Artis Real Estate Investment Trust

TSX:AX.UN

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Artis REIT's Third Quarter 2020 Conference Call. [Operator Instructions] Today's discussion may include forward-looking statements, which include statements that are not statements of historical fact and statements regarding Artis REIT's future financial performance and its execution of initiatives to deliver unitholder value. Such statements are based on management's assumptions and beliefs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Please see Artis REIT's public filings for a discussion of these risk factors, which are included in the annual and quarterly filings, which can be found on Artis REIT's website and on SEDAR. Thank you. And I would like to turn the meeting over to Mr. Armin Martens. Please go ahead, sir.

[Armin Martens;President and CEO]

Okay. Thank you, moderator. And good day, everyone. Welcome to our Q3 2020 conference call. So again, my name is Armin Martens. I'm the CEO of Artis REIT. With me on this call are Jim Green, our CFO; Kim Riley our EVP of Investments; Phil Martens, EVP of U.S. operations; and Jackie Koenig, SVP of Accounting.So again, thanks for joining us. Now as in the past, I'll ask Jim Green to review our financial highlights, and then I'll wrap up with some market commentary, and then we'll open the lines for questions. So go ahead, please, Jim.

[James Green, Chief Financial Officer]

Thanks, Armin, and good afternoon, everyone. So these strange times continue. The second wave of COVID is hitting all countries with more restrictions and government-mandated shutdowns. Despite that, however, Artis continues to see good results from our operations. And in our opinion, we have completed an excellent quarter despite the presence of COVID. Our rent collections have been strong, and thus far our tenants are weathering the storm quite well. Artis did not participate in the CECRA program proposed by the federal government, but we have been working with our tenants as needed to provide rent deferrals. And in some cases, we have provided rent abatements in exchange for an early renewal or longer term on the lease. The federal government has recently announced new rent relief program for tenants, with the aid coming directly to the tenant and not involving a rent reduction by the landlord. We feel this is a major improvement in the program, and we will work with our tenants as necessary to help them access this program. At the end of September, our rents receivable were down to approximately $8 million from $12 million at the end of June. We have a further $5.5 million that we've agreed to defer under deferral agreements with our tenants. And while we feel the majority will ultimately be collected, we did book a reserve of approximately $2.1 million against these balances, which we feel is adequate to cover any potential rent defaults. Our accounts receivable collection rates during Q3 were over 97% and have been over 98% for the month of October. Our leasing activity continues to be strong, with over 600,000 square feet of new leases commencing in the quarter at a weighted average increase of over 6%. Interesting fact: the number is almost the same, roughly 600,000 square feet of leases typically negotiated during the quarter. And the average increase of that was 5.4%, which we feel is very good, given the impact of COVID on the commercial rent market. You'll recall going back to 2018 that the REIT announced a planned series of new initiatives to surface value for the REIT. In our opinion, we've now virtually completed that series of planned initiatives. And we've set ourselves a new series of initiatives, including a further $550 million of asset sales, with the proceeds targeted mainly for debt reduction. This program is already well underway. In addition, we've announced a plan to spin off our Canadian retail properties into a separate entity. We believe this plan, which is aimed at reducing the diversified nature of Artis' portfolio, is still a potentially effective strategy. However, as announced in our press release, given the recent proxy fight initiated by one of our unitholders, the Board has determined to delay the unitholder meeting related to the spin-off until a later date. Based on our Q3 NOI, the rate is 50.5% weighted in Canada and 49.5% in the U.S., so almost half and half. As we continue to move forward, however, we expect the majority of future asset sales will likely be in Canada. And we expect this ratio to swing, such that greater than 50% of our income will come from assets in the United States. On an asset class basis, we're 45.6% weighted in office, 19.2% weighted in retail, and 35.2% in industrial. Specifically, on retail, you may recall retail was only 17.2% of Q2. However, part of that swing was due to a fairly large bad debt provision recorded in Q2 on the retail tenant rents receivable. You will have noted or may have noted that we've added some new disclosure on our MD&A breaking out a lot of our metrics by asset class. Hopefully, this disclosure is helpful to both the marketplace and to our analysts as investors continue to review our results and valuations. During Q3, we've completed 2 projects we had under development, both of which are 100% leased. As of September 30, we really only had one project left actively under development, which is our 40-story residential project in Winnipeg. As detailed in our MD&A, we also have several development projects in the planning stages where construction has not actively started. However, they're proceeding well, and we would expect at least 1 or 2 of those to start during Q4 or Q1 of 2021. our balance sheet reflects a slight improvement in our debt to GBV, with the ratio now at 51.9% this quarter compared to 52.5% last quarter and 52.3% at year-end. We did collect a fairly substantial mortgage receivable right at the end of the quarter, so that did not get applied to the debt but did on October 1. So we expect further improvement in Q4 when you factor in that mortgage receivable collection, plus some asset sales that are currently under unconditional contract. Artis does have a fairly significant portion of our debt maturing within the next 12 months, including roughly $503 million of mortgage debt in addition to an unsecured debenture of $250 million. Some of that debt, we've been deliberately keeping short term as it relates to assets that we plan to sell, and we'll probably continue to do that with some of it. We don't anticipate any difficulty in refinancing the rest of it on longer-term assets. Roughly $32 million of that gets repaid anyway just from typical principal repayments during the next year, and funds are available on our line of credit if needed for any refinancing. Our NOI line this quarter was $71.0 million compared to $70.2 million last quarter, so an increase again. With the increase in NOI combined with lower interest rates and lower debt costs, our FFO for the quarter is up to $50.8 million from $49.4 million last quarter. On a per-unit basis, FFO came in at $0.37 this quarter compared to $0.36 last quarter and $0.34 in the comparative quarter last year. Again as we did in Q2, we've added disclosure breaking out our FFO for each asset class, using that percentage of NOI as the method of allocation. So on that math, it's $0.17 from our office portfolio, $0.13 from our industrial portfolio and $0.07 in the retail portfolio. AFFO for the quarter was $0.27, up from $0.25 in Q3 of '19. Our payout ratios are a very conservative 37.8% of FFO and 51.9% of AFFO. On a same-property basis, the results, unfortunately, were a negative this quarter, 1.2%. And one of the largest factors in the drop is actually the parking revenue in the Western Canadian office sector as many tenants have canceled parking while they work from home during COVID. The industrial segment continues to show the strongest performance in both countries, with 2.3% growth in Canada and 0.7% growth in the U.S. On a fair value basis, we, as required under IFRS, value all our properties at fair value. And valuation is a little challenging in the current market due to COVID. However, we did have additional external appraisals done during the quarter, and there's certainly no hard evidence to indicate that cap rates or discount rates or market rents have moved substantially. You may recall we recorded a fairly substantial reduction in value at the end of Q1. And for both Q2 and now Q3, we did not feel any significant adjustments were warranted, and the net fair value adjustment was very nominal this quarter. So given that fair value of properties, we can now calculate the net asset value per trust unit. And our calculation is just using the equity on our balance sheet, less the equity held by our preferred unitholders, and divided by the number of common units outstanding at the end of the quarter. And on that basis, the net asset value or NAV per unit was $15.35 this quarter compared to $15.40 last quarter. Asset declines, I'm going to say mainly due to FX, which on a stand-alone basis would have decreased now by $0.23. And offsetting this is a gain of approximately $0.18 from our income for the quarter being in excess of our distributions. Here we go. Artis ended the quarter with approximately $48 million of cash on hand and $423 million undrawn on our line of credit. Based on what we know today, we feel we have more than adequate liquidity to get us through the remainder of the COVID crisis, and we look forward to more normal times. And last but certainly not least, I'm pleased to highlight that we've announced a distribution increase of 3% commencing with the distribution that will be paid in January 2021. That completes the financial review for now. I'm happy to answer any questions later, but I'll pass it back to Armin for some more discussion first. Keep safe, everyone.

[Armin Martens;President and CEO]

Hey, thanks, Jim. And so folks as we know, this has been a volatile unprecedented year. But as it applies to Artis, the worst really is behind us. Artis is clearly performing very well this year. We continue to make good progress in all key strategic fronts and are delivering strong performance metrics for our unitholders. We saw rental increases. Our FFO and AFFO per unit are all solid numbers. Our rent collections are good and continue to improve, and watch for more monthly updates from us on that front as well. So we're in great shape, and of course we just printed an excellent quarter. We have every reason to believe we'll deliver a great Q4 as well and end the year strong and look forward to next year with optimism. Looking ahead, given our very conservative payout ratio and the progress we've made on our strategic initiatives, debt reduction will continue to be a top priority for us. As mentioned, we are confident of our ability to reduce our debt to GBV to the 45% range by the end of the second half of next year. And we're satisfied of course that as we improve our debt metrics, our price multiple will improve as well. And I fondly remember it was only in the first quarter of this year, this same year, we were trading over $13. And we think that, that kind of price is achievable in short order as well as we continue to improve our metrics and demonstrate progress on all of our strategic fronts. Now as Jim mentioned, falling floating interest rates are a natural boost to our earnings, which we think is structural and will remain with us long term. Lower for longer is clearly the new mantra and normal for interest rates. It is our view that liquidity and availability of credit will continue to improve as we get to the other side of this pandemic. And all of this of course will be good for real estate and REIT valuations. Our property disposition program progressed very well during Q3, in the third quarter. Looking ahead for this year, we anticipate selling -- by selling them, I mean, closed or unconditional about $300 million by year-end with another $250 million to $300 million on summer next year. So $550 million to $600 million by the summer of next year, with most of it done this year, and again at prices consistent with our IFRS NAV of $15.35, and again used for debt reductions and improvement of our liquidity. It's important to note of course that as our financial metrics improve, so do our portfolio of properties. We're continuing to improve our office and retail weighting -- I'm sorry, we're continuing to reduce our office and retail weighting and increasing our ownership of industrial properties. We're streamlining and high-grading our portfolio as well as reducing the number of secondary markets we're in. And in a sense, it's a private equity model that we're implementing to maximize unitholder value. The office and retail markets have been challenging this year, but on balance, our overall portfolio is performing well. Interesting to note of all the office markets Artis is in, Toronto, Winnipeg, Calgary, Vancouver, Madison, Minneapolis, Denver, Phoenix, it's Madison and Minneapolis that have printed positive absorption numbers in terms of the markets themselves. But a new paradigm is upon us in terms of office and retail and even industrial. And I mentioned this at our AGM -- excuse me again. What a difference a 100-year pandemic mix in terms of office, but we will see more work from home. But maybe not so much, but we'll see more. Because creativity matters, productivity matters and teamwork matters, we believe there will always be a need for office space of course. However, we still expect that office tenants -- the office tenant market will settle down to about 1 to 2 work-from-home days per week. We expect office tenants to need more space per employee. And therefore we expect the demand for suburban office space to increase versus CBD. And in our case as you are aware, about 75% of Artis' property -- office properties are suburban; 25% CBD. In terms of retail, there's the paradigm shift at retail in an accelerated manner this year. Online shopping has potentially peaked during this lockdown. But as we move to the other side of the pandemic, equilibrium between online and in-person shopping should be achieved. And in a way, it's good to get that over with, so to speak. We do point out that not all retail is bad retail. Open-air service sector, strip malls, needs-based retail, we feel will always be in demand. Shopping in principle has to be done in person. And in a way this kind of retail is akin to showcase industrial. And that's the kind of retail that Artis primarily has. And showcase industrial, as you know, is a very good asset class. So not all retail is bad retail. There's still good opportunities in retail. In terms of industrial, while the industrial has come up again as the winner in this pandemic, generally speaking, we will see demand for industrial space increase. And in our case, Artis has about -- we own about $2 billion of industrial properties, about $1 billion on each side of the border. And it's all performing well. That has a very good track record and continues to deliver solid organic growth. And our industrial development pipeline is also on track to deliver excellent results. As I mentioned before, stay tuned for more good news on this front, as we move to expand our industrial development pipeline with institutional joint venture partners. We do not have an announcement to make on that front yet, but we have signed a comprehensive letter of intent with a global institutional partner that focuses only on real estate, to develop an $80 million, that's Canadian dollars, industrial development in Phoenix. And so we're just trading paper on the [ JVA ], and as we get them -- that is completed, which is the target before the end of this year, we'll give you more color on that. But it's a good validation. I mean this is a fund that manages over $1 billion of real estate worldwide. It's a good validation of our management team and our industrial development platform and our expertise. So we're looking forward to that JV and many more in the years ahead. So again, some key takeaways for this quarter and beyond, Artis will deliver very good results this year. We are poised to be one of just a few REITs that will actually increase its FFO per unit in 2020. And next year will be better than this year. We feel that our distribution hike of 3% is both modest and prudent, and it sets the stage for multiple annual distribution hikes in the years ahead. Also in terms of return of capital, watch for Artis to keep its NCIB active in a prudent manner during the months and years ahead as well. And this is not just about a select accretive use of capital, it's very accretive of course at these prices, but about tax planning for our unitholders as well. We do always have to keep all aspects of the capital markets, of finance in perspective, but income tax planning, there's recapture of depreciation and there's capital gains. All these things have to be taken into account when we execute on a sales program. We can't just push a button and say sell. We've got to do it in a methodical and well-planned manner, and that's what we are doing. When we look at our 5-year model, we feel our model is very conservative. And the distribution hikes that we're talking about and the NCIB that we're discussing are very reasonable and very prudent and very much affordable. As a matter of fact, possibly we can do even more. So again, Artis is not your typical diversified REIT anymore. This is important, and this is because of a lot of hard work on the part of the Board and management. It didn't happen overnight, but during the past 3 years, we've made very good progress in streamlining and improving our portfolio by asset class and geography. And we'll continue to do so as we saw noncore retail and office properties between now and next summer and the quarters ahead. As Jim mentioned, we did about -- we did a lot of leasing this last quarter. I mean that's a typical quarter for us. We're working very hard. We did over 700,000 square feet of leasing, 105 leases. 35 were new leases, which are always challenging. And then 70 that were lease renewals. And so we've got a diversified portfolio. We make the point that being diversified is not easy to do. Not everybody has that experience to manage a diversified portfolio of 3 different asset class real estate. And at the portfolio level and then even at the capital markets and at the Board level, it's not that easy to do. If you look at the charts, we feel we've got a great track record of doing that, and we're the right team -- management team to do it. We can't just push a button and say we'll change the management team. We can't just push a button and say we'll change the Board, because there isn't that much expertise out there that can manage a diversified portfolio the way we manage it. So we feel we're in good shape. That does complete my part of this report. And we trust that you'll find, as Jim mentioned, our new MD&A format even more informative and useful in analyzing the value in Artis REIT. Looking ahead as we manage, obviously we'll continue to work hard and keep our buildings full, whilst bringing the rents up to market and consistently streamlining and improving our portfolio, and to be clear, the integrity of our balance sheet, our earnings growth and implementing our strategic initiatives and staying on the path of continuous improvement -- and that's an important path as I said, it doesn't happen overnight. And the results we've delivered this year is an example of that objective to stay on that path of continuous improvement. All that is of utmost importance to us. So I'll turn the mic over to the moderator now to ask your questions. But before I do, I just want to make the point, I think we all know that obviously we're in the early stages of an activist campaign. That's what I can call it. But we want to focus -- we'd like the questions on this call to focus on Artis, on the good REIT that we are, we had a great quarter and the results and the operational. And anything to do with Artis, not on the activist campaign. There's a lot of days ahead. Thank you for helping us to do that. So if you hear me say the word activism or activist or Sandpiper, that doesn't mean that I want to talk about it. So with that, I'll now let the moderator take over for some questions.

[Operator]

[Operator Instructions] And your first question will be from Liyan Chen at IA Securities.

[Unknown]

I was just wondering if you could give us a little bit more color specifically regarding your just general outlook in terms of the Canadian office segment? Naturally, it depends on how long the implication of COVID are going to last, especially now that we're in the middle of a second wave and perhaps even getting some subsequent waves. So given this extended period of uncertainty, I know you briefly mentioned your overall thoughts. But I was just wondering if you've got some update as to how employers are going to reimagine their office space going forward.

[Armin Martens;President and CEO]

Yes, that's a good question. All of us are hopeful that -- and we believe we're seeing it a little bit, that more space is required per employee and tenants have got to lease more space. This is one of the reasons that there could be a push for more demand for suburban office versus downtown. Because the rental rates, at the end of the day, they do matter. And depending on which city you're in, 90-day commute each way plus 30-day -- 30-minute commute minimum to get your office space is an overrated experience. So these are still uncertain times with the office market. There will be a paradigm shift for sure of products. There will be more work from home. We don't know yet. I think long term, everybody wants to be downtown and be in an office space with -- and working -- and work collaboratively with their teammates and with their core employees. But for now, I think -- and we're seeing negative absorption as you know in Toronto, Winnipeg, Calgary, and Vancouver even. And that we should -- then there's a lot of subleasing taking place especially in Toronto, and we should expect that to continue. And we -- I thought by this time we'd be out of this pandemic thing, but we're not. And I think we should expect next year to be a slow year as well. And we should not expect positive absorption anywhere, and potentially even more subleasing before things get back to normal. But by no means am I one that would say that urban living is dead or that downtown is dead. There'll always be demand for office space. There just always will be. But more space per employee will be needed. We believe suburban office will become more popular. It could become the next big thing. Availability of space at a cheaper rate, availability of parking, availability to be closer to the soccer fields and the schools where the kids are and even to your supportive in-laws and your support system on that matter. So it's not very scientific, all -- everything that I've said, but that's our assessment right now. It's early days still. I'm a 100% believer that office space will always be with us. Demand will always be with us, but there will be a shift in the nature of the demand.

[Unknown]

And similarly, can you give us some more details about the market conditions in Minnesota, and if you could talk about your views there going forward?

[Armin Martens;President and CEO]

Yes. So I mean there's been slight absorption in the first half this year in Minnesota and Minneapolis, St. Paul market as well as Madison. In fairness, I believe most of that was suburban. There was a little bit of decline at downtown in those markets. But they've outperformed most markets in North America. And that said because it's been a disruptive year where tenants have put their pens down and said, "We're not leasing this space. We're hanging in there. We'll do short-term renewals. And when we get to other side of this pandemic, we'll start making decisions again." So that's a tough year, the year we're in. In our case, our office properties are performing okay. They're still not good enough. It's -- our greatest -- in terms of drop in same-property NOI, it was retail first, then office. And then industrial was positive. But we see ourselves coming out of this and being -- and obviously our portfolio being in pretty good shape, all things considered vis-à-vis the market conditions.

[Unknown]

Great, perfect. And just lastly very quickly, so just regarding the retail spin-off, other than the part that was mentioned in the press release, I was just wondering what kind of feedback you received from other stakeholders so far on this initiative since the announcement in September. And what's the current action plan and time line here?

[Armin Martens;President and CEO]

So I think the press release is clear on the action plan there. When we first reviewed this retail spin-off, it was about 120-day process. We had 2 financial advisers working with us and recommending it, unanimous Board support. And we, during the month of September, we got nothing but positive feedback. Some investors said, "You're doing fine, don't bother with a spin-off," and nobody criticized it. But then an activist has come up to disagree, and I'm not sure if it was opportunistic or not. But we're doing this -- we're not jamming this down anybody's throat, and we won't. We said at our AGM that it was well-disclosed that we're contemplating and proposing a spin-off. But we always said it would be up to the unitholders, we'll take it to unitholders for a vote. We'll do it in a tax-efficient manner. And that because of that, because we're not jamming it down anybody's throat, because it's tax efficient and totally democratic, it requires 2/3 vote of approval from the preferreds and the common, not 50.1%. Jim's looking at me here. And because of that, that's one of the factors the way we keep considering to say "Well, maybe we'll just put this aside right now. And remember, it's 2/3 of the quorum. But let's put this us aside right now. We firmly believe in it, and we'll deal with it another day, and we'll just focus on the Board requisition of the vote for now. The thing about the retail spin-off is the empirical data speaks for it. It's a very good idea. And one thing I'm disappointed in is this activist coming out and not having a better idea and just saying, "No, status quo, sell down." Okay, there's 2 questions when we say -- when somebody says to you sell retail, 2 questions to ask: one is, "To whom?" and the other is, "To what price?"And then what about -- then the third thing is what about the income tax consequences? When you've got to think of aspects, most of our investors are retail investors, they're taxable investors. If you're a nontaxable GP of an [ excess ] fund, maybe you don't care. You only get paid only on the top line. But we look at all aspects and we're very careful to do this the right way. We look at the way we're trading. We look at our FFO breakout by asset class. We're clearly not getting any value at all for retail. And we know if we spin-off a small-cap retail REIT, it's not necessarily going to trade well and trade below the NAV.And some people say it will trade like an orphan. Well, there's a lot of orphans out there. It's a big orphanage in terms of retail REITs trading below NAV right now, and office REITs trading below NAV. We think it's a brilliant idea, a very good idea to still do a retail spin-off. It's tax-efficient. And you get something, you get a retail unit in your hand, and if you're a taxable investor, you can sell the unit, you get out. If you're nontaxable, you can stay in it and watch the retail REIT sell down its properties at a NAV which is higher than the trading price and give you back a good return of capital. There's different -- there's so much optionality there. And again as I said, a diversified REIT is hard to run. A diversified REIT is an excellent value proposition. Every -- all diversified REITs have kind of excellent value propositions. I think if you want maximum value, you're trying to get NAV, well now you're in a value trap. How do you get out of that? How do you get out this value trap to get the full amount of $15.35? Now you've got to think outside the box. You can't just say, well, sell and pay taxes or this or that. You've got to think outside the box and you've got to look at what is working. And what is working is pure-play REITs. That is working. They're getting better price multiples than we are. And so that's why we went that direction. And I still think the retail spin-off a great idea. It moves us forward to just being an office-industrial REIT which we can then spin off again or we privatize. Either way, it gets us to a better price multiple without industrial, without the retail. In the retail we get -- whatever price we get, it's more than we're getting now. So thanks for mentioning that. That question, I had to give a longer answer than I thought I would.

[Operator]

[Operator Instructions] And your next question will be from Jonathan Kelcher at TD Securities.

[Jonathan Kelcher, Analyst]

First question just on the asset dispositions, could we maybe -- especially the 2 large ones, the Concorde portfolio and Shoppers Delta, could you maybe give a little bit of color on them in terms of who looked at them? Who the potential buyers were? And who ultimately bought them?

[Armin Martens;President and CEO]

I'll let Kim weight in here.

[Kim Riley]

Yes, for sure. And I can't say the names of the purchasers. But I can say in terms of who's looking at all of our dispositions right now, it's kind of a mix of larger fund managers, private individuals and some family office, so kind of a little bit of a mix. So Concorde specifically was looked at by multiple buyers. We didn't have it listed, but we think that we achieved a great value. That one does have some future density. So there's an apartment complex that could be developed there. We're in the kind of final stages of approval on that and anticipate that will be approved early next year. Same thing with Delta. Delta Shoppers has some density as well. I do think that the purchaser plans to just continue to operate it as a retail center, maybe kind of a land play and then future development potential as well.

[Jonathan Kelcher, Analyst]

Okay. And Concorde, was that -- that's a stabilized 5% cap rate, it's a full building?

[Kim Riley]

That is more of a actual in place kind of going forward next 12 months.

[Jonathan Kelcher, Analyst]

Okay. In terms of -- now that you're deferring the retail spin-off, and you're still looking to sell a fairly larger number of assets next year, will you sort of tailor that more towards retail asset sales now? Is there any change in plan there?

[Armin Martens;President and CEO]

No, you're right. It will be a combination of retail and more office. A year ago, before this pandemic came upon us, we shifted the paradigm. And while we were doing it, we thought we can sell all -- down our retail in a 3-year period. We don't think that anymore because we don't want to give it away, right? But we can continue to sell some retail and improve our balance sheet and improve our portfolio, streamline our portfolio. And then we'll sell some more office as well and we'll grow industrial.

[Jonathan Kelcher, Analyst]

Okay. And then just on the developments, were Park 8Ninety and Linden Ridge, were they fully in NOI? Were they in NOI for the full quarter?

[James Green, Chief Financial Officer]

Park 8Ninety was. Linden Ridge is not.

[Jonathan Kelcher, Analyst]

And when -- how much of the quarter was it in?

[James Green, Chief Financial Officer]

One tenant at Linden Ridge has taken occupancy and off the top of my head, Jonathan, I'm sorry I'm not sure when their rent actually commenced. But I'm guessing, was it maybe September at the earliest?

[Kim Riley]

Correct.

[Jonathan Kelcher, Analyst]

Okay. And then the bad debt recovery you got, that was included in Q3 NOI, correct?

[James Green, Chief Financial Officer]

Correct.

[Kim Riley]

Correct.

[Operator]

Next question will be from Matt Logan at RBC Capital Markets.

[Matt Logan, Analyst]

When we think about some of your asset sales, you had mentioned there would be tax consequences or potential tax consequences. If the REIT sold all of its assets today in a hypothetical, what would they be? Like how much could we see in terms of value erosion through tax leakage?

[Armin Martens;President and CEO]

I can give you my answer because I'm not a CPA. So look at me, he said he's going to give me a warning look. "Look, don't say this stuff in the public domain." But in theory, Matt, if we sold all of our assets that are now at $15.35, that would be the equivalent to selling the REIT at $9 a unit, for example. It's just a killer. That's why, when we conducted this strategic review, the deal was to do a unit-based transaction. That was the whole goal. As far as -- and if the pandemic had not come, we wouldn't be having this conference call today possibly, we were that close to a strategic transaction for the whole REIT. And then it would have been a unit-based transaction, tax-efficient for the unitholders. So that's -- so yes, it's not that simple to say push the button to sell. But as I said, there is a risk of an activist not being aligned with the unitholders, especially when the activist is the middle -- is partway through or halfway through a 5-year fund. The more the time goes by in a 5-year fund, the less the GP in the [ excess ] fund is aligned with Artis unitholders or even their own LP unitholders. And then -- and as I said, the promote structure, the promote fee is based on top line, not bottom -- based on bottom line. That's another misalignment with Artis unitholders. Most of our investors, we know they're retail investors. They're taxable. If you have your Artis units in an RSP account, that's different. That's different. And then you can plan accordingly. And if you're a [ sovereign ] fund or a pension fund, that's different. But for most of our investors, and in our case, I'm taxable, I'm watching that. I'm always looking at the after-tax result of all of our transactions.

[James Green, Chief Financial Officer]

And to your point, Matt, it's really not value-erosion from the tax. It would just impact, if you sold all your assets, you would have let's say, $15.35 in cash to distribute to your unitholders, it would just affect the portion of that $15.35 that's taxable when you get it back from the company, yes.

[Armin Martens;President and CEO]

Now if you sell the units, Matt, that's just capital gains you're dealing with, not recapture. That's the difference, right? And recapture is a big thing the longer we own our properties.

[Matt Logan, Analyst]

Fair enough. Maybe just changing gears, during the quarter, you put out a press release which outlined the outcome of the strategic review with over 100 investors that were reached out to. Have any of them come back to the table, given what would have been very solid operating results here over the last 2 quarters?

[Armin Martens;President and CEO]

So the answer is yes, some ongoing dialogue does -- is taking place and interest continues. But there's nothing much more we can say on that front.

[Matt Logan, Analyst]

And changing gears in terms of your planned retail spin-out, would it be fair to say that has been put on pause indefinitely? And if so, what really are your top 3 strategic initiatives over the next 12 months? Is it simply debt repayment? Or how do we think about the balance between deleveraging and the NCIB? And anything else you might have in your cards?

[Armin Martens;President and CEO]

Yes. We'll stay the course. It's interesting, but even the activists when -- it wasn't that long ago they were saying that, "Armin, you're doing a good job. Artis is doing all the right things." And then they forgot to say that in their press release. But we'll stay the course. It's quite clear what we're doing. We were selling another 550 million of properties, a good chunk of that will be done by Christmas, paying down our debt to 45%. We know what our earnings profile looks like. We got some good office leasing kicking in Q4 and Q1 as well. And so we're in good shape. And the 3% distribution model, it's very much -- very prudent and very affordable at this point in time. And it's the right thing to do to reward our investors because of what they've gone through, we've all experienced in the past year. The NCIB is a great thing because of our unit price right now, it's very accretive, but also it's a way about shelter capital gains when we dispose the properties. As we run out of Calgary office properties to sell, we'll be hit with capital gains, not just recapture on depreciation. And at least the NCIB is the way shelter capital gains and then we have the recapture to deal with on the depreciation. So we're in a good place right now. We've got a good plan. We're moving forward. And we're not spinning off the retail right now, but we are shrinking retail, and we're shrinking select office as well. And it's -- all of it makes us -- increases our weighting in industrial, and it will improve our earnings and improve our balance sheet. It's got to, sooner or later, improve our price multiple as well. So we feel good about where we are, without a doubt.

[Matt Logan, Analyst]

And with the leasing that you've got on the horizon, together with improving rent collections, do you think we could see a return to positive same-property NOI growth in 2021?

[Armin Martens;President and CEO]

It will happen. If for no other reason, we hit the bottom this year with our retail, right? It will happen, for sure. The end of the year as a sign sounds right. So things are looking up for us, and we'll get back to that positive.We are so proud with the -- was it 7 or was it 9 consecutive quarters, we had a positive same-property NOI growth. We're proud of that. And now we just hit 2 consecutive negative. But it's a 100-year pandemic, we'll get through this, and our numbers will improve including the same-property numbers for sure.

[Matt Logan, Analyst]

But suffice it to say with all the work that you're doing, at least the outlook is for generally stable results in the near term?

[Armin Martens;President and CEO]

Yes, stable and -- stable with -- I believe you'll see FFO per unit improving, much stable and improving. Again it's a pandemic. We're not expecting a spike in earnings and a spike in our same property. But we're in very good shape. And as I said, we see ourselves maintaining good earnings, FFO per unit whilst paying down debt.

[Operator]

[Operator Instructions] And at this time, I would like to turn the call back over to Mr. Martens.

[Armin Martens;President and CEO]

All right. Well, thank you very much, moderator and everybody on the call. Appreciate your interest. Hope everybody has a good Friday. Again, we feel very good about our results and about our outlook. We look forward to remaining engaged with all of our investors in the weeks and months ahead. Thank you very much.

[Operator]

Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.