales are progressing.

We've we've been added for a couple of months now with respect to our five remaining Calgary office properties.

And while we have seen in.

Interest this is a market and an asset class within that market more specifically that we all know continues to face significant headwinds.

And so we are navigating that accordingly, and anticipate that we should be able to have.

Some transactions under our belt in Q4.

Otherwise that the balance will we.

Expect complete in Q1 2022.

And how is the pricing matching up against.

Your expectations on volume.

Again.

The market that.

Has faced significant challenges of <unk>.

<unk>.

These five assets.

<unk> represent a very small proportion of.

Of our overall asset base in fact less than 2% of our.

<unk>.

Our real estate portfolio.

Is.

Represented by these five properties and so whether we hit our IRS value or not.

We will not move the needle in any significant way when it comes to the <unk>.

Completion of these transactions.

Yeah makes sense. Thank you.

Thanks Helane.

Okay.

The next question is from Mario <unk> from Scotia capital.

Okay.

Yeah.

Alright. Good afternoon can you hear me okay.

Yes, Hi, Mario.

Alright.

Promise I will not ask a question on <unk>.

Wanted to focus a bit more initially coming back to the office market.

So Peter on highway to be the transitional nature of some of the weakness there in the U S.

The occupancy in Canada also came down by a similar amount quarter over quarter can you maybe talk to what youre seeing in the Canadian office market with respect to your portfolio.

When we can see those occupancy levels.

I can take that one area.

The Canadian portfolio that was really related to one property similar to the U S was just doing in Canada. It was just one so we saw a tenant vacate in Q3 for one office building that we own in Edmonton.

Subsequent to that we've been able to to release around 25% of it occupied before the end of the air So I would say as we come through the summer and the pandemic keeps dragging on.

Activity is picking up but it is it is slow and we're working hard to to lease vacancy as best we can as indicated by.

On the leasing that we did in this property so.

Data working market by market.

The leasing where we can and.

Hopefully it will pick up throughout the balance of the year as people get back to the office, we're starting to see activity pickup in Winnipeg in terms of.

Occupancy in our space. So we're optimistic that by early 2022 activity will start to pick up and we started to see some of those vacancies improvement.

Okay.

A capital allocation perspective, what are your kind of higher level holistic thoughts on office going forward coming out of the pandemic.

Coming out of work from home.

'twenty two is not an asset class, where you see yourself, adding capital different valuations or as an asset class, where you went to reduce exposure.

Thanks for the question Mario we post our GTA industrial portfolio.

Portfolio sale.

Did see as one can.

Do the math on an uptick in the representation office has in so far as overall proportion of our GLA.

Within our roughly 20 million square feet of operating assets.

And that is a ratio that we would like to see we brought down to where we were pre the GTA sale.

And if not even a bit lower.

Relative to our industrial and our retail assets.

So we certainly aren't going to see that ratio grow in the near term from a capital allocation standpoint, that's not our plan.

But on the country that we should see that reduce.

Over the next few quarters.

Okay, and then just maybe an associated broader question with the <unk> industrial portfolio, you showed a willingness to kind of so so.

Moving from very strong demand to be very good price.

Equity securities balances inching up quarter over quarter consistent with your business transformation plan when you sit back.

Without giving away any of your secret sauce, maybe.

When you look at our asset classes, where do you see the best risk adjusted return.

From a value perspective.

Well Mario I think we could ask you the same question along with your contemporaries, but.

That's that's not for today.

We'll save that for an offline conversation, but look I think we all know that.

Net industrial pure plays.

As it relates to the public security side in particular.

We're seeing incredible momentum and very strong a tailwind.

As is multifamily right behind that.

Whereas the diversified and then other.

Pure play asset classes are not seeing that same level of.

Momentum in.

Hence that's generally speaking where one probably could.

Identify opportunities that could represent a meaningful.

Value place or investment opportunities.

And then outside of that.

Public Securities.

I would say that.

At least in so far as our own.

<unk> experience as a management team and our board at artists.

Where we see.

Very compelling opportunities are in the.

The development.

Bucket and again, particularly as it relates to industrial.

We have a strong team in the U S. We were there visiting multiple markets.

Last month.

And in three of those markets as you know we've got sizable developments underway.

In greater Minneapolis in Houston, and in Scottsdale, and we'll continue to evaluate development opportunities, particularly as it relates to industrial.

From a capital allocation standpoint.

Okay.

Alright. Thank you for that question wasn't necessarily solely confined to the public markets just more so in terms of asset classes, whether it's public or private.

Presenting that sticks out in terms of looking pretty good and maybe just as a follow up.

Geographically go anywhere.

Is there anything that sticks out geographically through team that's more of a focus driven almost six months ago in terms of opportunities.

While Quebec, certainly is as you know and.

We are.

Beyond that we're not looking to venture as it relates to our direct property investments and developments, we're not looking to venture into any new markets, but instead to harness the booths.

Boots on the ground.

Since we have in existing markets, and again where opportunities surface that our team has.

As underwritten and believes represents an attractive opportunity from a capital allocation standpoint, we will continue to present those to our investment committee and our board for consideration.

My last question just going back to operations.

The budgeting process I'm sure are well underway for 2022 is there a return to organic same property NOI growth.

To achieve within the existing portfolio for 'twenty two.

I'll pass it over to Kim and Jackie.

Jack and I can jump in first so yes, we are completing the 2022 budgets right now we're kind of just getting through the end of that process.

Evaluating and we'll probably have more to report.

By the end of next quarter.

And Jack you have anything to add.

No I think that's a good representation of our at right now.

Okay.

Thank you for your time.

Thanks Mario.

Our next question is from Kyle Lisa.

Okay.

Okay.

Hey, guys have gone can everyone hear me.

Ken.

Thanks for taking my question.

So buyers along with a number of other retail investors now we've been following these near for quite some time.

Pre pandemic U.

We're meeting certain purchases through sandpiper, obviously consulting.

With sandpiper on artists in a number of purchases on the public market and you had mentioned that there were two companies in particular that haven't been declared so we presume that.

Those purchases haven't exceeded 10% of the total value of those companies. So I guess the question is.

Knowing that you've just said youre trying to lower the ratio of office to the other retail or the other.

Other asset classes.

Are you continuing to purchase those companies on the open market. We have one in mind that I won't I won't say here, but you've been you've had an interview in which you had said <unk> was considerably higher than it is trading at now. So we're wondering if if purchases will exceed that 10%. Because you you had said in the past that the idea.

Just to close that gap.

To net asset value and knowing that these that there are a few companies out there that are still trading at a significant discount is.

Is that still the game plan will you guys exceed that 10% threshold are you willing to disclose that information is that stuff that youre, keeping a pretty close to the chest.

Thanks, Kyle ill keep my comments limited to what we are focusing on at Artis.

From a.

Strategic standpoint, as it relates to our public security investing.

We.

Continue to evaluate opportunities with our investment committee and our board and where we believe.

It makes sense and represents an attractive and compelling.

Asian or opportunity for our unit holders again with the support and approval and direction of our investment Committee and board of Trustees, we will look to allocate capital accordingly, it could be to own a ownership position in an entity sub 10% and.

Where we cross the 10% we will disclose it accordingly at that time there is no.

At this stage.

Clear position, where we will or we will not look at owning greater than 10%. It really will be case by case and again.

In conjunction with the.

<unk>.

Direction of our board of trustees.

Thank you.

Our next question is from Mike Martinez.

Thank you Jordan.

Hi, there thank.

Thanks for taking my question.

Okay.

I apologize if I missed this but Samir I think you mentioned earlier that your intention was to get your office exposure back down to where it was pre.

Industrial sale and I'm just curious if when you think about your asset.

Allocation in that manner or the investments in securities and subsequent.

I guess the ownership structure is if it gets to that point of.

Viewed holistically in that light or are you simply referring to things where you have a direct.

Asset ownership interest.

Thanks, Mike that's a very important question.

The commentary that we provided earlier.

It was related to the 100% owned GLA within our portfolio.

And hopefully that helps clarify.

That does thank you very much.

Okay.

There are no further questions at this time, we will conclude today's webcast.

Has any further questions. After the call. Please don't hesitate to reach out to me or Sameer and thank you all for joining US we wish you have a wonderful rest of your day.