Good afternoon, ladies and gentlemen. My name is J.P., and I will be your conference operator today. At this time, I would like to welcome everyone to Artis REIT's Q2 2023 results conference call. At this time, I would like to turn the conference over to Heather Nikkel. Please go ahead.
Thank you, operator. Hello, welcome, everyone. Thank you for joining us for Artis REIT's Q2 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's President and CEO, Samir Manji, CFO, Jaclyn Koenig, COO, Kim Riley, and Executive Vice President, U.S. Region, Phil Martens. As we discuss our performance today, we want to acknowledge 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. We 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. Throughout this discussion, please note that 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 Thursday, August tenth. 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. I will now turn the call over to Samir to discuss Artis's Q2 results.
Thank you, Heather. Hello, everyone, thank you for joining Artis's Q2 earnings call. We are pleased to report our Q2 2023 results and provide an update on our progress during the current fiscal year, we'll also briefly comment on yesterday's announcement that the board of Artis has established a special committee to initiate a strategic review. As we navigate the current environment and macroeconomic challenges that all REITs are facing, liquidity and flexibility are key. On our last conference call, we made it clear that our top priority is strengthening the balance sheet and, more specifically, reducing leverage and increasing liquidity using the various levers available to us, including selling assets, refinancing mortgages, obtaining new mortgage financing, and monetizing public securities. We will now add to this list of priorities, pursuing all options available to unlock and maximize value for our unitholders.
During the Q2 , we made significant progress on our disposition strategy. During Q2, we sold 13 properties and one parcel of land. These dispositions comprised five Canadian retail properties, sold for $121.7 million, and eight U.S. industrial properties, and a parcel of land sold for $117.6 million. These sales unlocked nearly $200 million of liquidity and put us well on track to meet our target of $400 million of dispositions this year. These asset sales have increased our overall financial flexibility and also allowed us to enhance unitholder value by reallocating capital to our Normal Course Issuer Bid.
Under our current NCIB, which began in December 2022, we have bought back over 6 million common units at a weighted average price of $7.47 per unit, a significant discount to our $16.28 IFRS net asset value per unit. As long as the disconnect between our trading price and NAV per unit persists, repurchasing units continues to be one of the best low-risk investments that Artis can make and also rewards unitholders with enhanced value. During the quarter, we monetized a portion of our equity securities and, most notably, participated in Dream Office REIT's Substantial Issuer Bid, pursuant to which we sold approximately 2.2 million units for aggregate sale proceeds of nearly $34 million. The decision to participate in the SIB was quite simply a capital allocation decision that supports our liquidity objectives.
As we have conveyed throughout the implementation of our strategy, we expect our income and correspondingly our FFO and AFFO metrics to be lumpy from one quarter to the next, and we anticipate that this will continue to be the case going forward. For clarity, we have included metrics in our MD&A showing FFO and AFFO calculations, both including and excluding the impact of the realized loss on the sale of equity securities. We will continue to evaluate our public securities options from a capital allocation standpoint as we navigate the current environment, while remaining focused on our goals of reducing leverage, enhancing liquidity, and pursuing capital allocation opportunities that will maximize net asset value per unit for our owners.
Our metrics have also been impacted by rising interest rates, we anticipate that this will continue to be the case in the near term as rates are expected to remain higher for longer. As we have conveyed on previous earnings calls, mortgages have been a significant focus for us over the past several quarters. New mortgage financing is one of the levers available to us to provide liquidity, especially given our large pool of unencumbered assets. During the quarter, we obtained new mortgage financing in the amount of CAD 186.7 million, a substantial contribution to our liquidity position. A significant portion of this, CAD 171.9 million, relates to a new mortgage at 300 and 330 Main and the Winnipeg Square Parkade. This is a three-year mortgage with interest-only payments for the duration of the term.
These levers, property dispositions, equity securities, and mortgage financing, are an integral part of our capital allocation strategy and our commitment to reduce leverage and improve our balance sheet. By allocating a significant portion of the proceeds generated from these liquidity initiatives to reducing debt, our debt-to-gross book value decreased to 47.2% at June 30th, from 49.1% at March 31st. At the same time, current liabilities on our balance sheet decreased by CAD 540 million from December 31st to June 30th. These numbers are moving in the right direction, and we are committed to ensuring that this trend continues over the next several quarters. Turning to our debt maturities, we began 2023 with a fair amount maturing in the year. We continue working diligently to manage these maturities.
In terms of credit facilities, in Q1, we renewed the second tranche of the revolving facilities in the amount of CAD 280 million and extended the CAD 100 million and CAD 150 million non-revolving credit facilities, each for a 1-year term. Going into Q2, we had only 1 credit facility left to be addressed in 2023, a CAD 50 million non-revolving facility that was repaid upon maturity in April. At June 30th, we had CAD 332.5 million of mortgage debt maturing during the remainder of 2023. We have received term sheets for new or renewed loans for 40% of these maturities, have extension options in place for 23%.
17% of the debt is expected to be paid down upon maturity of the loan or disposition of the property. We anticipate no difficulty in managing the remaining 20% of maturities in the normal course. With respect to our overall debt obligations, 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. In the same month, our Series E Preferred Units will either be reset or redeemed. Based on prevailing interest rates, we anticipate repaying the debenture and resetting the rate on the Series E Preferred Units, again, with the overall objective of allocating capital such that we maximize liquidity and flexibility. I would now like to turn to our operational performance.
Despite the current economic environment, our real estate portfolio continued to show strength and stability during the quarter. Of course, in the real estate business, leasing activity and tenant relations are fundamental to a portfolio's success and overall business. In Q2, Artis negotiated and signed over 1 million square feet of new leases and lease renewals. This leasing momentum reflects the strength of our properties. Owning units of Artis REIT means having an ownership stake in a desirable, active portfolio of high-quality real estate. I would like to acknowledge and thank our team for their hard work that contributed to achieving the leasing results we witnessed in Q2. On top of signing over 1 million square feet of leases, renewals that commenced in the quarter were at a weighted average increase in rental rates of 4.6%.
In addition to our leasing accomplishments in the Q2 , our same property NOI increased by 6.9% and 7.7% year-over-year for the three and six months ended June 30th, respectively, and overall occupancy across the portfolio remained over 90%. These results reflect Artis's robust operational strength, which is critical to our resilience. The Q2 was also notable for our 300 Main, our 300 Main development, our 40-story residential development in Winnipeg, as we prepare to welcome tenants into the building on July 1. The response from the local community has been very positive. We are thrilled to contribute in a significant way to the fabric of Winnipeg's downtown and to the city's ongoing urban renewal efforts.
We are looking forward to the income stream that will continue to grow as more tenants move in, but we are equally enthusiastic about the impact that people living in the heart of the city will have on Winnipeg's downtown businesses, including our own commercial tenants and parkades situated within walking distance of the tower. With respect to our investment in Cominar, we'll continue to work with our partners in executing our plan and completed several additional dispositions year to date, with additional dispositions in the pipeline, once again, demonstrating the demand that we continue to see in the private transaction environment. Overall, we are pleased with the progress we made during the Q2 . In a short amount of time, we have made improvements to our balance sheet and are in a better position in terms of liquidity than we were even just a few months ago.
Our disposition plan is on track. We are confident that between this and the other levers that are available to us, we are well positioned to satisfy our upcoming debt obligations. With asset sales and other liquidity-enhancing initiatives, along with the strong real estate fundamentals and performance of our portfolio, it is our view that despite broader market uncertainties presenting challenges to all REITs, we are executing on a sound strategy that will ultimately deliver unitholder value. This last point around strategy to drive unitholder value is a good segue into yesterday's announcement that the Artis board has formed a special committee to initiate a strategic review process to consider and evaluate strategic alternatives that may be available to the REIT to unlock and maximize value for our unitholders.
The board is very clear in its commitment to address the significant discount to intrinsic value that our unit price trades at. We know that there continues to be strong demand for quality real estate in the private transaction market, and this has certainly been demonstrated in our disposition activity we commented on earlier. We also know that we have very good real estate, as reflected in our leasing results and property-level financial performance, and we have a very strong management team and platform. The board and special committee are going to look at all avenues available to harness these strong fundamentals to deliver on our commitment to maximize value for our unit holders. Since yesterday's announcement, we've heard from a number of unit holders who have thanked the board for moving in this direction.
They have expressed their frustration with the unit price performance. I can tell you that management and the board share in this frustration. The board and special committee look forward to providing updates in due course. I will now turn it back over to the operator to moderate the Q&A session.
Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a 3-tone prompt acknowledging your request. If you would like to cancel your request, please press star 2. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. Your first question comes from the line of Jonathan Kelcher from TD. Your line is now open.
Thanks. Good afternoon. I guess the first question will just be about the strategic review, and hopefully it's one that you can answer. In setting up the committee, is the board or the committee looking at hiring external advisors to help with the strategic review?
Yes.
Okay, short and sweet. Then, as this, as this goes on, any changes or slowdowns, and I think you kind of addressed this in your opening remarks, Samir, but any changes to what you guys are currently doing with the business transformation plan, or does it sort of continue as is?
I think, insofar as the areas that I've highlighted in our remarks today, that will continue to be our focus. Insofar as allocating capital to any new investments or acquisitions, I think that one can read between the lines that, you know, that would be done in a very tempered way, if at all, moving forward until we all work through the initiatives that the special committee has been established to undertake.
Okay. That's, that's helpful. Then just on the Cominar, just on the Cominar platform, you talked about dispositions. How would the pricing compare to what you guys marked those assets at when you first put them on your books?
The Cominar results have been reflected in our consolidated results. So, to date, I can say that, you know, the dispositions that have been completed, have achieved values in line with what we had underwritten, insofar as most of those dispositions. Certainly, more recent dispositions, we've seen some erosion in value. The positive, if I had to describe it this way, is, you know, we continue to retain the higher quality assets that we inherited in that acquisition. Those assets, we believe, will continue to have good value and liquidity as we move forward.
Okay. Thanks. I'll turn it back.
Your next question comes from the line of Matt Kornack from National Bank Financial. Your line is now open.
Thanks, guys. Just with regards to the dispositions that you completed in Q2, can you give us a sense as to where they would have been sold relative to IFRS? I think they were retail and industrial assets. Just a sense on, on maybe pricing in those two segments and, and investor demand.
I'll let Kim and Jackie address, address that question.
Sure. This is Kim. I can take it first. The assets were sold in line with IFRS value, and we're seeing a lot of demand, actually, for, for the industrial and the retail. We've done very well with those dispositions. Overall, cap rate for all dispositions is actually in the mid-fives. Really strong demand. We're, we're, we're pleased with where those dispositions took place.
Okay. Then, I, I guess with regards to your commentary around the capital allocation side on the repayment of your unsecured debenture, but keeping the pref outstanding, and can you give a sense as to what the, the pref would reset to pricing-wise at this point?
Let Jackie address that.
Matt, let me run that out, and then I can circulate where we'd look today if we were to reset.
Okay. Thanks, guys.
Your next question comes from the line of Jimmy Shan from RBC Capital Markets. Your line is now open.
Thanks. Just for modeling purposes, that CAD 280 million of asset sale, you said it was around the mid-5, and it's probably in your MD&A somewhere. What will be the timing of that, of those sales throughout the quarter, and also the timing of the paydown of the credit facility during the quarter?
Yeah, that's- it-- I would say some of them took place m-m-mid-quarter, and then quite a few took place at the end of the quarter. End of the quarter is probably a, a reasonable average.
Okay. The mid five was in reference to the CAD 280 million, right?
Correct. Yeah.
Yeah. Okay. On the mortgage maturities, Samir, you went through it, I didn't quite catch it all. $333 million coming due, 40%, you've got term sheets and, sort of like, what, what rate are you, are you seeing? I think it's something like 17% paid down, and I couldn't get what was the remainder?
I can, I can take that one, Samir. Yeah, of the-
Yeah.
Yeah, the 40% of the planned renewal where we have term sheets in hand, it depends on the asset. As we're looking at a few in office and retail, along with, I believe, one industrial. They're somewhere around 6.5%-7% on a variable and fixed rate. The remainder, we have about 20%, which are maturing at the end of the year, which we're looking at getting term sheets. We have 70% that we're planning on repaying, just depending on the mortgage and the asset that we have at hand. Then we have about 23% that we're able to exercise extension options that are currently built into those current agreements, and the options are between 12 and 24 months.
Okay. and, and the rate on the extension would be at that 6.5%-7% rate as well?
Yes. Yeah.
Yeah. Okay. Okay. Then, just lastly, on the liquidity side, I think you, you do have some unencumbered asset, CAD 1.7 billion. Maybe can you remind me, like, why you're not putting new mortgages on those, to pay down the credit facility? Is it you're not gonna get much savings, or are those earmarked for sale? Maybe some color around why you're not tapping that, those unencumbered assets.
Jimmy, I'll, I'll start, and I'll pass over to Jackie. We have been going down that path, as demonstrated in the comments we just offered a few minutes ago. At the same time as you suggested, you know, part of what we're trying to balance is assets that are part of our disposition plan, assets that may be brought into that disposition exercise. Then now with the announcement we've made around the strategic review, we wanna make sure that we maintain the flexibility that unencumbered assets would have, when it comes to potential buyers for those assets.
Okay. Makes sense.
Jackie, sorry, Jackie, anything you wanna add?
No, nothing I wanna add to that. I think you covered it.
Okay, thank you.
As a reminder, if you have a question, please press Star followed by the 1 on your telephone keypad. Your next question comes from the line of Mario Saric from Scotiabank. Your line is now open.
Hi, good afternoon. Just a couple of questions on the dispositions during the quarter. The first one, just a clarification, in terms of selling at IFRS. Wanted to ensure that the IFRS NAV was at...
Yes, that's correct. They're all dispositions were in line with where our NAV is.
Then, the dispositions that were completed, were all of them in the planned dispositions of...?
Yes. Yes, everything that was disposed of in the quarter was planned to be disposed of, as part of the overall disposition plan.
Samir, I think last quarter you mentioned exploration in the unsolicited bid pipeline of $ million-$100 million of assets. There was a sense of where that stands today and whether.
I'll let, I'll let Kim address that.
Sorry, I could you repeat the question?
Last quarter, Samir mentioned an unsolicited bid pipeline of between million to CAD 100 million. These were assets that weren't guidance in terms of potential dispositions. I just wanted to get a better understanding of where that pipeline stands today in quantum and how things are...
Right now we have around CAD 140 million of assets in our held-for-sale pool. As we discussed on the last call, we do get inbound calls for from buyers looking to acquire assets, which we will evaluate and respond to. For the most part, we're focused on the list of dispositions that we've identified, and those are the ones that are on our priority for execution.
Okay. Next question, just with respect to the maturing mortgages, this year, can you give us a sense of what the average IFRS NAV cap rate is on the assets that have those mortgages?
Yeah, that's a number I don't have on hand. I can look at something and circulate that as well.
Okay. My, my last question, just with respect to the strategic review, you highlighted the material discount to NAV that the stock is trading at. How do you, how do you think about any attribution of that discount to kind of the diversified nature of the portfolio? Do you think that's part of the discount or, or, or not?
There's no, there's no question that the discount that we've witnessed for many years is attributed, partially to that, as opposed to what one conventionally sees with pure play, REITs and REOCs in the market. Again, you know, I think therein lies part of the opportunity moving forward, in, in the board and special committees, exercise that, is being initiated.
I don't know if you can answer this, but is it your sense that there's enough scale in each of the asset classes to exist on a standalone basis?
Sorry, you're breaking in and out. Can you repeat the question?
Sorry, Samir. My question was, is it your sense that there is enough scale in each of the asset classes to operate as a standalone vehicle?
Certainly, certainly the, the size of Artis' , asset class-specific portfolio, or portfolios, across the different asset classes, across some of the asset classes would potentially, fit that bill. Again, you know, I think this is really about maximizing value and looking at all options available, as the board and special committee move forward with this, initiative.
Okay. Sorry, my, my last question. In the, in the private market today, we've heard that private capital is the predominant buyer in the market. Do you sense that attempting to sell portfolios of assets or, or several assets put together, do you sense there's a, a premium being attached to that, or, or at this point, or does it not matter, individual asset versus groups of assets?
It, it's, it's a fair question, and one that I, I don't think is a one size fits all. I think that one has to evaluate different markets, different asset classes, and certainly, you know, there, there, there could be. There could be, in, in some instances, that scenario that you've described. You know, I think it's premature to, to speculate on that or to comment further. We'll see, you know, how things unfold, and we'll be able to, in due course, let the board and special committee report back.
Okay. That's it for me. Thank you.
There are no further questions at this time. I will now turn the call back to Heather. Please continue.
Thank you, operator. That wraps up our Q2 results call. We appreciate you taking the time to join us today. Enjoy the rest of your day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.