Q1 2025 Artis Real Estate Investment Trust Earnings Call
Andrew: Good afternoon. My name is Andrew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Artis Real Estate Investment Trust, first quarter, 2025, Results Conference Call.
Andrew: All lines have been placed on mute to prevent any background noise.
Andrew: After the speakers are marked, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one or your telephone keypad. If you'd like to withdraw your question, please press the pound key. Thank you. Heather
Heather Nikkel: Thank you, Operator. Good afternoon, everyone. Welcome and thank you for joining us for Artis Rates' first quarter, 2025 Results Conference call.
Speaker Change: Artis' results were disseminated yesterday and are available on Cedar and on our website. With me on the call today is Artis' president and CEO , Samir Manji, CFO , Jaclyn Koenig, and COO, Kim Riley.
Speaker Change: As we discuss our first quarter performance, 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.
Speaker Change: We have identified these factors in our public filings with the securities regulators and we suggest that you review those filings.
Speaker Change: 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 flows from operations, or other measures of financial performance calculated in accordance with IFRS.
Speaker Change: 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 the replay of this conference call will be available until June 9th.
Speaker Change: You can access it by using the telephone numbers and passcode that were provided in yesterday's press release.
Speaker Change: Additionally, a recording will be made available on our website. I will now turn the call over to Samir to discuss Artis' first quarter results.
Thank you, Heather.
Samir Manji: Good afternoon, everyone, and thanks for taking the time to join us for Artis' first quarter results conference call.
Samir Manji: During the first three months of 2025, we continued to focus on reducing overall leverage and strengthening the balance sheet, objectives that are critical to managing our risk profile, while creating a positive long-term trajectory for Artis' owners.
Samir Manji: As we conveyed in the past, our strategy by design will produce lumpy income and we believe this strategy with successful execution is aligned with our ultimate goal of increasing that asset value for a uniformer's over the long term.
Samir Manji: During the first quarter, we sold two industrial and two retail properties located in Canada for an aggregate sale price of $70.5 million.
Samir Manji: At March 31, we had one retail property located in Canada under an unconditional sale agreement for a sale price of $4.8 million. This sale closed in April .
Samir Manji: Execution of our disposition strategy has been a critical component of our overall debt reduction goal.
Samir Manji: Our active disposition exercise has enabled us to materially reduce leverage and de-risk artists' balance sheet over the last several quarters.
Samir Manji: At March 31, we maintained a conservative debt to gross book value of 39.2% compared to 40.2% at December 31.
Samir Manji: That asset value per unit was $13.76 at March 31, compared to $13.75 at December 31.
Samir Manji: During the quarter, occupancy, including commitments, was 89.1% down slightly from 89.2% at December 31.
Samir Manji: Significant leasing completed includes a new 80,000 square foot lease at one of our Minnesota industrial properties that will commence in Q2.
Samir Manji: We also signed a 99,000 square foot seven-year renewal with an industrial tenant in Arizona.
Samir Manji: For the three months and in March 31, the weighted average increase we achieved on the 123,000 square feet of renewals that commenced during the quarter was 4%. And we reported an increase in same property NOI of 4.5% in mixed dollars.
Samir Manji: As part of our efforts to improve Artis' risk profile and manage upcoming debt obligations at the end of 2024, we finalize terms on new three-year senior secured credit facilities in an aggregate amount of $520 million.
Samir Manji: This includes a $350 million Revolving Credit Facility and a $170 million Non Revolving Credit Facility.
Samir Manji: At March 31, there was $39 million drawn on the Revolving Credit Facility, and $170 million drawn on the non-revolving credit facility.
Samir Manji: Subsequent at the end of the quarter, we drew a net balance on the revolving credit facility of 213.6 million dollars. The majority of which was used to fund the series e-senior unsecured debenture repayment for a face value of 200 million dollars upon maturity at the end of April .
Samir Manji: We continue to work diligently and closely with our lenders on our upcoming mortgage
Samir Manji: At March 31, we had $275 million of mortgage debt maturing during the remainder of 2025. Of this amount, we have an extension options in place for 17% and plan to repay 25% upon maturity or disposition of the property.
Samir Manji: 291560 series E preferred units and 421775 series I preferred units.
Samir Manji: During the first quarter, we purchased $1 825666 common units at a weighted average price of $7 58 per unit a significant discount to NAV per unit of $13 76 at March 31.
Samir Manji: We also purchased 31000 series E and 14400 series I preferred units at a weighted average price of $20 75 per unit.
Samir Manji: We view, our NCI as a compelling tool to enhance unitholder value and we'll continue to allocate capital to buying back units using NCI b. So long as our to see units traded a material discount to its NAV per unit.
Samir Manji: Turning to an update on our pulmonary investment alongside our consortium partners will continue to work with parties that are interested in acquiring either a portion or the entire portfolio of investment properties coming out homes with the ultimate goal of setting.
Samir Manji: Sorry, with the ultimate goal of settling the outstanding senior and junior preferred units.
Samir Manji: These discussions are ongoing and we anticipate that an agreement for a transaction may be reached in the coming months, we look forward to providing updates on our progress in the near term.
Samir Manji: In summary, Q1 was another busy quarter, we made progress towards our goal of reducing overall leverage and strengthening the balance sheet.
Samir Manji: Our payout ratios were higher than we would've liked but given the nature of our strategy. We expect our income and as a result, our <unk> metrics to continue to be lumpy from one quarter to the next.
Samir Manji: We continue to believe that the successful execution of our strategy will provide for the long term sustainability of our current distribution.
Samir Manji: And we look forward to providing further updates as we pursue opportunities aligned with our long term objectives of growing net asset value per unit and maximizing value for our unit holders.
Samir Manji: I will now turn it back over to the operator to moderate the question and answer session.
Samir Manji: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Should you have a question. Please press the star followed by the number one on your Touchtone phone.
Speaker Change: You'll hear a prompt that you haven't been raised.
Speaker Change: Should you wish to decline from the polling process. Please press the star followed by the number too.
Speaker Change: Fewer using a speaker phone please lift the handset before pressing any keys.
Speaker Change: One moment. Please for your first question.
Speaker Change: Please also limit your questions to one question and one follow up your first question is from Jonathan <unk> from TD Cowen. Please go ahead.
Speaker Change: Thanks.
Speaker Change: First question I guess.
Heather Nikkel: I think you touched on it a little bit there Samir on the lumpy income strategy.
Heather Nikkel: Payout ratios were a little high this this quarter.
Speaker Change: As you are.
Speaker Change: Under this strategy or are you comfortable that you guys can cover the dividend.
Speaker Change: Full year <unk>.
Speaker Change: Maybe not this year, but.
Speaker Change: Going forward.
Sean: Thanks, Sean by the way I'm not sure why the operator.
Speaker Change: You mentioned that you are limited to one question you can ask as many questions as you want and that's the case for all those who are in queue.
Sean: Four questions.
Speaker Change: But with questions Jonathan.
Speaker Change: Think that.
Speaker Change: As we've conveyed in the past and we certainly demonstrated last year.
Speaker Change: We do believe that over the medium to longer term.
Speaker Change: The successful execution of our strategy will.
Speaker Change: Result in generating sufficient <unk> to cover the full year distribution.
That again will will be met from time to time as we saw in Q1.
Speaker Change: With instances, where we have a payout ratio above 100%, but again, we remain confident that executing on this strategy will enable us to fully cover the distribution in the longer term.
Speaker Change: Okay.
Speaker Change: And then switching gears to dispositions.
Speaker Change: Did slow a lot.
Speaker Change: Well I guess Q2, only 5 million Bucks, so far but.
Speaker Change: As your balance sheet like sub 40% leverage are you comfortable where you are where you're at in <unk>.
Speaker Change: I would expect a disposition program to slow down.
Speaker Change: You can see from our.
Our balance sheet and the level of <unk>.
Speaker Change: Properties held for sale that we have on the balance sheet that you do have the intention of continuing to.
Speaker Change: Monetize assets.
Speaker Change: Uh huh.
Speaker Change: In a strategic manner.
Speaker Change: Are we.
Speaker Change: We believe these assets have near term liquidity, but at the same time.
Speaker Change: As is the case.
Speaker Change: From time to time.
Speaker Change: Also opportunistically monetize assets, if we have inbound unsolicited offers from buyers be very strategic in nature or otherwise.
Speaker Change: So from our vantage point, we've worked very hard as you know to get to this level of overall leverage the picture was not as optimistic a few quarters ago and we feel good about where we are today, we also feel comfortable seeing that 40%.
<unk>.
Speaker Change: Dropped further to 35%.
Speaker Change: And we say that because.
Speaker Change: We believe over time as we work through.
Few near term priorities that having that.
Speaker Change: That level of dry powder will put us in a position ultimately to start allocating that capital Opportunistically.
Speaker Change: In situations or with respect to opportunities that we believe can generate above average risk adjusted returns in deploying that some of that dry powder and thats why we are not shy to see further dispositions continue.
Speaker Change: Even though we know resulted in lost NOI.
Speaker Change: At the same time, it would reduce leverage and just gives us that much more dry powder on our balance sheet.
Speaker Change: Okay, sorry, I misspoke I meant net.
Speaker Change: I met net dispositions, so and so I guess the second part of that is when we see you start to do some some acquisitions or do you want to get it.
Speaker Change: The leverage down to mid <unk>.
Speaker Change: I anticipate that base.
Speaker Change: Based on what we expect to see happen in the first half of this year.
Speaker Change: Ed.
Speaker Change: We will we will begin to.
Speaker Change: Allocate some of that dry powder or put it to work in the second half of 2025.
Speaker Change: Okay and would you be looking more Canada or the U S.
Again as you know we have cross border operations, we have.
Speaker Change: The Ah <unk>.
Speaker Change: Capacity from our asset management perspective to look at either side.
Speaker Change: I don't think that were going to actively explore new U S markets, but certainly.
Speaker Change: Canada for sure and possibly.
Speaker Change: U S markets, where we already have market presence.
Speaker Change: Okay.
Speaker Change: You look at any of the.
Speaker Change: The common our assets.
Speaker Change: We have as we mentioned in our remarks active discussions going on with.
Speaker Change: Potential parties and.
Speaker Change: So depending on how those discussions evolve and unfold.
Speaker Change: Certainly one option for us would be to look at.
Speaker Change: Ourselves.
Speaker Change: One or more of the <unk> assets.
Speaker Change: Okay. Thanks, I'll turn it back.
Speaker Change: That's great. Thanks, Jonathan.
Speaker Change: Your next question is from Mario <unk> from Scotiabank. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Sameer if.
Speaker Change: In an ideal scenario.
Speaker Change: How much additional.
Speaker Change: Assets do you think you can sell in the next 12 months would be interested in selling in the next 12 months.
Mario: Thanks Mario.
Speaker Change: Thanks.
Speaker Change: <unk>.
Speaker Change: Your preface it with the word ideal I think from our vantage point.
Speaker Change: Our goal would be to see another.
Speaker Change: $300 million to $400 million.
Speaker Change: Assets monetized.
Speaker Change: Over the course of 2025.
Speaker Change: And.
Speaker Change: Again.
Speaker Change: We'll see how things evolve and unfold, but.
Speaker Change: And we've always maintained that artists.
Speaker Change: Has.
Speaker Change: Good real estate.
Speaker Change: We know there are market factors that have impacted the <unk>.
Speaker Change: Broader.
Speaker Change: REIT universe across many asset classes.
Speaker Change: I think.
Speaker Change: I think seniors housing is the one.
Speaker Change: Asset class that has seen.
Speaker Change: A nice reversal of their fortunes and how the market has evolved there in unfolded, but really most other asset classes have.
Speaker Change: <unk>.
Speaker Change: A lot of volatility.
Speaker Change: As in recent times and sectors. All continues to have headwinds that we think will set.
Speaker Change: It'll down overtime and that will also translate into.
Speaker Change: Activity in the transactional front that we hope we alongside others will benefit from.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Yes.
Speaker Change: You have the benefit of being active in both Canada and in the U S. There's been a lot of <unk>.
A discussion broadly speaking in the commercial real estate market to boats.
Speaker Change: But the bid ask spread maybe widening or the volatility associated with the liberation day announcement and potential tariffs.
Speaker Change: In terms of <unk>.
Speaker Change: Transaction volumes, perhaps slowing.
Speaker Change: Relative to previous expectations can you maybe talk about.
Speaker Change: How much of an impact you are hearing.
Speaker Change: The tariff uncertainty is having on transaction discussions and whether its differentiated between Canadian product in the U S product.
Speaker Change: Yes, we've.
Speaker Change: We've certainly been hearing what you have to summarize just now.
Speaker Change: But I can tell you that as it relates to.
Speaker Change: Our transactional activity.
Speaker Change: If there has been impact it has not been significant I E. We continue to see on the disposition front activity progress.
Speaker Change: In the various initiatives we.
Speaker Change: I have underway that we are in discussions on with potential buyers.
Speaker Change: And so I think as we've seen.
Speaker Change: Post Liberation day things also settle down.
Speaker Change: The announcement this week that the U S.
Speaker Change: And the U K have come to an agreement in principle are certainly appeared to be on the path to having.
Speaker Change: An agreement in place.
Speaker Change: And the corresponding.
Speaker Change: Impact announcements like those are having.
Speaker Change: In the in the overall sort of macro market environment. I think those are those are positive signs and hopefully they'll continue as we keep going.
Speaker Change: Okay, and then just maybe coming back to the.
Speaker Change: Payout ratio and.
And the recycling of capital is there.
Speaker Change: Is there a target.
Speaker Change: A full yield differential.
Speaker Change: On the stuff that youre selling versus the stuff that you may ultimately end up buying that youre targeting is that.
Speaker Change: How we should think about the recycling capital as.
Speaker Change: It does have in mind kind of the pool that youre, losing on dispositions relative to the full but ultimately gaining on acquisitions. How do you how do you think about time.
Speaker Change: Yes.
Speaker Change: That's a really good question I would say that as we on the back half of this year begin to allocate.
Speaker Change: Capital to what I would describe as growth oriented opportunities.
Speaker Change: I think we're going to we're going to benefit from having a a more.
Speaker Change: Entrepreneurial mindset, where.
Speaker Change: It's not so much.
Speaker Change: Just <unk>, we're going to focus on I think fundamentally as we've conveyed in the past are our primary long term focus is growing NAV per unit.
Speaker Change: And so yes, one can achieve that by enhancing cash flow <unk>.
Speaker Change: And looking at that.
Or are those important metrics in any type of.
Speaker Change: Acquisition or investment opportunity, but.
Speaker Change: But I think more fundamentally for us.
Speaker Change: In addition to those what we're really going to prioritize is value.
Speaker Change: And whether it's.
Speaker Change: Acquiring.
Speaker Change: Assets, while we're making investments.
Speaker Change: In assets that we believe we're acquiring below fair market value or in other instances value add opportunities.
Speaker Change: That's where we're going to likely put greater emphasis and as we begin to embark on.
Speaker Change: What we believe is going to be an exciting.
Sort of reversal of having consolidated a fair bit over the last couple of years to now looking at growing again.
Speaker Change: We will we will do our best to ensure that.
Speaker Change: As those investments are made that we are highlighting and communicating to our unit holders to the broader market.
Speaker Change: The specific nature of whatever those new investments are taking hold.
Speaker Change: Okay.
Speaker Change: Last question just a broader question.
Speaker Change: <unk> been <unk> been.
Speaker Change: Selling assets paying down debt.
Speaker Change: Buying back a lot of units.
Speaker Change: Over the past couple of years, we've gone into a strategic review you've exited the strategic review.
Speaker Change: Let's talk still notwithstanding all of that trades at a significant discount to your eye for us share value.
Speaker Change: So when you look out ahead what are some factors.
Speaker Change: Do you think about that May suggest maybe it's time to pivot to something different.
Speaker Change: How how much patients I guess so.
Speaker Change: The organization how to continue on doing what it's been doing in the public markets haven't necessarily recognize again.
Speaker Change: Well.
Speaker Change: I think the reality is.
Speaker Change: We're in an environment today.
Speaker Change: Where.
Speaker Change: B B.
Speaker Change: The dynamics of the macro environment are impacting most Reits, it's not just.
Speaker Change: The Diversifies anymore, it's not just to diversify its an office Reits most Reits are seeing a very challenging.
Speaker Change: The macro environment and in public markets environment and.
Speaker Change: So I don't think that question around patient is unique to artist or to a smaller subset.
Speaker Change: It would have been perhaps a few years ago I don't think thats the case today and so as far as we're concerned we're going to do.
Speaker Change: We're going to continue to stay focused on controlling what we can control.
Speaker Change: And making decisions that we believe will.
<unk> the best outcome possible for our unit holders and as things continue to evolve in the broader macro environment.
Speaker Change: I for one have.
Speaker Change: Have been a believer certainty in recent times that.
Speaker Change: With interest rates.
Speaker Change: On the decline.
Speaker Change: And with a stabilizing of a lower interest rate environment, it's only a matter of time before.
Speaker Change: We either.
Speaker Change: Healthy level of correction in the public markets or we're going to start to see M&A activity.
Speaker Change: And.
Speaker Change: We've made it abundantly clear from the get go that our number one priority is maximizing value for our unit holders.
Speaker Change: We've attempted to pursue different initiatives as you've noted.
Speaker Change: In that regard and with that objective.
Speaker Change: We can again only control what we can control we cannot control macro factors, we cannot control other extraneous.
Speaker Change: Issues and events that impact us and others and so.
Speaker Change: It's really not so much about patients as much as it is about the broader environment and.
Speaker Change: Sure.
And controllable factors evolving to a point, where things become conducive for us to be able to achieve that ultimate goal an outcome of maximizing value. However that may be achieved.
Speaker Change: And so.
I wish I could tell you more I wish I had.
Speaker Change: Our lens on how the world is going to unfold.
Speaker Change: I don't think anybody does particularly these days, where we had certain.
Speaker Change: <unk> political.
Speaker Change: Realities that we're all sort of witnessing and living through amongst other other factors that hopefully again settled down and just create.
Speaker Change: Healthier environment for us to be able to.
Speaker Change: For women.
Speaker Change: Okay.
Speaker Change: That's it for me thank you.
Speaker Change: Yes.
Speaker Change: Thanks.
Ladies and gentlemen, as a reminder, should you have any questions. Please press the star key followed by the number one.
Speaker Change: We will pause for any further questions.
Speaker Change: There are no further questions at this time ladies.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today.
Speaker Change: Thank you for participating and ask that you. Please disconnect your lines.