Q3 2024 Artis Real Estate Investment Trust Earnings Call
Music Music Music Music Music Music Music Music Music Music
Constantine: Good afternoon, my name is Constantine and I will be your conference operator today.
Constantine: At this time, I would like to welcome everyone to the Artis Real Estate Investment Trust's third quarter 2024 results conference call.
Constantine: All lines have been placed on mute to prevent any background noise.
Constantine: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two.
Chadler Nikkel, you may now begin your conference.
Chadler Nikkel: Thank you, Operator. Good afternoon, everyone. Welcome and thank you for joining us for ArtistREIT's 3rd Quarter 2024 Results Conference Call. Our results were disseminated yesterday and are available on CDAR and on our website.
Chadler Nikkel: With me on today's call is ARTIS' President and CEO, Samir Manji, CFO, Jacqueline Koenig and COO, Kim Riley.
Chadler Nikkel: As we discuss our performance today, please note that the discussion may include forward-looking statements that involve known and unknown risks and uncertainties.
Chadler Nikkel: These risks and uncertainties may cause actual results to differ materially from those expressed or implied today. We have identified these factors in our public filings with the securities regulators and we suggest that you review those filings.
Chadler Nikkel: In addition, we may refer to non-GAAP and supplementary financial measures that are not defined under IFRS and are not intended to represent financial performance, financial position, or cash flows for the period, nor should these measures be viewed as an alternative to net income, cash flow from operations, or other measures of financial performance calculated in accordance with IFRS.
Chadler Nikkel: Throughout this discussion, all figures will be presented in Canadian dollars unless otherwise specified.
Speaker Change: Before we proceed I'd like to note that a replay of this conference call will be available until December 8th.
Speaker Change: You can access it by using the telephone numbers and passcode that were provided in yesterday's press release. Additionally, a recording will be made available on our website. I will now turn the call over to Samir to discuss ARGUS' third quarter results.
Samir Manji: Thank you, Heather. Good afternoon, everyone, and thank you for joining us for Artist Reap's third quarter earnings call.
Samir Manji: Let me start right off the top by saying that ARTIS's third quarter was a defining quarter for our unit holders, with our overall leverage reduced to 39.8%, and our AFFO payout ratio improved to 71%.
Samir Manji: These two points alone magnify the impact of the work that's been underway for the past several quarters.
Samir Manji: during which time we focused on our key objectives of strengthening our balance sheet and enhancing liquidity while at the same time continuing to work at executing our value investing strategy.
Samir Manji: This strategy by design will produce lumpy income that we believe will ultimately allow us to maintain our distribution while aiming to grow our net asset value in the long term.
Samir Manji: These objectives are critical to managing our risk profile while producing a positive long-term trajectory for artists as owners.
Samir Manji: We are seeing positive signs in the overall real estate sector with the Bank of Canada's recent policy rate cuts and the anticipation that further rate cuts could be coming in the months ahead.
Samir Manji: In order to achieve our internal leverage and liquidity targets, we continue to use the tools available to us, including asset sales, refinancing existing mortgages, and obtaining new mortgage financing.
Samir Manji: In the third quarter of 2024, we sold two office properties and a parking lot located in Canada, and 14 industrial properties and one office property located in the United States for an aggregate sale price of $616 million.
Samir Manji: This includes two significant portfolio sales, Park 890, a portfolio of industrial properties in the Greater Houston area that closed in July, and the Arizona and Minnesota industrial portfolio comprising nine properties that closed in August.
Samir Manji: The proceeds from these sales were used to reduce debt, primarily.
Samir Manji: At September 30, 2024, the REIT had one industrial property and two retail properties located in Canada and one industrial property located in the U.S. under unconditional sale agreements for an aggregate sale price of approximately $113 million.
Samir Manji: As part of our commitment to improving our balance sheet and reducing debt, our mortgage maturities continue to be a key area of focus for us.
Samir Manji: We've been working diligently and closely with our lenders on this important area of our business.
Samir Manji: At September 30th, we had $74.7 million of mortgage debt maturing during the remainder of 2024, and we have extension options in place for the entire balance.
Samir Manji: Subsequent to the end of the quarter, we extended the $150 million non-revolving credit facility to November 2024 and are in active discussions with lenders with respect to both this maturity and the maturity of the first tranche of our revolving credit facilities.
Samir Manji: We have a substantial pool of unencumbered assets in our portfolio and believe we can secure a new financing structure that is better aligned to artists' strategy and long-term goals.
Samir Manji: During the third quarter, our units, despite appreciating 25%, continue to trade at a material discount to our net asset value.
Samir Manji: From July 1st to September 30th, we used our normal course issuer bid to purchase 1,630,500 common units.
at a weighted average price of $7.30.
Samir Manji: and 149,868 preferred units at a weighted average price of $19.81.
Samir Manji: Under the current NCIB terms, we have purchased 4,975,324 common units representing over 70% of the maximum number of unit buybacks permitted under the term.
Samir Manji: The weighted average price for these units was $6.64 per unit, representing a discount of over 50% compared to our net asset value of $13.77 per unit at September 30th.
Samir Manji: to our efforts over the last several quarters, including asset sales and other capital management strategies.
We are pleased to report.
Samir Manji: that our debt to gross book value decreased to 39.8% at September 30, 2024 compared to 49.8% at June 30, 2024 and 50.9% at December 31, 2023.
Samir Manji: At September 30, 2024, artists had investments in equity securities of $100.2 million compared to $152 million at December 31, 2023. This includes equity securities of Dream Office REIT and First Capital REIT.
Samir Manji: including the impact of realized gains and losses on equity securities.
Samir Manji: FFO and AFFO per unit increased to $0.31 and $0.21, respectively, for the third quarter of 2024, compared to $0.25 and $0.13, respectively, for the third quarter of 2023, and we are very pleased to see our payout ratio drop to 71.4% of AFFO this quarter.
Samir Manji: As we have conveyed since establishing ARTiSTs' new strategy in 2021,
Samir Manji: We expect our income and correspondingly our FFO and AFFO metrics to be lumpy from one quarter to the next, and we anticipate that this will continue to be the case going forward.
Samir Manji: On August 2, 2023, ARDIS's board established a special committee to oversee a strategic review process to consider and evaluate alternatives available to the REIT to unlock and maximize value for unit holders.
Samir Manji: The work undertaken over the past 15 months has enabled us to properly assess the current environment and the board remains committed to evaluating and pursuing strategic alternatives that may be available to the REIT.
Samir Manji: Looking ahead, with improved leverage, our near-term debt maturities dealt with, and the benefit of lower interest rates, we are well positioned to explore growth opportunities that we believe will increase our net asset value per unit and narrow the gap between intrinsic value and the market price of our units.
Speaker Change: We look forward to providing further updates on some of the key initiatives we've highlighted in due course. I will now turn it back over to the operator to moderate the question and answer session.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Should you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2.
Speaker Change: If you are using a speakerphone, please make sure to lift your handset before pressing any keys.
Speaker Change: Your first question comes from the line of Jonathan Keltcher from TD Cowen. Please go ahead.
Speaker Change: Thanks, good afternoon. First question, Samir, and I guess this goes to the lumpy income, but you guys had $4.7 million of additional interest income that
Speaker Change: as the MD&A says, may or may not be recurring. What does that refer to and how can we think about it, whether it will be recurring or not?
Thank you. I'll let Jackie respond to that.
Speaker Change: Hi, Jonathan. We spoke about this one in the past as we've seen it previously in our quarters. Going forward, we aren't certain that it will recur, but this is additional interest accrued related to our IRS investment.
and what causes it to to come in.
Speaker Change: This would just be certain metrics surrounding the agreement related to that investment.
Speaker Change: So I guess on that investment, it looks like you guys can put the prep back to the JV early next year. Is that something you're considering?
I think that the
The plans related to Kominar are fluid and
Speaker Change: We're starting to see, as I mentioned in my comments, some positive momentum in the
broader real estate market and we think
Speaker Change: for Canadian real estate generally and we would say even specific to the core assets that we continue to own within the Cominar Consortium.
Speaker Change: that outlook looks reasonably positive. And so we're working through the 2025 plans with.
Speaker Change: the board of the consortium's board. And at this point, it's premature to comment on what our intentions are related to our PREP. I think it's gonna be contingent on a few different factors, including the other pieces of the capital stack.
Okay. Switching gears and congrats on getting your leverage down.
Speaker Change: actually passed, I think, passed the target you were aiming for, so that's good. But how does...
Speaker Change: How are you looking at dispositions going forward? Do you have a target size for your asset base? And at the end of your comments, you talked about growth opportunities. Maybe give us some color on what type of growth opportunities you guys might look at.
Speaker Change: Thanks. I don't think we have a definitive target number for our income producing properties. I think your question related to disposition activity
Speaker Change: Now that we have our balance sheet where we would like to see it in terms of both leverage, but also liquidity, there are a number of opportunities of differing forms.
that are in front of us that we are exploring.
We have a lot of
Speaker Change: flexibility, whether we want to acquire directly a property or group of properties, whether we want to acquire an interest in a property or group of properties in the form of a joint venture.
that artists would then be the managing partner in.
Those are a couple of options as it relates to...
Thank you.
Hard Assets
We continue to look at the broader public securities.
environment, and again, from a value perspective.
Speaker Change: identifying opportunities that we think could provide, on a risk-adjusted basis, better returns on our capital for our unit holders?
Speaker Change: and then we continue to have existing investments that you know we're we're continuing to manage and assess as we keep going and
You know the the outlook
Speaker Change: Again, there's a lot of optionality. Whether there could also be M&A in the future could be an interesting area as Artisa's unit price continues to strengthen and looking at the universe of other
Speaker Change: players in the market that may not have that same benefit and to see if there are scenarios out there where one plus one equals three and that again, on a risk adjusted basis, we'd be comfortable with. I think it's a full gamut.
Speaker Change: Jonathan, in terms of the spectrum of opportunities and areas where we're going to consider growth, and we're going to do it in a very thoughtful, strategic, and diligent manner.
Speaker Change: Okay, that's helpful. And the last one for me, just on the 300 main, where do you sit in terms of occupancy on that? How's the lease up going?
Speaker Change: I'll let Kim address that, but things are going very well at 300m. Kim?
Kim Riley: Thanks, Samir. Hi, Jonathan. So, yes, agreed with Samir. Things are going very well. We have...
Kim Riley: released phase 1 as we've talked about previously. We are over 90% occupied for that phase so we're very happy with that outcome and the second phase of the tower got released to the market.
Kim Riley: a few months ago. So we continue to lease up there. We're seeing great progress, lots of tours weekly, and things continue to progress really well.
Speaker Change: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, please press star followed by the number two.
Speaker Change: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.