Good afternoon, everyone. Welcome to the annual meeting of unitholders of Artis REIT. I am Ben Rodney, the Chair of the Board. I'm looking forward to connecting with many of you in person today. For those who are unable to join in person, we have also provided a live audio webcast, a replay of which will be available at the Artis REIT website following this meeting. Before we get started, I would like to introduce our trustees, Heather-Anne Irwin, Samir Manji, myself Ben Rodney, Mike Shaikh, Aida Tammer, Lis Wigmore, and Lauren Zucker. Unfortunately, Mike Shaikh is unable to attend, to join us in person today, but I know he's with us here in spirit. I would like to, pardon me there. I'd like to introduce members of the executive team in attendance today.
Samir Manji, President and CEO, Jaclyn Koenig, CFO, and Kim Riley, COO. I will now move into the formal business of the meeting. I will call this meeting to order. I will provide as chair of this meeting, and I appoint Kara Watson, the corporate secretary of the REIT, to act as secretary for the meeting. I appoint Odyssey Trust Company to act as scrutineer for the meeting. Bryce Docherty in, is here to represent Odyssey. Apologize if I killed your last name, Bryce. The notice calling this meeting and related management proxy materials were mailed to all unitholders of the REIT. As a confirmation of mailing is available for inspection by any unitholder, I will dispense with calling for a reading of the notice of meeting and direct that a copy of the confirmation be kept by the secretary with the minutes of the meeting.
I am advised by the secretary, who has a scrutineer's report in attendance, that a quorum is present. The scrutineer reports that there are 67 unitholders present in person or by proxy at today's meeting, representing approximately 57.9% of the issued and outstanding units. I direct that a copy of the scrutineer's complete report on attendance be kept with the minutes of the meeting. Notice have been given and a quorum being present, I declare this meeting to be duly constituted for the transaction of business today. I would like to make a few comments with respect to the procedures of this meeting. There will be an opportunity for registered unitholders and proxy holders in attendance to ask questions on each motion.
For the benefit of those listening to the audio webcast, if you have a question, please ask it using the microphone at the side of the room. Following each motion, I will ask if there are any related questions. We ask that you save any questions that are not in respect of a particular motion for the general question and answer session following the formal business of the meeting. We will announce the preliminary results of voting at the end of today's meeting. The official results will be filed on SEDAR and available on our website. In order to facilitate the proceedings for today's meeting, I've asked Kim Riley and Jaclyn Koenig to move and second the proposals related to the items of business identified in the notice of meeting.
As the first item of business, the REIT's annual financial statements for the year ended December 31st, 2022, and the auditor's report thereon are hereby placed before the meeting. Management will be pleased to deal with any relevant questions concerning the financial statements during the general question period, which follows this meeting. Copies of the 2022 annual report, including the REIT's financial statements and management's discussion analysis for the year ended December 31st, 2022, are available at the meeting today. These documents are also publicly available on SEDAR and on the REIT's website. We will now proceed with fixing the number of trustees to be elected at this meeting, which is to be approved as an ordinary resolution. It is proposed that the number of trustees be fixed at seven. May I have a motion? Thank you.
Are there any questions specific to this motion? As there are no questions, I ask all those in favor to please raise their hand. All those against this motion, please raise your hand. I declare this motion carried. We will now proceed to the election of trustees for the ensuing year, which is to be approved as an ordinary resolution. I will now receive nominations for the election of trustees. As the REIT has not received advance notice of any other nominations, in accordance with Section 6.9 of the REIT's Declaration of Trust, I hereby declare the nominations closed. Are there any specific questions to this motion? As there are no questions, I ask all those in favor, please raise their hand. All those against the motion, please raise your hand. I declare this motion carried.
We will now proceed with the reappointment of the auditors of the REIT, which is to be approved as an ordinary resolution. It's proposed that Deloitte LLP be reappointed as external auditors of the REIT until the next annual meeting of unitholders, and that the trustees be authorized to fix their remuneration. May I have a motion? Thank you. Are there any questions specific to this motion? I might raise my voice now. As there are no questions, I ask all those in favor to please raise their hands. All those against this motion, please raise your hand. I declare this motion carried. Next item of business is to consider in an advisory, non-binding capacity, an ordinary resolution in the form set out in the circular with respects to the REIT's approach to executive compensation. May I have a motion? Thank you.
Are there any questions specific to this motion? As there are no questions, I ask all those in favor to please raise their hand. All those against this motion, please raise your hand. I declare this motion carried. I've been advised by the scrutineer that the proxies deposited for the meeting have been voted in favor of today's motions by the necessary margins. As such, I declare each of the resolutions considered at today's meeting as carried. The exact number of votes cast in respect of each manner will be filed on SEDAR and by press release, which will be made available on our website. That concludes the formal business brought before the meeting. I wish to thank you all for attending, and I now declare the formal portion of the meeting to be closed.
I'll now turn the meeting over to Artis' President and CEO, Samir Manji, for his results. Thank you very much.
Thank you very much, Ben. Good afternoon, everyone. It's wonderful to see many familiar faces in the audience this afternoon. I'm gonna spend a few minutes walking through a few presentation slides that highlight and summarize the activities of 2022. We'll then open up the floor for questions. I think a lot of the information you're gonna see will not be new to most of you. I'll try and keep my remarks brief and make this as efficient as possible. As many of you know, in March of 2021, Artis established a new vision and strategy for the REIT. One that we, as a board and as a management team, felt with very high confidence, would enable us to achieve our fundamental and primary goal of maximizing value for our unitholders.
We knew at the time that diversified REITs on a conventional basis, were not getting the type of valuation and recognition in the market that they certainly, deserved in so far as intrinsic value, and that in an effort to try and address this, taking a bold step forward in establishing this new strategy would help towards achieving that. I think it's fair to say that when you look back to a year ago, at that point in time, we had just passed our one-year anniversary after having established this new vision and strategy. We had been busy executing on the key pillars attached to the strategy, and at the time, we certainly felt we were making good progress. The unit price reflected that. We hit a 12-month high of around CAD 13 just over a year ago.
Boy, oh, boy, do things certainly change quickly when you fast-forward 12 months later, and here we are in June of 2023. As I said, a lot has changed since that time. In 2022, we continued in executing one of the key objectives attached to the new strategy insofar as monetizing assets to strengthen the balance sheet. Hindsight's a wonderful thing. I'm not gonna read every bullet here, but I think seeing where the market is today, we're certainly glad that we were able to execute on a number of these dispositions last year, where interest rates were lower than where they are today, cap rates were lower, and correspondingly, the values we were able to achieve reflected those and other factors.
In doing so, we were able to monetize, both on the Canadian side of our portfolio and the U.S. side, a number of transactions. Insofar as capital allocation, we, from a strategy standpoint, wanted to use and harness liquidity on our balance sheet to be able to allocate capital to areas that we felt could be accretive and contribute to, again, that fundamental goal of maximizing value for unitholders. Hindsight, again, is a wonderful thing. We did deploy about CAD 100 million towards buying back units at a time when the intrinsic value or IFRS value at the time was north of CAD 18, and we were buying back units for what we thought at the time was a very attractive value in the CAD 12-CAD 13 range.
Similarly, in the first quarter of this year, where we saw a precipitous drop in our unit price, we continued with our NCIB activity and were able to acquire just over 1.3 million units in the first quarter at an average price of CAD 8.24. On the development side, we continued to see capital directed to completing previously announced development initiatives, primarily on the industrial side. Today, we're very happy to have been able to complete these developments and to see, through those projects being completed, a very buoyant leasing market that has enabled us to achieve a full lease-up. both in our Blaine development and our Park 8Ninety Phase 5 development in Houston. We've also completed the final phase of our Park Lucero development in Metro Phoenix.
This final phase was joint ventured, with Artis only retaining a 10% ownership stake. Operationally, we have seen, despite, you know, a lot of the headwinds in the market, we've seen progress across all asset classes when it comes to leasing and our overall occupancy results. Occupancy continues to be in the 90% range overall within our portfolio. Again, I won't go through each bullet. You know, we had previously reported as part of our Q4 and our Q1 results earlier this year, what we've been able to achieve on the leasing front, including what we are seeing with respect to our overall wallet and our increase in rates that we were able to achieve with both renewals and new leases that were executed.
On the ESG front, I think, really, the headline here is that we continue to remain committed across all fronts when it comes to the different elements of ESG, to ensure that as a company, as a REIT, we stay focused on ensuring that we do the right thing, that we, where possible and where feasible, see these initiatives on the ESG front continue to be an area of focus and one that we remain committed to. In so far as 2023, again, the world certainly has changed. I think that, it's fair to say that between the impact of inflation and what that's translated into with interest rates and the policy rates that we've seen on the U.S. and Canadian side, it certainly has not been friendly, to the real estate sector as a whole.
Artis, for one, has not been immune along the way. Having said that, we, as we noted in our Q1 announcement and conference call, are committed to taking all the steps necessary to ensure that we keep our balance sheet strong, and more importantly, we remain focused on debt reduction and ensuring that we have adequate liquidity to look after and fulfill all our upcoming debt obligations. On that front, some of you would have seen our announcement from earlier today, which builds on the announcement on May 11th, when we issued our Q1 results. May eleventh, we announced CAD 110 million of firm dispositions, and earlier today, we announced a series of additional dispositions that are firm and that are anticipated to close in the second quarter.
What that's gonna do is enable us to, as, you can see from this slide, see our balance sheet strengthen, our debt levels come down, and correspondingly, liquidity enhanced, both so as to ensure that we are able to satisfy debt obligations that are coming up, and also over time, to look at how we can deploy some of that capital opportunistically, moving forward. Really, in summary, as we continue to navigate through the choppy waters that we find ourselves in, and I would say that more, not just from an Artis perspective, but from a macro perspective, really the four things that we, as a board and as a management team, remain focused on: number one, strengthening the balance sheet and ensuring that we have adequate liquidity.
Number two, focusing on the key performance indicators that we have communicated to the market previously, including a real commitment to focusing on maximizing that asset value per unit through different levers available to us. Number three, continuing to drive organic growth and some of the development activity that we have previously announced will help us towards that goal. We're also on the doorstep of seeing our 395 unit residential tower in downtown Winnipeg complete and welcoming our first wave of residents who will move in in July, which we're looking forward to. Then, as we've already touched on with respect to our environmental, social, and governance practices, ensuring that we don't skip a beat and take all the steps necessary to maintain and achieve best practice in that area.
I know I moved through that relatively quickly, and I think the more important part of the presentation is really to hear from those in the audience that have any questions that they'd like to bring forward. As Ben mentioned, please feel free to use the microphones on either side of the room so that everyone can hear your question clearly.
Pardon me. Hey, no other. Yes. What I'm wondering about is, with the interest rates going up, I got a few questions.
Please.
Right now, like, how much debt do you carry? Is it 50% or is it more? Your book value?
When we issued our Q1 results, we reported just over 49% debt -to -gross book value. Again, with the announcements that we made on May 11th regarding firm dispositions that have now been completed. Following on that, the announcement from earlier today, we anticipate all things being equal with respect to IFRS values on our balance sheet, that we should see that leverage number come down by the time we issue our Q2 results.
How low do you figure it coming down to?
Well, our goal is to-
Okay.
Our goal is to see the 49% get closer to 45%, and then beyond that, to try and see that number go sub 45%.
Like I said. How will higher interest rates affect your loans?
Yeah, the higher interest rate environment certainly impacts our borrowing costs as it relates to our floating debt. That's another area where our team has been working hard to see some of that floating debt floating rate debt convert to fixed a longer duration debt. Again, we'll be able to report on the progress we've made during this quarter when we issue our results in the summer for Q2.
Here's a question on part of the mayor's running for election. I believe it was Brad Bradford. He said you don't have to move to Hamilton from Toronto.
Pardon me?
Just wonder, the guy running for mayor-
Yes.
Brad Bradford, he said one of his slogans is: "You don't have to move to Hamilton-
Okay.
-if you get elected." My question is, in Winnipeg, what would those units rent for? Those rental units. Just out of curiosity.
That's a great question. I've not been following the mayoral race here in Toronto, so apologies.
No problem.
Insofar as the Winnipeg rental market, what we are introducing to the market will be a best-in-class luxury residential tower. The rents that we anticipate we'll be able to achieve outside of a small group of affordable suites that we were mandated to provide as part of that development project. We anticipate that we'll be able to achieve somewhere in the neighborhood of CAD 2.50 per sq ft , which I know sounds like a great deal here in Toronto. Anyone that wants to move to a beautiful luxury tower in Winnipeg, we've got a few suites available that would be a lot more cost-friendly than Toronto rents.
I don't believe you can answer this, but how about to build in Winnipeg, the cost of building something like in Winnipeg or per sq ft , and the same, to build the same building in Toronto, in downtown, especially the land, which is very expensive?
Yes, it would cost more in Toronto.
A lot more or?
A lot more. A heck of a lot more.
Okay. I may have to move to Hamilton after all. Thank you.
Well, don't stop at Hamilton. Keep coming west. Thank you very much.
I'm just referring to one of your handouts you sent. It's got your picture on it, and you're talking about dear fellow Artis unitholders. One of the questions toward the back, I have a query on. Under final thoughts on our AGM, your. One of your sentences reads, "As we move further into the third year of implementing our new vision and strategy, if the discount to our trading price relative to NAV per unit does not close significantly, we will consider every option available to fulfill our goal of maximizing unit value for unitholders. We will not let our unitholders down." Something you sort of mentioned before is maybe on the path. What are you planning to do as you're in your third year to fulfill your comment?
Yeah. Thank you very much for the question. The first step is to continue with a real focus as a management team in executing on the objectives that we laid out in the presentation here, and that we've commented on in both that letter and previous communications we've made to unitholders. Beyond that, at some point, market conditions permitting, if we continue to trade at a massive discount, as we do today, to intrinsic value or IFRS value per unit, net asset value per unit, then as the narrative suggests, you know, we will look with our board at what are, what other options are available.
The reality is, you know, one can interpret that in many ways, but I think from a, again, more of a conventional standpoint, what companies historically or REITs historically have done, where that delta or discount persists for an extended period of time, is to look at strategic alternatives. That's not something we're saying today that we are going to do or are in the process of doing, but that's an example of something that would certainly be open to consideration for the Board, if in the months and quarters ahead, again, market conditions permitting, we continue to see status quo. We hope that's not the case. We hope that the unit price does stage a nice recovery along with the broader market, some things are beyond our control.
The other question I have is, the DBRS, Dominion Bond Rating Service. It's low, is that something on your plate as well, trying to deal with that?
Yeah, but-.
I look at this, and I don't like what I see. I'm an accountant, by the way, I like high numbers rather than low numbers.
That's a great question. I don't get this opportunity often enough to have our Chief Financial Officer address the crowd, but I think I'm gonna use my call a friend right now. I'm gonna invite Jaclyn Koenig, our Chief Financial Officer, up to address your question. She deals with DBRS on a day-to-day basis in terms of her responsibilities. I'll let her address the question.
Hi. In terms of our DBRS rating, this is a rating we've held for, oh, yeah, sorry, size appropriate. If I can see over. That we've held for a significant amount of time. This is one that we're committed to continuing to hold, and it's an important part of our business. We're in constant communication with DBRS, and we're comfortable currently where the rating is.
Are you doing anything to try to raise it? Is that fair question?
Yeah. Right now, you know, we're continuing to stick with our plan and try to, continue with the initiatives that we've been implementing in the REIT. I think currently maintaining the DBRS rating is what we're looking to achieve.
Just my final question, back to you, Samir. Regarding one of your investments in the, during the year, or give or take, the Dream REIT, that bounced very badly. I also took your advice, and I bought some personally. Any thoughts about that? Any comments? I'll sit down now. Thank you.
Thank you very much. Dream Office REIT is certainly an example of the sentiment that we are seeing broadly related to REITs and companies that are in the office space. I don't think that there are too many today that believe those headwinds are gonna let up in the near term regarding office. It continues to be something that's in the headlines on a regular basis. I think there's different schools of thought in terms of how this movie ultimately ends, and whether in fact, the business of leasing office space to companies is coming to an end, or whether in fact, humans being social creatures by nature, need to be in environments where they can congregate, they can work together, they can create culture, they can create and contribute to productivity.
They can see younger employees mentored and coached and developed. I'm of the latter view, but, you know, I think that it's gonna take time to see that play out. Until it does, I think these headwinds that we're seeing are gonna persist. One of our trustees earlier today pointed out that Europe is much further ahead than North America when it comes to return to office. If North America doesn't catch up, then ultimately we are going to see the effects of that. We're gonna see the impact on productivity. We're gonna see, I think other signals and outcomes that this work from home environment is going to contribute to in an adverse way. Until all of that plays out, certainly, the near term outlook for office remains challenged.
Having said that, you know, I think in most instances, one has to look at office on a market -by -market basis. There are markets that will remain very challenged in the near term. There are other markets that have demonstrated, if not resiliency, certainly stability. We would say that Madison, Wisconsin, which is a market that we are a significant office landlord in, would be a representation of a market that we believe is relatively stable and we anticipate will remain stable going forward. I think there's a lot to be seen in terms of how things play out.
Again, the interest rate environment doesn't help the current, you know, banking situation in the U.S. that has put a lot of pressure on commercial real estate loans that these banks hold by regulators and others is not gonna help. You know, I think that, you know, we probably have a few bumps to get over and then we'll see how things play out. Coming back to Dream Office, you know, we've historically been believers that Toronto's best days are still ahead. When you look at immigration, when you look at the different factors that make Toronto a great city for companies to either be situated in or for companies that are looking to expand into other markets to consider coming into.
Certainly pre-pandemic, all the signals were there that that was the case. We saw, and we've seen, a lot of new development, new construction. We saw positive momentum in rents and leasing rates. You know, that's all been impacted by COVID and what, you know, we're now seeing post-COVID. Again, one has to, I think, look at the long term and, you know, the reality is, if office does recover, you know, one of the, you know, bittersweet things about inflation is anyone looking to build new office is gonna have to pay a lot of, a lot more in terms of construction cost, and, you know, that ultimately has to translate into higher rates.
I know we've got a fair bit of absorption to get through in most markets before we start to see shovels in the ground for new office development. I think Dream Office, you know, is doing the right things. I think what we were advocating for a long time, insofar as capital allocation and the fact that Dream Office has this significant position in Dream Industrial on its balance sheet, that we thought should be monetized either to pay down debt or to allocate that capital to other initiatives. They've done just that with this recent announcement that they were selling what they have now sold through a secondary offering. Approximately half of that position, and have earmarked that capital for the Substantial Issuer Bid that was announced.
That SIB, if you look at their IFRS NAV, and again, all things being equal, will have a very significant accretive impact on the Dream Office's net asset value per unit post-completion of the SIB. You know, I think they're doing the right things, and as a significant unit holder of Dream Office, you know, we're certainly pleased to have seen that announcement on the Artis side. We saw correspondingly a nice bump in terms of the unit price, bouncing up a little bit from what at the time, you know, was a new low. Certainly in recent times, it was trading around CAD 12-CAD 13, and now it's back to around CAD 15. Hopefully, you know, they continue to do things that will see that unit price move in the right direction. All right.
If there's no other questions, our Trustees, my colleagues on the Management Team and I will be around and look forward to meeting with those that are able to stay back for a few minutes. On behalf of our Chairman, our Trustees, and our management team, we wanna thank you all for joining us here this afternoon. Thank you very much.