RFA Financial Inc. (RFA) Earnings Call Transcript & Summary

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 today in person. For those who are unable to join us in person, we have also provided a live audio webcast, a replay of which will be available on the Artis REIT website following this meeting. Before we get started, I would like to introduce our trustees and nominees: Heather-Anne Irwin; Samir Manji; Jacqueline Moss; myself, Ben Rodney; Mike Shaikh and Lis Wigmore. I would also like to introduce members of the executive team in attendance today: Samir Manji, President and CEO; Jaclyn Koenig, CFO; Kim Riley, COO. Thank you, everybody, for being here. I will now move into the formal business of the meeting. I call this meeting to order. I will preside as Chair of this meeting, and I appoint Kara Watson, the Corporate Secretary of the REIT, to act as secretary of the meeting. I appoint Odyssey Trust Company to act as scrutineer for the meeting. Arlene Agnew is here to represent Odyssey. The notice calling this meeting and related management proxies were mailed to all unitholders of the REIT. As the 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'm advised by the secretary, who has the scrutineer's report on attendance, that a quorum is present. Scrutineer reports that there are 58,971,143 unitholders present in person or by proxy at today's meeting, representing approximately 55.1% 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 having given and a quorum being present, I declare this meeting to be duly constituted for the transaction of business. I would like to make a few comments with respect to the proceedings at 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 use 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, and the official results will be filed on SEDAR+ and available on our website. In order to facilitate the proceedings for today's meeting, I have 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 31, 2023, and the auditor's report thereon are hereby placed before the meeting. Management would be pleased to deal with any relevant questions concerning the financial statements during the general question period, which follows this meeting. Copies of the 2023 Annual Report, including the REIT's financial statements and management discussion and analysis for the year ended December 31, 2023, 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 6. 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 with 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 advanced 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 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 with the reappointment of the auditors of the REIT, which is to be approved as an ordinary resolution. It is 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 have a motion? Thank you. Are there any questions specific to this motion? As there are no questions, I ask all those in favor, please raise their hand. All those against this motion, please raise your hand. I declare this motion carried. Next item of business is to consider in an advisory nonbinding capacity an ordinary resolution set -- in the form set out in the circular with respect 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 raise their hand. All those against this motion, please raise your hand. I declare this motion carried. I've been advised by the scrutineers that the ballots and 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 matter will be filed on SEDAR+ and by press release, which will also be made available on our website. That concludes the formal business brought forth before this meeting. I wish to thank you all for attending, and I now declare the formal portion of the meeting to be closed. I will now turn the meeting over to Artis President and CEO, Samir Manji, for his remarks. Thank you.

Thank you very much, Ben. Good afternoon, everyone. I'm going to spend a few minutes providing an update on the past year, including our year-to-date activities for 2024. And then we will open the floor for any questions. As many of you are aware, in March of 2021, Artis, at the direction of the Board of Directors with the support of management and on behalf of all its unitholders, embarked on a very ambitious journey to transform the REIT from an undervalued diversified REIT to one that we anticipated, if successfully executed, would see Artis become a world-class real estate asset management and investment platform focused on value investing. We knew at that time that this would not be easy. We didn't know how long it would take, and we certainly didn't anticipate what would lie ahead vis-a-vis macroeconomic factors, including the interest rate environment that we would be operating in a few quarters later on. Out of the gates, in executing this new vision and strategy, we successfully completed the sale of our GTA industrial portfolio for over $700 million at a record cap rate sub-3%. We -- shortly after that, with a consortium of investors who were successful in privatizing another Canadian diversified REIT called Cominar, and fast forward a year later in March of 2022, we saw Artis' unit price hit a 52-week high of $13.76. At that time, we had a Bank of Canada overnight rate of 0.25%. Nine months later, as we saw 2022 come to an end, we saw global economic growth slowdown with Q4 2022 global growth of 1.2% versus 3.9% just a quarter earlier. We saw the Canadian economy finished 2022 on a flat note with 0% annualized growth. And we saw the Bank of Canada overnight rate finish 2022 at 400 basis points greater than where it was 9 months earlier. Suffice it to say that we knew that we had to put our initial vision and agenda on pause and shift our attention to what we felt would be a critical set of objectives for 2023 that would enable us to navigate what today, when we look back, we all affectionately refer to as a higher-for-longer interest rate environment. I'll spend just a few minutes talking about 4 key objectives that we established for 2023, and we'll report on how we performed and the results for each against the stated objective. Our first and what continues through to today to be the most important objective is Artis strengthening its balance sheet through debt reduction and as an extension, to enhance its liquidity. We had a busy 2023 and by all accounts, a successful one as it relates to this objective. We were able to divest 17 properties, totaling just over CAD 320 million last year. And we didn't stop there. In 2024, year-to-date, we have completed the sale of over $170 million of assets -- and we have unconditional agreements in place to sell a further $184 million of Canadian assets and USD 272 million of U.S. assets. The 2 in aggregate will total over CAD 550 million. So that will get us this year, based on firm transactions and completed transactions, to over $700 million of asset sales for 2024. We are confident that upon completion, these transactions will significantly improve Artis' overall leverage ratios and liquidity so that we can, hopefully, on the back end, get back to the initial strategy we had in place, whereas our Board Chair will remind us and say in his very thoughtful way, putting us back on offense versus defense. Second objective is capital allocation and here specifically to see us reallocate some of this capital that we are able to generate through the dispositions I just summarized towards that overarching objective of value investing and through that, improving Artis' net asset value per unit. Last year, we completed 2 developments: our industrial development in Blaine, a suburb of Minneapolis; and our development at 300 Main in Winnipeg. We also completed, through our normal course issuer bid, the repurchase of over 7 million units at an average price of $7.26, almost 50% of our then or our year-end net asset value per unit of $13.96. And so far this year, we've been able to build on that through the renewal of the normal course issuer bid in December. In Q1, we were able to acquire just over 1.1 million units or repurchase just over 1.1 million units at an average price of $6.11, more than 50% below our most recent stated net asset value per unit of $14.06 that we reported in Q1. Third objective, eyes to our real estate operations and enhancing the performance of our real estate portfolio, both in Canada and the U.S. This is something that we set out to do by continuing to look for opportunities for efficiencies and of course, most importantly, maintaining healthy levels of occupancy and healthy level of rents, including rents on renewals or new leases. Here, again, by all accounts, we believe we had a very good year in 2023. Our overall occupancy was over 90%. We saw same-property NOI growth of 7.6%. Our new leases and lease renewals totaled almost 2.2 million square feet at an overall increase in our renewal rates of just over 4.8%. And then finally, in terms of the objectives I'll talk about today, our ESG objectives. And here, let me begin by saying that we continue to remain committed to seeing artists be a true ESG-minded company, i.e., these aren't just words, but actions to support and back that commitment. I won't go through all of the 13 points. These will be posted on our website after the meeting, but I will highlight a couple of points under each of the 3 areas. On the environmental side, I'm pleased to say that, today, using technology, we're able to track our energy and water consumption. We've conducted a portfolio-wide property-level climate risk assessment, and these are just 2 of the multiple initiatives under the environmental component of our ESG strategy objective. On the social side, we -- and this, I think, is a real highlight for the Board and for the management team. And it should be something that unitholders are really proud of. We were included on the Globe and Mail's Women Lead Here list. And I have to say, we have outstanding female leaders in the organization, 4 of whom are here this afternoon and who do an exceptional job in their respective areas of responsibility. Thank you, Mike. Our Chief Operating Officer, Kim Riley, who Ben introduced earlier on; our Chief Financial Officer, Jaclyn Koenig; our Executive Vice President, General Counsel, Corporate Secretary, Kara Watson, who is seated in the back. And next to her is Heather Nikkel, our Senior Vice President of Investor Relations and Sustainability, and they are 4 exceptional leaders, not just women, leaders. And they are joined by other incredible female leaders throughout the organization. I want to again just acknowledge them and thank them for the tremendous work that they do and the commitment that they bring to Artis each and every day. Continuing on the social side, we formed this year a Diversity, Equity, Inclusion and Belonging Committee alongside a Health and Safety Committee. And then on the governance side, again, there are several things we could talk about, but let me just highlight the fact that we have, again, committed to the United Nations Sustainable Development Goals. And we have disclosed our climate-related information in accordance with the Task Force on Climate-Related Financial Disclosures. That's a brief snapshot in terms of 2023 and our year-to-date activities for 2024. I want to just close by talking about the road ahead and the economic data we saw earlier this week, hopefully, has paved the way for what many have been anticipating for quite some time with a first of, hopefully, many rate cuts that we can look forward to if not in June, then hopefully in July. On the Canadian side, we will likely lead ahead of the U.S. for reasons that many are aware of. And I think that this will be a critical turning point for not just Artis but I would say, the broader real estate sector. For us, from an internal standpoint, as you can see from the 4 points highlighted on the slide, it really is business as usual, continuing in 2024 with where we ended 2023 vis-a-vis the key objectives I've summarized. And we are confident that, through each of these -- I won't repeat all of them. I've gone through them individually already. But through a disciplined approach, a focused approach and ultimately, we hope, successfully executing on each of and all for these key objectives that we're going to be able to achieve the ultimate goal that we have always, always been committed to. And that is to see unitholders rewarded for their commitment and their incredible patience. And I know there are some unitholders in the room here who I enjoy having regular dialogue and contact with. And I want to thank them alongside all of our unitholders for that continued trust and I would say patience because certainly the last couple of years have required that from all of our unitholders. And with that, we are confident. We are confident that we will turn the corner. And I say we, in a collective sense not just from a human effort standpoint, but we believe the market will ultimately follow. And through that, we hope we will be able to successfully bridge what we know has been a perennial issue in terms of the value gap between our trading price and what we view as the intrinsic value of Artis' portfolio of assets and our net asset value per unit. So with that, we will open the floor to any questions anyone would like to ask. Okay. Seeing as there are no questions for the floor, I know that our trustees -- and I want to acknowledge and congratulate Jackie Moss, and Jackie, we're looking forward to having you alongside the rest of us in the boardroom and to your contributions and support in the journey ahead. We will all be available following the formal closure of the meeting and alongside with management. If anyone would like to discuss anything offline, we'll certainly make ourselves available for the next little while. Thank you all for being here, and have a great rest of your day. Thank you.