Good afternoon, ladies and gentlemen. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone at the Artis REIT's Q1 2023 results conference call. At this time, I would like to turn the conference over to Heather Nikkel. Please go ahead.
Thank you, operator. Good afternoon, welcome everyone. Thank you for joining us for Artis REIT's 1st quarter 2023 results conference call. Our results were disseminated yesterday and are available on SEDAR and on our website. With me on today's call is Artis' President and CEO, Samir Manji, CFO Jaclyn Koenig, COO Kim Riley, and Executive Vice President, U.S. Region, Philip Martens. A replay of this conference call will be available until Friday, May 19th, and can be accessed by using the telephone numbers and passcodes that were provided in yesterday's press release. A recording will also be made available on our website. I'd like to remind you that today's discussion may include forward-looking statements that involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today.
We have identified such factors in our public filings with securities regulators and suggest that you review those filings. 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. Lastly, as we discuss our performance, please keep in mind that all figures are in Canadian dollars unless otherwise noted. I will now turn the call over to Samir.
Thank you, Heather. Good morning, everyone. Welcome to Artis' Q1 earnings call. On behalf of the team, I would like to thank you all for joining us today. On today's call, I will provide an update on our performance during the Q1 and will provide some additional commentary on our progress to date in 2023 and the path forward for Artis. In doing so, as I've done in previous quarters, I will keep my remarks brief so as to allow ample time for the question and answer session at the end. On our last earnings call in March, we acknowledged that 2022 had presented both opportunities and challenges for Artis due to macroeconomic factors that had a significant impact on the real estate sector.
These external factors continue to create uncertainty and volatility in the markets, which we do not anticipate will end anytime soon. Having said that, we will stay focused on addressing near-term priorities while also capitalizing on opportunities available to us from a capital allocation standpoint, with an eye on continuing to drive net asset value per unit for our owners. Today, our top priority is strengthening the balance sheet and more specifically, reducing leverage and increasing liquidity. Fortunately, we have a number of levers available to us to achieve this, including selling assets, refinancing mortgages, establishing new mortgage financing, and monetizing public securities. During the Q1, we sold an office property located in Saskatchewan.
In addition, subsequent to the end of the quarter, we sold a retail property located in Alberta and have four assets under unconditional sale agreements expected to close in the Q2 at prices that are in line with our IFRS values. These four dispositions total CAD 110 million. We have a number of additional dispositions that are at various stages and look forward to providing updates on these transactions in the months ahead. The disposition activity we're seeing, including unsolicited inbounds from buyers seeking to acquire specific assets of ours, demonstrates demand in the market for quality real estate while also reflecting the quality of real estate that Artis owns.
Our disposition plan is on track, and we are confident that we can execute our target of at least $400 million of dispositions in the year, which will contribute to reducing overall leverage, enhancing our liquidity, and will put us in a good position to satisfy our upcoming debt obligations. While our debt to gross book value increased slightly during the quarter, we are committed to reducing leverage in the Q2, and we will continue to focus on reducing leverage throughout 2023. Proceeds from dispositions have also been instrumental in providing us the flexibility to utilize our normal course issuer bid. Under our current NCIB, we acquired 1.7 million units at a weighted average price of $8.40 per unit, a significant discount to our IFRS NAV per unit of $17.09.
Subsequent to the quarter, we acquired nearly 1.9 million additional units at a weighted average price of CAD 7.17 per unit. We intend to continue utilizing our NCIB as it represents the best investment we can make today and is highly accretive to our net asset value per unit. Turning to our debt maturities, we began 2023 with a fair amount of debt maturing in the year. We have been working diligently to manage these maturities. During the Q1, we renewed the second tranche of the revolving facilities in the amount of CAD 280 million. In terms of the non-revolving credit facilities, we extended both the CAD 100 million and CAD 150 million non-revolving credit facilities, each for a one-year term.
Subsequent to the end of the quarter, we repaid the CAD $50 million non-revolving facility that matured in April 2023. In terms of mortgages, at March 31, 2023, mortgage maturities for the remainder of 2023 total CAD $433.5 million. Subsequent to March 31, 2023, we repaid one maturing mortgage in the amount of CAD $16.6 million. We also refinanced two mortgages with a cumulative principal balance at maturity of CAD $24 million and received a cumulative uplift of CAD $10 million on these two loans. Of the remaining 2023 mortgage maturities, we have plans underway to renew, refinance, or repay each of these mortgages.
As a result of the progress we've made during the Q1 with our near term debt maturities, current liabilities on our balance sheet decreased by CAD 349 million from December 31st to March 31st. This is heading in the right direction, and we expect that this trend will continue over the next few quarters. We recognize that a key component of our 2023 debt maturities is the CAD 250 million debenture that is maturing at the end of Q3. We are on track to have the flexibility to simply repay this full amount if the prevailing terms for issuing a new debenture by that time are not in the best interest of our unitholders. I do want to acknowledge and recognize our lenders and thank them for their continued commitment to Artis.
As we work through the remainder of 2023 debt maturities, we will continue to be diligent and thoughtful in the process and will ensure that each decision, regardless of its magnitude, is made with an owner's mentality. We look forward to providing additional updates as we make further progress in this important area of our overall business. On the operational front, we are very pleased with the amount of leasing activity we're experiencing across our portfolio. Same property NOI was the highest it has been in several quarters, reaching 8.4% in Canadian dollars and 4.3% in functional currency. The weighted average increase achieved on renewal rents that commenced in the quarter was 4.8%.
Occupancy remained above 90% and positive leasing momentum continued throughout the quarter with 409,983 sq ft of new leases and 315,574 sq ft of renewals commencing in the quarter. During the Q1, we completed two development projects, Blaine 35 II and Park Lucero East, both of which are 100% leased. Subsequent to the end of the quarter, we also signed a new 440,000 sq ft lease at Park 890, phase v, the last phase of our industrial development project in Houston. Phase v of Park 890 is now 100% leased. We've also made significant progress on 300 Main, our 40-story residential development in Winnipeg.
The move-in date for our first phase of suites has been set for early July, an exciting milestone, and we recently opened a series of display suites inviting the public into the tower for the first time. The response to it has been overwhelmingly positive. We're looking forward to not only the income stream that will be coming online as tenants move into this property, but also the impact that having people living at Portage and Main will have on Winnipeg's downtown businesses, including our own commercial tenants and our parkades situated within walking distance of our new residential tower. Lastly, I'd like to touch on our public and securities investments. As I mentioned earlier, our near-term focus is on improving our balance sheet and, more specifically, reducing debt and increasing our liquidity position.
During the quarter, we sold CAD 39.2 million of equity securities as we saw a better capital allocation opportunity to buy back our own units using our NCIB while also adding to our liquidity position. Because of the significant discount to NAV that our units are trading at, we view buying back our units as the best investment we can make today, something we will continue to do, as noted earlier, given the significant accretive impact this will have on net asset value per unit, FFO per unit, and AFFO per unit. We are in no rush to monetize public securities going forward, but will consider doing so on an opportunistic basis and if it is in Artis' interest from a capital allocation standpoint.
With respect to our investment in Cominar, we continue to work collaboratively with our partners and have completed several dispositions this year with additional dispositions in the pipeline. Once again demonstrating the demand we continue to see in the private transaction market environment. Overall, external factors have certainly changed the overall landscape for real estate. While current interest rates, persistent inflation, and fears of recession continue to impact the public markets, we remain encouraged by the operating fundamentals of our portfolio and the markets we operate in. We'll continue to focus on the big picture and our fundamental goal of maximizing value for our unitholders. We remain committed to increasing net asset value per unit while also doing everything we can to narrow the gap between NAV per unit and the trading price of our units.
With that, I'll turn back over to the operator to moderate the question and answer session.
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 your touch-tone phone. You will hear three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please, for your first question. Your first question comes from Fred Blondeau with Laurentian Bank. Please go ahead.
Thank you, good afternoon. I was wondering, Samir or Jacqueline, when considering post Q1 refinancings and expected dispositions, where does that leave us on the remaining CAD 434 million of mortgage maturities this year? Can you give us a bit of guidance on what percentage of this amount that you plan to actually refinance?
I can take that one. For the amount that we plan on looking to refinance, it's somewhere around 28% of the maturing balance-
Okay
Of the 434.
Okay. No, that's great. Maybe one last from me for Samir. I'm a little bit surprised that you guys are still active on the NCIB, given the situation on the balance sheet. Was wondering, is this because you're getting more comfortable with asset like dispositions or you just wanna show some activity because, you know, you just feel like the unit price is so depressed?
It's both of the factors you've noted, Fred.
Okay
If we were concerned about, go forward liquidity and the balance sheet, we would not be active with our NCIB. We are very comfortable with where we are today and directionally where we're heading. Based on that, you know, have that comfort in seeing our NCIB continue to be active.
Perfect. Thank you for this.
Your next question comes from Matt Kornack with National Financial. Please go ahead.
Hi, guys. Can you just walk us through the NOI contribution from, I think it's 360 Main in terms of how those units will come online and how we should expect, kind of NOI to trend. I understand apartments they can be negative in the beginning as you're in lease-up, but eventually obviously that turns to the positive.
Yeah, for sure. This is Kim. I can take that question. We are opening our first phase of suites July 1st, we've already made significant progress on the lease-up. We expect to have probably 30 or 40 people moving in July 1 ramping up from there. 200 suites are coming online in the first phase the balance later in the year. I expect significant leasing through the last two quarters of 2023 continuing into 2024, and being, you know, stabilized occupancy by the end of 2024.
Can you provide what kind of your pro forma stabilized NOI would be from that building?
I don't have that on hand, but we can definitely calculate that and circle back.
Okay, thanks. Samir, I'm not, I'm not sure if I'm gonna get any answer on this, but I'll try. One of your equity securities is in the process of doing an SIB. Would that qualify as an opportunistic point to get some liquidity out of your equity securities?
Yeah. The simple answer is, yes, it will provide that sort of opportunistic scenario. We're gonna obviously evaluate between now and the tender deadline date, how things progress on other fronts. We wanna spend some more time understanding the information in the circular. Then, with our board, we'll make a decision accordingly when we get closer to the deadline date.
Okay. Fair enough. With regards to 161 Inverness, can you give us a sense as to how you think that property will be repositioned and the leasing prospects for, I guess, smaller spaces as opposed to trying to go after a single tenant for all of it?
I can answer that if you like, Samir. This is Philip Martens. Right now, we are working through to renovating the building to upgrade a lot of our, a lot of our equipment. We're also white boxing the fifth and first floors to begin this process of multi-tenanting the building for the first time ever. We have had some tours already. There are looks at this building. It's unique. It's got great frontage on the interstate, as well as having access to light rail. We remain hopeful that we are introducing, so to speak, a new building to the market that has great visibility.
Ballpark, how much would be the investment to get it to that positioning?
Right now we are budgeting for the next couple years, around CAD 4 million. This year we'll be spending approximately CAD 1.7 million.
Okay. Then the last one for me, just with regards, and I think I may have asked last call, but I'm not sure if I ultimately got the answer. With regards to the way the U.S. office portfolio is funded or lending there, can you give a sense as to what the secured financing looks like on that portfolio? Are there any assets where it would be accretive to the REIT to give it back to the lender? Is that not something that you're considering at all?
I'll address the second part and then pass over to Jackie for the first part. She may have to come back to you, Matt, in terms of not having necessarily all the detail you're looking for. On the second part, there's no intention at this point to hand keys back to any of our lenders for any of our U.S. assets.
Okay, thanks.
Your next question comes from Ananthan Vijayakumar with RBC Capital Markets. Please go ahead.
Hi, good afternoon, guys. Just a couple of quick questions. Outside the CAD 110 million of asset sales closing in May, can you speak to sort of the timing and the investor interest for the rest CAD 250 million-CAD 260 million of asset sales?
Sure. As we said, in our press release, we have a healthy pipeline of additional dispositions, and we anticipate that, you know, the majority of that is not gonna be back-ended, that it's real-time. The good news is, you know, we have multiple irons in the fire, and often in many of these instances, again, given the quality of the real estate, it's not a one-horse race. We have multiple buyers for certain assets that are currently in that disposition pipeline. We expect it'll be closer to near term versus back-ended, and really that translates into Q2 and into Q3.
Perfect. Thank you. Just two more quick ones here. With the upcoming debenture, what rates are you potentially seeing if you were to issue a new one?
The indication today in the market is that we would be somewhere in the range of 8%, give or take. Hence the comment in our narrative a few minutes ago that, you know, at those levels, we anticipate that, you know, it would be in the interest of Artis' owners to simply extinguish the CAD 250 million, if we believe that we can source capital elsewhere at a lower rate.
Perfect. Thank you. That's all for me.
Okay. Thank you.
Your next question comes from Mario Saric with Scotiabank. Please go ahead.
Hi. Hi, good afternoon. Samir, just on the, it seems like the sentiment on disposition was a bit better. Not that it was bad last quarter, but it seems like it's a bit better this quarter. The market seems to be opening up a little bit. You talked about some unsolicited offers. Can you give us a sense of what the magnitude of those unsolicited offers is, and whether there's any relationship on the assets that the offers are coming in on? Like if there's any kind of common characteristics that you're finding.
Yeah. Thanks, Mario. The magnitude is certainly significant, and I say that in the context of where these are unsolicited, they would not be within the universe of planned dispositions. To give you a more sort of specific indication, you know, we're probably talking anywhere from $75 million-$100 million in magnitude. What is interesting is it also spans across multiple asset classes, so retail, industrial, and even office in some instances. It's, it's hard to ascertain whether any of these transactions will proceed, but it's certainly encouraging the fact that, as I said earlier, the quality of our real estate, the markets that we are situated in, for the most part, you know, continue to attract interest, again, largely from the private buyer market.
No, no concentration by asset class. How about by geography? Probably also fairly geographically dispersed.
No. Yeah. You know, we've seen it both on the Canadian and U.S. side.
Got it. Okay. I don't know if you can provide this, but can you give us a sense of what a cap rate range on the assets you are looking to sell that comprise the remainder of the CAD 400 million in 2023?
It obviously will range, you know, depending on the asset, depending on the asset class, and depending on the market. What I can say is when we look at cap rates generally that we are seeing, number one, they are in line with our, with our IFRS values. Number two, and equally important, is the fact that these cap rates are well below our current cost to capital. You know, the opportunity today, and this can change over time, but the opportunity today to transact, and in doing so, to see a positive net effect, on the overall, financial side of things looks, certainly appealing.
Just on that point, if the private market appetite is opening up and the units continue to trade where they are there any impediments towards substantially exceeding that CAD 400 million goal to accelerate NCIB activity? I'm talking about special distributions, taxable income or anything along those lines.
We don't see any impediments. Again, we'll see how things play out.
Okay. That's it for me. Thank you.
Thank you, Mario.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from Jonathan Kelcher with TD Cowen. Please go ahead.
Thanks. Just following up on Mario's last question there. The assets that you have in the held for sale, what would the average IFRS cap rate be on those?
That's a great question, Jonathan Kelcher. We don't have the answer off the top of our heads here, but we can certainly get back to you on that.
Okay. Switching to operations, specifically the Madison portfolio. Looks like you guys have a fair amount of leasing to do in that portfolio this year, and you've done a good job. You got 44% already taken care of. Is there any sense on the other 55%-56% or so that you still have to take care of? In other words, are there any known tenants that are not going to renew?
I can take that question as well. Right now we have a few expirations, some we've already worked through for renewals. The Madison office market is wonderfully resilient and continues to surprise us. We have outside of TDS, as some of they have some retrenching that they've been structured into their lease since we've acquired the asset way back in 2016, there are no surprises here. We continue to get big tenants. We're surprised at the resiliency of this market, and I'm pretty hopeful for the rest of the year.
Okay. Like, I think you guys are 18% vacant there, but there's no. You didn't put a CBRE number in there. How would you guys compare to the overall market?
Yes. CBRE, compared to the overall market of the U.S. or-
No. No, how are you guys in Madison versus the overall Madison market? Do you outperform?
Right.
Are you in line?
We are outperforming right now. It's quite in our the region where we invest, we have one chief competitor, and our occupancy is we're around 86% right now, and theirs is a little bit lower. We are more competitive than they are, and I think that also has a lot to do with the quality of our, of our management team there as well. We do get out once in a while, and we find ourselves as the recipients of new leases.
Okay. Just lastly, Samir, I'm not, I'm not sure on the filing rules, but for your equity security dispositions in Q1 and post Q1, if any of that was FCR or Dream Office, would you guys have to file?
FCR, no. Dream Office, yes.
Okay. Do you care to add any color to that?
No, I think, as I said in my commentary earlier, and in addressing the question that was raised earlier about the current SIB that's underway with Dream Office, we're gonna evaluate each of these on an ongoing basis, opportunistically, based on other moving parts with dispositions, overall liquidity, and ultimately land on decisions that we believe are in the best interest of Artis' unit holders. We're under no pressure at this point, given the outlook and given the trajectory, to do any further public security monetization beyond what has already been completed, both in Q1 and subsequent to the quarter, as was disclosed in the release. Again, you know, the market is a fluid one, and we're gonna just try and be as diligent and prudent on behalf of Artis' unit holders, moving forward.
Okay. Fair enough. I think last quarter you said that you guys had three securities, one not named, and obviously FCR and Dream. Is that still the case, or are you down to just those two?
Yeah. The third, I will confirm, Jonathan, that the third name that was part of the mix, we have completely exited. That leaves us with the two.
Okay. Thanks for the color. I'll turn it back.
Thanks, Jonathan.
There are no further questions at this time. I will now turn the call over to Heather Nikkel. Please go ahead.
Thank you, operator. That wraps up our Q1 results call. We appreciate you taking the time to join us today. Have a nice weekend ahead.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating.