Q4 2024 Artis Real Estate Investment Trust Earnings Call
Operator: Good afternoon, my name is Joelle and I will be your conference operator today.
Good afternoon. My name is joelle and I will be your conference operator today at this time I would like to welcome everyone to the artist Real estate investment Trust fourth quarter, 2024 result conference call.
Operator: At this time, I would like to welcome everyone to the Artis Real Estate Investment Trust fourth quarter 2024 result conference call. All lines have been placed on mute to prevent any background noise.
All lines have been placed on mute to prevent any background noise. After the speaker's remark there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
Operator: After the speaker's remark, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you.
If you would like to withdraw your question. Please press star two.
Thank you.
Heather Nikkel: Heather Nikkel, Senior Vice President, Investor Relations and Sustainability. You may begin your conference.
Speaker Change: Heather Nicholls senior Vice President Investor Relations and sustainability you may begin your conference.
Heather Nikkel: Thank you, operator. Good afternoon, everyone. Welcome, and thank you for joining us for ArtisREIT's fourth quarter 2024 results conference call. Our results were disseminated yesterday and are available on CDAR and on our website.
Heather Nicholls: Thank you operator, good afternoon, everyone welcome and thank you for joining us for artist REIT fourth quarter 2024 results conference call. Our results were disseminated yesterday and are available on SEDAR and on our website with me on today's call is artist as President and CEO, Samir Monte CFO, Jacques <unk> and T O.
Heather Nikkel: With me on today's call is Artis' President and CEO, Samir Manji, CFO, Jaclyn Koenig, and COO, Kim Riley. As we discuss our performance today, please note that the discussion may include forward-looking statements that involve known and unknown risks and uncertainties. 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.
All right.
Heather Nicholls: As we discuss our performance today. Please note that the discussion may include forward looking statements that involve known and unknown risks and uncertainties.
Heather Nicholls: These risks and uncertainties may cause actual results to differ materially from those expressed or implied today.
Heather Nicholls: We have identified the factors in our public filings with the securities regulator regulators and we suggest that you review those filings.
Heather 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.
Heather Nicholls: In addition, we may refer to non-GAAP and supplementary financial measures that are not defined under ifr F and are not intended to represent the 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 I F. R. S.
Heather Nikkel: Throughout this discussion, all figures will be presented in Canadian dollars unless otherwise specified.
Heather Nicholls: Throughout this discussion all figures will be presented in Canadian dollars unless otherwise specified.
Heather Nikkel: Before we proceed, I'd like to note that a replay of this conference call will be available until April 7th. 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.
Heather Nicholls: Before we proceed I'd like to note that a replay of this conference call will be available until April 7th you can access it by using the telephone numbers and pass code that were provided in yesterday's press release.
Heather Nicholls: Finally, a recording will be made available on our website.
Samir Manji: I will now turn the call over to Samir to discuss Artis' fourth quarter and 2024 annual results. Thank you, Heather. Good afternoon, everyone, and thank you for joining us for ArtisWeek's fourth quarter and 2024 annual results conference call.
Heather Nicholls: I will now turn the call over to Samir Kid discuss artist as fourth quarter and 2024 annual results.
Samir Kid: Thank you Heather good afternoon, everyone and thank you for joining us for artist REIT fourth quarter and 2024 annual results conference call.
Samir Manji: 2024 was a year of significant change for artists. We're pleased with what we accomplished during the year despite the significant headwinds faced by artists and the real estate sector as a whole. Our primary objective has been to strengthen our balance sheet and enhance liquidity, while at the same time continuing to execute our value investing strategy. These balance sheet and liquidity objectives are critical to managing our risk profile while creating a positive trajectory for Artis' owners over the long term. As we've mentioned on prior conference calls, this strategy by design will produce lumpy income. We believe it will ultimately allow us to maintain our distribution while aiming to grow our net asset value in the long term.
Samir Kid: 2024, it was a year of significant change for artists.
Samir Kid: We're pleased with what we accomplished during the year.
Samir Kid: The significant headwinds faced by artists and the real estate sector as a whole.
Yeah.
Samir Kid: Our primary objective has been to strengthen our balance sheet and enhance liquidity while at the same time, we're continuing to execute our value investing strategy.
Samir Kid: These balance sheet and liquidity objectives are critical to managing our risk profile, while creating a positive trajectory for artists as owners over the long term.
Samir Kid: As we've mentioned on prior conference calls this strategy by design will produce lumpy income.
Samir Kid: We believe it will ultimately allow us to maintain our distribution, while aiming to grow our net asset value in the long term.
Samir Manji: In the fourth quarter, we sold an office property and a parkade in Canada. Altogether in 2024, we were able to sell seven office properties, seven retail properties, one industrial property, two parking lots, and a parcel of development land located in Canada, and 14 industrial properties, along with three office properties located in the United States for an aggregate sale price of $972.9 million. Subsequent to the end of the year, we sold two industrial and two retail properties in Canada for an aggregate sale price of $70.2 million. Successful execution of our disposition strategy has been a critical component of our overall debt reduction goal.
In the fourth quarter, we sold an office property and a parkade in Canada.
Samir Kid: Altogether in 2024, we were able to sell seven office properties.
Samir Kid: <unk> retail properties, one industrial property, two parking lots and a parcel of development land located in Canada.
Samir Kid: And 14 industrial properties, along with three office properties located in the United States for an aggregate sale price of $972 9 million.
Samir Kid: Subsequent to the end of the year, we sold two industrial and two retail properties in Canada for an aggregate sales price of $72 million.
Samir Kid: Successful execution of our disposition strategy has been a critical component of our overall debt reduction goal.
Samir Manji: Through this active disposition exercise, we have been able to materially reduce leverage and de-risk Artis' balance sheet. At December 31st, 2024, our total debt to gross book value was 40.2%, a significant decrease from 50.9% at December 31st, 2023. Further, as part of our efforts to improve the REITs risk profile and manage upcoming debt obligations, In December, we announced that we had finalized terms on new three-year senior secured credit facilities in an aggregate amount of $520 million. This includes a $350 million revolving credit facility and a $170 million non-revolving credit facility. We continue to work diligently and closely with our lenders on our upcoming mortgage maturities.
Samir Kid: Through this active disposition exercise.
Samir Kid: Been able to materially reduce leverage and derisk artist is balance sheet.
Samir Kid: At December 31, 2024, our total debt to gross book value was 42% a significant decrease from 59% at December 31 2023.
Samir Kid: Further as part of our efforts to improve the reach risk profile and manage upcoming debt obligations in December we announced that we had finalized terms on new three year senior secured credit facilities in an aggregate amount of $520 million.
Samir Kid: This includes a $350 million revolving credit facility and a $170 million non revolving credit facility.
Samir Kid: We continue to work diligently and closely with our lenders on our upcoming mortgage maturities.
Samir Manji: At December 31st, we had $337.3 million of mortgage debt maturing in 2025. Of this amount, we have renewed 14%, have extension options in place for 14%, and plan to repay 25% upon maturity or disposition of the property. We plan to renew the remaining 47% in due course.
Samir Kid: At December 31, we had $337 3 million of mortgage debt maturing in 2025.
Samir Kid: This amount we have renewed 14% have extension options in place for 2014%.
Samir Kid: And plan to repay 25% upon maturity or disposition of the property.
Samir Kid: We plan to renew the remaining 47% in due course.
Samir Manji: Our NCIB continues to be viewed as one of the most effective tools available to enhance unit holder value. with our units continuing to trade on the market at a price that is significantly below our net asset value per unit. Utilizing our NCIB is beneficial to our unit owners and is a low risk use of capital for the region. Under the NCIB that expired on December 18, 2024, Artis purchased 7,021,296 common units. $311,500 Series E Preferred Units and $342,084 Series I Preferred Units at weighted average prices of $7.03, $17.74 and $18.69 respectively. The weighted average price we paid for the common units represents a discount of nearly 50% compared to our net asset value.
Samir Kid: Our NCI be continues to be viewed as one of the most effective tools available to enhance unitholder value.
Samir Kid: With our units continuing to trade on the market at a price that is significantly below our net asset value per unit utilizing our ntis is beneficial to our unit holders and has a low risk use of capital for the REIT.
Samir Kid: Under the NCI either expired on December 18, 2020 for artist purchased 7 million 21296 common units.
Samir Kid: 311500 series E preferred units and 342084 series I preferred units at weighted average prices of $7 <unk> $17 74 and.
Samir Kid: $18 69, respectively.
Samir Kid: The weighted average price we paid for the common units represents a discount of nearly 50% compared to a net asset value of $13 75 per unit at December 31.
Samir Manji: $13.75 per unit at December 31st. On December 19, 2024, we renew the NCIB for an additional one year term and plan to continue buying back our units so long as the discounted NAV of this magnitude persists.
Samir Kid: On December 19, 2024, we've renewed the NCI for an additional one year term and plan to continue buying back our units so long as the discount to NAV of this magnitude persists.
Samir Manji: Turning to an update on our investment in Cominar. Our investment in Cominar has been impacted by the interest rate environment over the past two years. We are actively engaged in addressing the structural challenges that the investor group is facing and anticipate resolving this matter in the near term.
Samir Kid: Turning to an update on our investment in <unk>.
Samir Kid: Our investment in <unk> has been impacted by the interest rate environment over the past two years.
Samir Kid: We are actively engaged in addressing the structural challenges that the investor group is facing and anticipate resolving this matter in the near term.
Samir Manji: Since December 2024, there have been discussions with interested parties to acquire either a portion or the entire portfolio of investment properties with a solution to settle the outstanding senior and junior preferred units. The settlement may include a discount to the senior and junior preferred users. These discussions are ongoing and we anticipate that an agreement for a transaction may be reached within the next few months on terms that could result in Artis recovering an amount in excess of the carrying value of the junior preferred units at December 31st, 2024. As more information becomes available, the REIT will adjust the allowance or expected credit loss as appropriate in future reporting periods.
Samir Kid: Since 2024.
Samir Kid: Sorry since December 2024, there have been discussions with interested parties to acquire either a portion or the entire portfolio of investment properties with a solution to settle the outstanding senior and junior preferred units.
Samir Kid: The settlement May include a discount to the senior and junior preferred units.
Samir Kid: These discussions are ongoing and we anticipate an agreement for a transaction may be reached within the next few months on terms that could result in artist recovering an amount in excess of the carrying value of.
Samir Kid: The junior preferred units at December 31, 2024.
Samir Kid: As more information becomes available the REIT will adjust the allowance for expected credit loss as appropriate in future reporting periods.
Samir Manji: Until then, we have followed accounting principles to book a provision related to our preferred investor. We believe this reflects a conservative estimate and we expect this will be resolved and confirmed in the months ahead.
Samir Kid: Until then we have followed accounting principles to book a provision related to our preferred investment.
Samir Kid: We believe this reflects a conservative estimate and we expect this will be resolved and confirmed in the months ahead.
Samir Manji: Over the last several months, we have seen positive signs in the overall real estate sector that we feel optimistic about. With an improved risk profile, healthy level of liquidity, and interest rates moving in our favor, we can now shift our attention to pursuing opportunities that we believe will produce above-average risk-adjusted returns and will grow net asset value per unit for Artis' unit holders.
Samir Kid: Over the last several months, we have seen positive signs in the overall real estate sector that we feel optimistic about.
Samir Kid: An improved risk profile healthy level of liquidity and interest rates moving in our favor we can now shift our attention to pursuing opportunities that we believe will.
Samir Kid: Produce above average risk adjusted returns and will grow net asset value per unit for <unk> unitholders.
Samir Manji: We look forward to providing further updates on some of the key initiatives we've highlighted in due course.
Samir Kid: We look forward to providing further updates on some of the key initiatives, we have highlighted in due course.
Samir Manji: I will now turn it back over to the operator to moderate the question and answer session. Thank you.
Samir Kid: I will now turn it back over to the operator to moderate the question and answer session.
Samir Kid: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on you touched on the phone.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Samir Kid: You'll hear a prompt that your hand has been raised should you wish to decline from the polling process. Please press star followed by the Q.
Operator: Should you wish to decline from the polling process, please press star followed by the If you are using a speakerphone, please lift the handset before pressing any. One moment, please, for your first question.
Samir Kid: If you are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
Jonathan Kelcher: Your first question comes from Jonathan Kelcher with KD Cowan. Your line is now open. Thanks, good afternoon. Just on the on the common are just so I understand this. So the equity investment is to work with you. I think, Jonathan, as it relates to the The value that's reflected, I've already commented on that and the provision we've taken with the ECL. I think insofar as any further interest or pick interest, I think one should assume that the The methodology we applied for Q4 2024 will continue in the near term, given again our expectation that this is going to resolve shortly and whether it resolves prior to us issuing Q1 or after that.
Speaker Change: Your first question comes from Jonathan <unk> with TD Cowen. Your line is now open.
Speaker Change: Thanks, Good afternoon.
Speaker Change: Just on the on the carbon or just so I understand this so the equity.
Speaker Change: This investment is is completely written off right now.
Speaker Change: And then on the preferred it doesn't look like you guys booked any income on that in the quarter. So how should we like it's down to a 139 million how should we think about that going forward.
Speaker Change: I think Jonathan as it relates to the.
Speaker Change: The value that's reflected I've already commented on that and the provision we've taken with the ECL I think in so far as any further interest or pik interest.
Speaker Change: One should assume that the.
Speaker Change: The methodology, we applied for Q4 2024 will continue in the near term given again, our expectation that this is going to resolve.
Speaker Change: Shortly and whether it results prior to us issue in Q1.
Speaker Change: After that I don't think this goes to Q2 I think this gets done well before that so that's how I would propose one looks at that.
Samir Manji: I don't think this goes to Q2. I think this gets done well before that. So that's how I would propose one looks at that.
Jonathan Kelcher: Okay, so just taking your Q4 value of that, assuming probably no income for that amount of money in Q1 and then presumably you would invest that $140 million or whatever you end up getting back into something starting in Q2. Is that kind of a way to think about it? Sure, or you assume that, you know, those proceeds would be used to reduce debt and therefore interest costs accordingly. Okay, now that was a fairly significant amount of your Annual FFO. How should we think about the distribution going forward if that income is gone? Again, as we've conveyed in our narrative just a few minutes ago.
Speaker Change: Okay. So.
Speaker Change: Just just taking your two Q4 value of that.
Speaker Change: Assuming probably no no income for that.
Speaker Change: That amount of money in Q1, and then and then assume.
Speaker Change: <unk>, you would invest that $140 million or whatever you ended up getting back.
Speaker Change: And does something starting in Q2 is that does that kind of a way to think about it.
Speaker Change: Or you assume that.
Speaker Change: Those proceeds would be used to reduce debt.
Speaker Change: And therefore interest costs accordingly.
Speaker Change: Okay, no that was a fairly significant amount of your.
Speaker Change: Sort of annual.
Speaker Change: That's helpful.
Speaker Change: How should we think about the distribution going forward.
Speaker Change: If that didn't come has gone up.
Speaker Change: Again as we've.
Speaker Change: Conveyed in our narrative just a few minutes ago.
Samir Manji: The strategy we have in place and we've had in place now, since 2021, by design, is going to anticipate lumpy income. There is a concerted effort and certainly intention to maintain the distribution and so obviously it's management's job from a capital allocation standpoint to look at investments that we believe over time will produce income and returns that allow us to sustainably maintain the distribution. Okay, and then just on on the quarter, the NOI The NOI was up quarter over quarter by four and a half million or so, and I'm assuming there's one-time stuff in there.
Speaker Change: The strategy, we have in place and we've had in place now since 2021.
Speaker Change: By design.
Speaker Change: He is going to anticipate lumpy income.
Speaker Change: There is a.
Speaker Change: A concerted effort and certainly intention to maintain the distribution and so obviously, it's management's job from a capital allocation standpoint to look at investments that we believe over time will produce.
Speaker Change: Income and returns that allow us to.
Speaker Change: Sustainably maintained the distribution.
Speaker Change: Okay.
Speaker Change: And then just on the quarter the NOI.
Speaker Change: NOI was up quarter over quarter by $4 million.
Speaker Change: So.
Speaker Change: Assuming there is one time stuff in there can you maybe describe that.
Jaclyn Koenig: Can you maybe describe that and what?
Speaker Change: What.
Jaclyn Koenig: the outlook if there's any if you're expecting any sort of similar one time income in in 2025 So that income booked in, hi John, this is Jackie, that income booked in Q4 related to the income that was booked in Q2 as well. So a final true up on that development income. I believe there's some commentary in the NDA about that. So that was approximately four million dollars and then going forward.
Speaker Change: The outlook if there's any.
Speaker Change: Are you expecting any sort of similar one time income and.
Speaker Change: In 2025.
Speaker Change: Okay.
Speaker Change: Does that income looking hi, John this is Jackie.
Speaker Change: Net income booked in Q4 related to the AGM that was booked in Q2 is also a final true up on that development income I believe there is some commentary in the MD&A about that so that was approximately $4 million.
Speaker Change: And then going forward.
Jaclyn Koenig: Currently, I don't have any forward looking information on additional lumpy income. But as Samir just commented, that would likely be our strategy.
Speaker Change: Currently I don't have any forward looking information on additional lumpy income.
Speaker Change: But as sooner just commented.
Jackie: Alright Jackie.
Jonathan Kelcher: Okay, that's it for me. I'll turn it back. Thanks. Thank you.
Jackie: Okay.
Jackie: That's it for me I'll turn it back thanks.
Jackie: Thank you.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star 1. There are no further questions at this time.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star one.
Speaker Change: There are no further questions at this time, ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Speaker Change: Yes.
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Speaker Change: Yes.
Speaker Change: Okay.