Q2 2025 Artis Real Estate Investment Trust Earnings Call

Speaker #4: 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 Artis Real Estate Investment Trust second quarter 2025 results conference call.

Speaker #4: All lines have been placed on mute to prevent any background noise. 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, then the number one on your telephone keypad.

Speaker #4: If you would like to withdraw your question, please press star, then the number two. Thank you. Heather Nikkel, you may begin your conference.

Speaker #5: Thank you, operator. Welcome, everyone, and thank you for joining us for Artis REIT's second quarter 2025 results conference call. Artis' results were disseminated yesterday and are available on Cedar Plus and on our website.

Speaker #5: With me on today's call is Artis' President and CEO, Samir Manji; CFO, Jacqueline Koenig; and COO, Kim Riley. As we discuss our second quarter performance, please note that the discussion may include forward-looking statements that involve known and unknown risks and uncertainties.

Speaker #5: These risks and uncertainties may cause actual results to differ materially from those expressed or implied today. As we have identified these factors in our filings with the securities regulators, we suggest that you review those filings.

Speaker #5: 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.

Speaker #5: Throughout this discussion, all figures will be presented in Canadian dollars unless otherwise specified. Before we proceed, I'd like to note that a replay of this conference call will be available until September 8.

Speaker #5: 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.

Speaker #5: I will now turn the call over to Samir Manji to discuss Artis' second quarter results.

Speaker #6: Thank you, Heather. Good morning to those in the West and good afternoon to those in Winnipeg and eastward. Thank you for joining us today for Artis' second quarter results conference call.

Speaker #6: In Q2, we remain firmly focused on executing our strategy to reduce leverage and fortify our balance sheet, key components to managing risk and unlocking long-term value for our unitholders.

Speaker #6: We are confident that our disciplined approach is aligned with our overarching goal to maximize value for our unit holders over the long term. Leasing activity remains steady across all asset classes, underscoring the resilience of our portfolio.

Speaker #6: Occupancy rose to 87.8% as of June 30, up from 87.1% as of March 31, driven primarily by the commencement of a new 80,600 square foot lease in our U.S. industrial portfolio.

Speaker #6: Additionally, we saw 210,643 square feet of renewals commence during the quarter, with rental rates increasing by 3.6%. This is a testament to the strength of our assets and tenant relationships.

Speaker #6: We continue to make meaningful progress on our deleveraging initiatives. Property dispositions have been and continue to be a critical element of our overall goals of reducing debt and strengthening liquidity.

Speaker #6: In Q2, we closed on the sale of a Canadian retail property for $4.8 million. Subsequent to the end of the quarter, we went unconditional on the sale of our 90% interest in a parcel of development land in the U.S. for $11.3 million.

Speaker #6: Over recent quarters, disposition proceeds have been utilized to significantly reduce leverage and enhance the resilience of our balance sheet. As of June 30th, our debt-to-gross book value stood at a conservative 41.1% compared to 40.2% at the most recent year-end.

Speaker #6: Net asset value per unit was $12.98 at quarter-end, reflecting the impact of foreign exchange distributions, credit loss provisions, and fair value adjustments. These were partially offset by solid net operating income, strategic unit repurchases under our NCIB, and income from equity securities.

Speaker #6: During the quarter, we drew a net of $232.6 million on our revolving credit facilities, primarily to repay the $200 million Series E senior unsecured debentures at maturity.

Speaker #6: At June 30th, $271.6 million was drawn on the revolving credit facility, and $170 million was drawn on the non-revolving credit facility. We are actively managing upcoming mortgage maturities of the $235.1 million maturing in the remainder of 2025. Nineteen percent has already been renewed, term sheets have been received for 25%, and we are on track to renew the remaining 56% in due course.

Speaker #6: Our strong lender relationships and proactive engagement continue to support our refinancing efforts. Under our current NCIB, we may repurchase up to $4.98 million in common units and select preferred units.

Speaker #6: In Q2, we acquired $1.77 million common units at a weighted average price of $7.28, along with $25,700 Series E and $33,200 Series I preferred units.

Speaker #6: In total, we repurchased $3.8 million common units at an average price of $7.42, representing a compelling discount to net asset value and a clear indicator of our confidence in the intrinsic value of our business.

Speaker #6: We continue to work closely with our consortium partners to explore strategic options for the Colminar portfolio. Discussions with interested parties are progressing, and we remain optimistic that a transaction will be reached in the coming months.

Speaker #6: Q2 was a stable and strategically productive quarter. While payout ratios were elevated, we've consistently communicated that our income metrics, including FFO and AFFO, may fluctuate quarter to quarter.

Speaker #6: We remain confident that the successful execution of our strategy will support the long-term sustainability of our distribution and drive growth in net asset value per unit.

Speaker #6: We appreciate your continued support and look forward to updating you as we pursue opportunities aligned with our long-term objectives. I'll now turn it back to the operator to begin the Q&A session.

Speaker #4: 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 1 on your touch-tone phone.

Speaker #4: You will hear a beep that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two.

Speaker #4: If you are using a speakerphone, please lift your hands up before pressing any keys. Your first question comes from Jonathan Kelcher with TD Cowen.

Speaker #4: Your line is now open.

Speaker #7: Thanks. First question, just maybe elaborate a little more, Samir, on the Colminar you’re hoping for a resolution in in the coming months. So can I take that to mean that by the end of this year it should be like fully resolved and gone?

Speaker #6: We can't, as you know, Jonathan, we can't confirm exact timing, but I would say that that is certainly our expectation: that we do have a resolution before the end of the year.

Speaker #7: Okay. I think last quarter, you mentioned potentially becoming active on the acquisition side in the second half of this year. Could you provide us with an update on that?

Speaker #7: What asset classes would look more favorable to you right now?

Speaker #6: I think we're agnostic to asset class and areas that we can explore or consider from a capital allocation standpoint. I think it, as you noted, is going to be opportunistic, and we are evaluating a number of different opportunities.

Speaker #7: Okay. And this being agnostic, how do you like the equity securities portfolio? It was relatively quiet this quarter for you. How are you thinking about that?

Speaker #6: Yeah. Again, that is a part of the universe of opportunities that we have on our radar, and I think, you know, something that we'll be able to comment on further in the back end of 2025.

Speaker #7: Okay. And then just one last question for me. You had some strategic review costs in the G&A. I thought that process was over. Can you maybe give a little color on what that might have pertained to?

Speaker #6: Yeah. We're always looking at opportunities, whether it's on a proactive basis or inbound. Over the course of the 2025 fiscal year, we have again been engaging in exploring, from a capital allocation standpoint, certain opportunities that resulted in some one-time costs that we booked in the quarter.

Speaker #7: Okay. Does that mean, like, whatever was going to happen didn't happen? So, you rolled the cost type of thing? Or it's just something that could be ongoing in the next several quarters?

Speaker #6: Yeah. Again, I ink this really is ongoing insofar as, you ow, we're going to look at any and all opportunities that surface and so you know, as it relates to the costs that we booked are not necessarily is that a Fed compli and these are again ongoing initiatives that we're engaged in just again trying to think about what the road ahead looks like and how can we harness our balance sheet in a manner that we believe is in the best interest of our unit holders long term.

Speaker #7: Okay, thanks. I'll turn it back.

Speaker #6: Thanks, Jonathan.

Speaker #4: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Anish Thapar with Scotiabank. Your line is now open.

Speaker #8: Hi. Thank you for taking the questions. So my first question is on the dispositions. Only one retail property was disposed of this quarter, so what's our target for the asset sales in the second half of 2025?

Speaker #8: And which type of properties are attracting the strongest buy right now, maybe by geography or asset class?

Speaker #6: We have disclosed in the results the assets held for sale, and what we've conveyed previously remains the case: we are going to be opportunistic on dispositions across the various asset classes that we have.

Speaker #6: And I can tell you today those different initiatives include a mix of retail, industrial, and office. I don't know if that completely answers the question, but I will invite Kim to add anything further from a disposition perspective.

Speaker #4: Thanks, sir. I think that covers everything. You know, we're looking at various dispositions, and activity remains strong for all asset classes.

Speaker #8: All right, thank you. Just a follow-up question on the Colminar JV. So, is there any potential for you to acquire some of its assets going forward?

Speaker #6: Look, nothing is off the table. I think the discussions that are underway are going to continue to explore any and all avenues.

Speaker #6: At the end of the day, you know, the objective number one is to bring that investment to a close, and number two for us to be able to, alongside our various consortium partners, to be able to optimize the outcome, whatever that may look like.

Speaker #6: So we're going to look at various options and land on what the group collectively believes makes the most sense.

Speaker #8: All right. Thank you for the color. That's it for me. Thank you so much.

Speaker #6: Okay. Thank ou so much.

Speaker #4: There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in SAE.