Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Property rental revenue increased by 2.5% compared to Q2 a year ago.
- Cash NOI was up 3.2%, and same-property cash NOI increased by 2.5%.
- FFO per unit diluted increased to $0.233 from $0.23.
- Entered into an agreement to sell Kennedy Lands in Markham, Ontario for $54 million, representing a 79% premium above the IFRS value.
- The transaction will result in an expected debt to GBV ratio of approximately 41.8%, down from 43.6% at the end of Q2.
Negative Points
- Interest expense and other financing charges for the quarter increased by $0.4 million from Q2 a year ago.
- FFO decreased by 0.5% compared to Q2 last year due to higher interest expense and a reduction in straight-line rent adjustment.
- G&A expenses remained similar to last year at approximately $1.4 million.
- The cap rate applicable to the portfolio increased to 6.68% from 6.59% at the end of 2023.
- AFFO payout ratio was 86.3%, only slightly down from 87.4% in Q2 last year.
Q & A Highlights
Q: Congrats on the Kennedy Lands and another good quarter. Based on your experience, what could be the incremental density upon rezoning, and how long would the rezoning process likely take?
A: Currently, the property is not zoned for high-density, but the market official plan is pushing for it. We don't have an exact projection, but densities are moving significantly upwards due to the housing crisis. The rezoning process could take two to six years, and we get paid on rezoning, not on building permits or completion.
Q: With $54 million of capital recycled, do you see more opportunities in the market that APR could potentially capture later this year or next year?
A: We believe this is fortuitous timing. Traditionally, we haven't done many deals at the end of the year, but discussions with the automotive industry sector indicate that the buy-sell gap is adjusting. We are optimistic about the next 6 to 18 months.
Q: There is a $9.5 million swap entered at a 5.4% rate. What rate are you seeing today in the market, and how do you plan to manage the $30 million of swaps coming due within the next 12 months?
A: Rates have dropped by about 30 basis points from that swap. We anticipate rates to continue moving downwards and will look to extend and get the best rates possible for the swaps coming due.
Q: As far as the sale goes, to what extent was this motivated by the opportunity coming up or the unattractive equity markets?
A: The equity markets are not at a place where we would do a raise, but we still had capacity for acquisitions. This sale was an opportunity to pull out some land value. It was fortuitous timing for an additional injection of capital, which we can use to drive AFFO per unit through acquisitions.
Q: Looking at the acquisition market, does declining interest rates make it more difficult to get current owners to sell?
A: Declining rates might make it easier for owners to hold onto their properties, but as debt rolls over at higher rates than a few years ago, and with inventory going up, we believe there will be more opportunities now than when rates were at incredibly low levels.
Q: Did the announcement of the Kennedy Lands sale prompt any discussions with other tenants?
A: It depends more on what's happening in specific regions and with specific businesses. As properties and cities mature, we may capture underlying value by working with tenants, but it's not driven by a press release.
Q: Are you having discussions with any other tenants on similar transactions?
A: We don't discuss anything until we announce it, but we are always looking at potential opportunities.
Q: With some leases starting to roll in '26, do you think we might see more deals like the Kennedy Lands transaction?
A: We don't have conclusive answers yet, but we are always evaluating opportunities. The Kennedy Lands transaction was an example of capturing value by working with our tenants.
Q: What is your current balance sheet capacity for acquisitions?
A: Our capacity is significant. The Kennedy Roads property was unencumbered, so this sale provided pure cash to the bottom line. It's more about the availability of properties and groups we want to work with.
Q: What is the target leverage you aim for?
A: We are comfortable at a 50% to low-50%s level. This allows us to drive AFFO growth per unit while maintaining a healthy balance sheet.
Q: When does the lease expire on the Kennedy Lands property, and was the lease term a factor in deciding to go for rezoning?
A: The property has a midterm lease with significant renewal options. The decision to go for rezoning was based on the opportunity to capture value for our unit holders, not just the lease term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
