Artis REIT (ARESF) Interim CEO Samir Manji on Q4 2020 Results - Earnings Call Transcript

Artis REIT (OTC:ARESF) Q4 2020 Results Conference Call March 3, 2021 1:00 PM ET

Company Participants

Heather Nikkel - VP of IR

Samir Manji - Interim CEO

Jim Green - CFO

Philip Martens - EVP of U.S. Region

Frank Sherlock - EVP of Property Management

Conference Call Participants

Jonathan Kelcher - TD

Mike Markidis - Desjardins

Matt Logan - RBC Capital Markets

Jenny Ma - BMO

Matt Kornack - National Bank

Operator

Good afternoon, ladies and gentlemen. My name is Annis, and I'll be your conference operator today. At this time, I would like to welcome everyone to Artis REIT Fourth Quarter and 2020 Annual Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the meeting over to Ms. Heather Nickel. Ms. Nickel, please go ahead.

Heather Nikkel

Thank you, and good afternoon, everyone. Welcome to Artis' Fourth Quarter Year-End 2020 results Conference Call. With me today is Arti's Interim CEO, Samir Manji; and CFO, Jim Green. Other members of senior management are also with us and may participate in our Q&A session.

Our fourth quarter and year-end 2020 results were disseminated yesterday and are available on SEDAR and on our website. The audio cast of today's call is also available on our website. A replay of the call will be available later this afternoon until Wednesday, April 7, 2021. The replay numbers and passcodes were provided in yesterday's press release, and an archived recording of this call will be available on our website.

Before we get started, please be reminded that today's call may include forward-looking statements. Such statements 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 the securities regulators and suggest that you refer to those filings. As we discuss our performance, please keep in mind that all figures are in Canadian dollars unless otherwise noted.

With that, I will turn the call over to Samir.

Samir Manji

Thank you, Heather. Good morning to those in the West, and good afternoon to those in the East. Welcome, and thank you for joining our 2020 annual results conference call. Before we get to our fourth quarter results, I would like to say a few words regarding the global pandemic. As we all know, COVID-19 continues to impact our country and the world we live in. I would like to thank and acknowledge our courageous frontline workers across the country who have worked tirelessly throughout the pandemic to do everything they can to serve and protect Canadians. Our thoughts and prayers go to all those who have lost loved ones through and because of the pandemic.

We are encouraged by the increasing number of vaccines and their availability. It appears we are heading in the right direction and can look forward to brighter days in the coming months as new case count numbers decline and the number of Canadians who have been vaccinated increases. This will, amongst other things, help reopen our economy, businesses, and allow Canadians to see life return to some level of normalcy.

I'll now provide an update on Artis' business and operations. I'd like to start by acknowledging the team at Artis for their hard work and support over the past three months, Artis has undergone significant changes, and I recognize that this has not been easy on many people in our organization. I have been impressed by the professionalism and commitment of our team, including those based in our Winnipeg head office and others situated in our remote offices across Canada and the United States.

We have a strong and dedicated team at Artis. Since November 30, 2020, we have completed or substantially advanced, all of the initiatives set out publicly by Sandpiper, including overhauling the REIT's governance, the addition of new and diverse perspectives, a 25% reduction in board costs and identifying opportunities for reduction in G&A expenses. We are all working hard to improve many critical areas of our business, including corporate operations, asset management and deal negotiations.

We are identifying efficiencies, professionalizing processes, implementing best practices and institutionalizing our platform in real-time with the ultimate goal of maximizing long-term value for our unitholders. In light of the fact that we plan to announce the results of the 100-day review in the coming days, I'll keep the remainder of my comments focused on the 2020 annual results. I look forward to presenting our go-forward vision and strategy for Artis very soon.

2020 was a challenging year for the real estate industry. Despite these challenges, we are pleased to report improvements to our debt metrics and our ability to maintain significant liquidity throughout the year, which Jim will provide more details on shortly. Our portfolio continues to demonstrate its strength and resiliency. Occupancy decreased slightly from December of 2019, but was still strong at 91.9% at the end of 2020. Rent collections remained steady throughout the year and were especially strong in the fourth quarter at over 98%.

Our property managers continue to work diligently to support tenants during this time and our leasing team has adapted now providing virtual tours of vacant space wherever possible and facilitating virtual lease negotiations. Despite these challenging conditions, 1.3 million square feet of new leases and 1.8 million square feet of renewals commenced during 2020. The renewals achieved a 2.4% increase in rental rates.

During the year, we also completed one industrial development in the U.S., Park 8Ninety Phase IV and two retail development projects in Canada, 330 Main and Linden Ridge Shopping Center II. During the third quarter, we completed Park 8Ninety Phase IV, a 100,000 square foot build-to-suit industrial building in the Houston area that is 100% leased to a multinational tenant. Artis, along with our joint venture partner, has now begun construction on the fifth and final phase of the Park 8Ninety development, which is expected to add three additional buildings totaling 677,000 square feet of gross leasable area.

The two retail developments completed during the year were densification projects on land already owned by the REIT. The first 330 Main is a 28,000 square foot retail development located at the iconic intersection of Portage Avenue and Main Street in Winnipeg. The property is situated between a 30 story office tower at 360 Main Street and the new part that is under construction at 300 Main Street and is located above the shops of Winnipeg square, providing indoor access to the city Skywalk system that links numerous towers and downtown amenities. This property is 94% leased.

At Linden Ridge shopping center, Artis completed a 17,000 square foot densification project that is 100% leased to two national tenants. The land was acquired in 2013 and is situated in a popular retail node in Winnipeg, adjacent to a 193,000 square foot retail property that is owned by the REIT. This new 17,000 square foot multi-tenant building shares a site with Lowe's, whose building was constructed in 2017 pursuant to a build-to-suit agreement.

In terms of ongoing development projects, in addition to the final phase of Park 8Ninety already mentioned, construction of 300 Main continues. In addition to these ongoing projects, subsequent to the end of the year, we closed on the purchase of Park Lucero East, a 37-acre parcel of land located along the South Loop 202 freeway in the Phoenix area. Artis has a partnership agreement in place to develop three Class A State of the Art industrial buildings, totaling approximately 561,000 square feet of leasable area. Artis will develop this project as a 10% general partner.

Lastly, I will provide some color on Artis' disposition activity during the year. We sold 13 properties during the year totaling 2.1 million square feet of leasable area and two parcels of development land. Of the 13 property sales, nine were office properties, three were retail and one was industrial, with 11 of the 13 located in Canada, and two located in the United States. The sale price for these assets exceeded the IFRS values by a combined total of $10.4 million. We will endeavor to further maximize value on all future dispositions we pursue, understanding that IFRS values don't always align to real-time fair market value.

Subsequent to December 31, 2020, and we sold Tower Business Center, an industrial property located in the Denver area were $66.45 million, which translates to $53.16 million for Artis' 80% interest. The sale represents a 3.99% cap rate and a significant gain over the construction cost and the REIT's IFRS fair value for the property. We also have an unconditional agreement in place to sell two retail properties in Regina for $45 million, representing a 9.4% cap rate and a portion of a retail property in Fort McMurray for $4.6 million, representing a cap rate of 7.7%.

I will now turn to Jim Green, our Chief Financial Officer, to provide a summary of our consolidated financial results for the fourth quarter.

Jim Green

Thanks, Samir, and good afternoon, and/or good morning to everyone on the call. The fourth quarter was certainly an active one at Artis. As Samir mentioned, the COVID-19 virus is still hitting all countries, including Canada and the U.S. are specific markets with more restrictions and government-mandated shutdowns. During the quarter, Artis reached agreement to settle a potential proxy battle with one of our significant investors, which resulted, as Samir mentioned in a reconstituted board and changes at the senior management level.

The new Board placed all prior strategic initiatives either on hold or terminated to give itself time to review and create a new plan and direction for Artis, which Samir referenced in his remarks, and which will be revealed to the market in the coming weeks. The settlement and wind up of the prior strategic plans did involve some significant onetime costs to the best of our knowledge, these have all been accounted for in Q4, and there will be nothing that will carry forward into Q1 for these onetime costs.

I think this -- I'm going to duplicate one of Samir's comments, but our rent collections have been strong at 98.5% of our rent collected in the fourth quarter and thus far, our tenants are weathering the storm quite well. Arti chose during 2020 to not participate in the SECA program proposed by the federal government. However, we have been working with our tenants as needed to provide rent deferrals, and in some cases, we've provided rent abatements in exchange for an early renewal or longer-term on the lease.

The federal government has announced the new rent relief program for tenants referred to as CERS, with the eight coming directly to the tenant and not involving a rent reduction by the landlord. We feel this is a major improvement as far as the government program goes and are working with our tenants as necessary to help them access this program. To the end of December, our rents receivable were down to approximately $5.7 million, from $8.2 million at the end of September and there is a further $4.9 million due under deferral agreements with our tenants. This deferred rent balance is also down from Q3 as we begin to collect amounts that were deferred during Q2.

While we feel the majority of both the current rents receivable and the deferrals will ultimately be collected, we did book a reserve of approximately $2 million against these balances, which we feel is adequate to cover any potential rent defaults. Leasing activity has been strong in the quarter, roughly 250,000 square feet renewed at an average annual total of 1.8 million square feet. And again, I believe Samir mentioned this, but weighted average rent increase was 2.4%, which we feel was very good given the impact of COVID on both the overall market and specifically on our tenants.

Based on our Q4 NOI, net operating income, the REIT had a 49.3% weighting in Canada and 50.7% in the U.S., so almost an equal balance, slightly tilting towards the U.S. On an asset class basis, we are 44.2% weighted in office, 19.3% weighted in retail and 36.5% weighted in industrial. For those of you who were on our Q3 call, you may recall that we added some additional disclosure in our MD&A breaking out a lot of our metrics segregated now by asset class, and hopefully, this disclosure is helpful to the marketplace as investors review our results and valuations.

As I know sometimes a diversified REIT can be challenging to value. Our balance sheet continues to improve. Our debt to GBV ratio has been gradually coming down and now sits at on a proportionate share basis at 50.2% this quarter compared to 51.9% last quarter and 52.3% last year-end. Artis has a relatively significant portion of our debt maturing in the next 12 months with $438 million of mortgage debt in addition to an unsecured debenture for $250 million. Some of this in the last few years has been kept short-term as it relates to assets we plan to sell. We anticipate no difficulty in what we see in the current market and refinancing the rest, and funds are available on our line of credit, if needed for any refinancing.

Our NOI this quarter was $67.3 million compared to $71 million last quarter. The primary driver of the NOI drop was asset dispositions, however, there was also a swing in last quarter, we had a recovery of bad debts based on an over allowance, I guess, maybe call it, in Q2 that was recorded as reversal in Q3 that did not occur this quarter. So, there is -- and then there is also slightly lower FX results. Decline in NOI also translated to a decline in FFO to $45.8 million compared to $50.8 million last quarter, roughly comparable to the NOI change. FFO came in at $0.34 per unit this quarter compared to $0.37 last quarter and $0.37 in the comparative quarter last year.

Asset sales completed during the year are generally dilutive to NOI metrics, and that was anticipated and planned for. So a lower per unit numbers have been aided somewhat by units repurchased under our NCIB program. There is some dilution occurring from the asset sales, but the strengthening of the balance sheet, in our opinion, is worth it. We've added disclosure breaking out our FFO from each asset class using the percentage of NOI as the method of allocation, and if you do it on that basis, the REIT earned $0.15 of FFO from office, $0.12 from industrial and $0.07 from retail.

AFFO for the quarter was $0.23 per unit compared to $0.27 in Q4 of '19, again, roughly tracking the changes in FFO. Our payout ratios remain very conservative at 38.3% of FFO and 52.9% of AFFO. Getting a little more granular on a same-property basis, results I'm going to say, unfortunately, we're a negative 5.2% this quarter. That is, of course, timing differences, but one of the largest factors in the drop continues to be parking revenue in the office sector as many tenants have canceled parking, while they work from home and during COVID. The general office lease, of course, is on a longer-term lease, but parking revenue is generally month-to-month. And if the tenants aren't there, they aren't paying for it.

The industrial segment continues to show the strongest performance in both countries, and Canada did have a slight decline of 1.6%, but the U.S. had 4.8% growth. The decline in Canada is, in our opinion, just some temporary occupancy changes that will reverse in future quarters. On the issue of fair values, our investment properties are valued on our balance sheet at fair value. It continues to be somewhat challenging to determine fair value due to the impact of COVID, however, there is no hard evidence that cap rates, discount rates or market rents have moved substantially.

You may recall, if you've been following Artis quarter-by-quarter that there was a fairly large decline of in $141.8 million in Q1, mainly related to retail and some office assets as the pandemic started. However, we did not feel any significant adjustments were warranted in subsequent quarters and there have been generally some smaller increases and decreases over the subsequent two quarters, such that we ended the year with $122.6 million loss.

As Artis reports our investment properties at fair value under IFRS, we can calculate a net asset value per trust unit figure, and that calculation is simply using the equity on our balance sheet, less the equity held by 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 per trust unit was $15.03 and this quarter compared to $15.35 last quarter. So a 32% decline this quarter, largely due to FX.

In fact, more than necessary due to FX, which on a stand-alone basis would have decreased the net asset value by $0.46, and offsetting that was a gain of $0.14 related to our NCIB and redemption of deferred and restricted units. Artis ended the quarter with roughly $35 million of cash on hand and $575 million undrawn on our line of credit, about $250 million was drawn on that line subsequent to year-end to repay the CE debentures as they matured. That was planned.

The Series D debentures were issued in September of 2020 with the plan to temporarily put the money down on the line of credit and repay the Series C debentures. Based on what we know today, we feel we have added 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 would highlight the fact this was a public in November that we have implemented a distribution increase of 3% commencing with the distribution that was paid in January of 2021.

And that completes the financial review for now. Happy to answer questions if there are some later, but I will pass it back to Samir for further remarks. Keep safe, everyone.

A - Samir Manji

Thank you, Jim. In summary, we would like to reiterate our confidence in our people and our portfolio of assets. We remain committed to doing everything we can to maximize value for our unitholders, which in the near-term includes focusing on optimizing operations and maximizing rents and occupancy in every asset we own.

We will also continue to explore divestitures. We have a lot of interest in various assets and asset classes, and this, combined with our healthy liquidity position that Jim summarized, puts us in a strong negotiating position when considering any asset sales.

As I mentioned at the outset, we look forward to sharing the results of our 100-day review in a few days, which will include our go-forward vision and strategy. This will also include hosting a virtual investor meeting to present our plan and to engage with our unitholders and other stakeholders. We hope you and your families all continue to stay healthy and well.

I'll now turn it back to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Jonathan Kelcher with TD. Jonathan, please go ahead.

Jonathan Kelcher

So first question is just on, I guess, near-term capital allocation. I guess we'll get a longer-term view when you put out the 100-day or the plan within the 100 days in the next couple of weeks or so. But near term, I was a little surprised to see you guys repurchase shares in the fourth quarter. Can you maybe give us your thought process behind doing so?

Samir Manji

Sure, Jonathan. I'll simply say that to the comments that Jim made earlier, we have ample liquidity, we have a high conviction in our disclosed NAV and combining the two where the unit price was trading. For us, the NCIB spilling even into January, which was noted as a subsequent event, the NCIB represents a very compelling allocation of capital and investment to buy back our units for unitholders.

Jonathan Kelcher

Okay. And then I guess, just keeping along the same lines, is also a little surprised, and this was a subsequent event that you guys put leverage on three unencumbered retail assets. I would have thought that you were looking to sell retail assets.

Samir Manji

So again, there, we've got, as you know, over 200 assets across our three asset classes, and we are looking at upcoming maturing debt. We were looking at where interest rates were in the market. And so the ability to swap assets, including those maturities that are upcoming that we would then potentially add to our pool of unencumbered assets was, in our view, a sound decision, again, in light of what the prevailing interest rate environment was.

Jonathan Kelcher

Okay. So should we -- can we read anything into that with your future outlook? And I guess -- and the last thing there with selling the industrial asset close the quarter?

Samir Manji

I won't comment on what one should read into, we will be, as has been noted, presenting separate from this call and from yesterday's press release a formal presentation and press release regarding the go-forward vision and strategy. And within that, there will be ample color and visibility around items, including capital allocation going forward and what the strategic plan is across the board.

But I would say that with respect to the divestiture of Tower, it was a frankly, very compelling transaction. We had ample interest in this asset through a formal process. And the result, I think, speaks for itself in terms of what was achieved both in terms of cap rate, but also what was achieved relative to cost and the gain that was realized.

Jonathan Kelcher

Okay. So was it like an unsolicited bid and then you guys started a process? Or did you just -- did you decide to sell it and start a process?

Samir Manji

We've got our Executive Vice President for the U.S. region, Philip Martin on the call. Philip, why don't you take that question?

Philip Martens

Thank you. The process was formal. It was not unsolicited. We used -- we went through various different brokerage houses to obtain a book of value and selecting CBRE. We went through a formal process, and it went through almost four rounds of bidding. All we're seeing really great interest and exceeded our expectations for the exit cap, which turned out to be 4.03% exit yield, which broke all records in Denver for industrial sales.

Operator

Thank you. We have a following question from Mike Markidis with Desjardins. Mike, please go ahead.

Mike Markidis

I was hoping we note of portfolio specifically. One quarter doesn't make a trend, but the same-property NOI, there was down significantly, but also your occupancy in the offer segment is over the last several quarters, taken a bit of a hit. So I don't know if it's isolated to a specific region, if it's more of a broader trend that you're seeing or transitory in nature, but any color on that dynamic would be helpful? Thank you.

Samir Manji

Sure. Thanks Mike. We've got our Executive Vice President, Frank Sherlock online. I'm going to ask Frank to comment on Canadian office, and then I'll ask Philip to comment on U.S. office.

Frank Sherlock

Sure. In Canada, the major change for year-on-year was the Alberta office market, our occupancy at the start of '20 was about 78.6%, and it ended the year at 66%. So that's where we saw the most of the decrease. Our other office market or other major office market in Canada is Manitoba and occupancy remained flat there for the full year. So, we didn't really see any change there. We had -- again, in Ontario, not as many office buildings, one of which was sold Concord Corporate last year. So really, we have four office buildings in Ontario. And again, flat there as well nothing against Saskatchewan.

Mike Markidis

And in regards to each united -- sorry, go ahead.

Samir Manji

Sorry, I was just going to add one further comment is that the office also includes the parking revenue that I referred to as being substantially down from a year ago. So, there is a hit on parking revenue, of course, yes.

Philip Martens

Okay. In regards to the United States where we have office in Madison, Minneapolis, Denver and Phoenix, we generally have had held stable, although it's been a quiet year in 2020. And we are seeing all types of responses to the future, some that have been very positive particularly in Minneapolis in the third quarter, where we had a good opportunity to extend for long-term by providing an early TI while their employees were at home. So we do see some bright spots, particularly also in Phoenix, we're seeing a greater amount of activity more than ever, and that does spill more into the 2021 with the good news of how vaccines are being distributed in the United States.

Madison has remained stable. We still hope to achieve a few good leases in the upcoming future. So overall, also in Denver, has been quite quiet downtown. We did sign a significant lease in Southeast Denver. And so, we're looking forward to a much better year in 2021. Again, I think this has a lot to do with the success of the vaccine distribution in the United States.

Mike Markidis

Okay. That's helpful. Just with respect to the developments that were completed, Jim, during the quarter, would the full NOI from those have been captured in the quarter? Or is there still an uptick? And if so, do you happen to know what the incremental contribution would be in Q1?

Samir Manji

There was -- I would say it's not 100% incorporated into Q1 -- or sorry, Q4, for sure. Did you have a comment on that?

Kim Riley

Sorry, I do think that the Park 8Ninety NOI would be the full amount for the quarter, most 330 Main Street.

Samir Manji

I don't think the good life commenced in October 1. I think it was delayed a little bit.

Kim Riley

Okay. Sorry. Yes.

Samir Manji

Yes.

Mike Markidis

Okay. Excellent. And then just lastly, just to confirm on the Park 8Ninety that you've started construction on. Is that being done on a speculative basis and if so, do you have a read on any leasing activity on that property currently?

Samir Manji

Again, we'll pass that over to Philip.

Philip Martens

Yes. We are building that speculatively. We're introducing a variety of product on that site. There will be a cross-dock, which will be our second for the set, but it will be larger. And then a small rear load and front load. We've had success with front load, but overall, we have no pre-leasing completed. We just broke ground and so we have had interest from various parties already. Marketing has been set out. So, I look forward to giving you more news in the quarter.

Mike Markidis

Okay. And last one for me before I turn it back. Just on the two sales that were done subsequently, obviously, a record baking transaction record of breaking, pardon me, transaction on the Denver asset. And to confirm, that was two questions here to confirm that at asset was 100% occupied? And then the second would be just on the Victoria Square transaction, the nine four cap looks elevated even compared to what we would consider to be a cap rate for retail. And I was just wondering if you could give a little bit more color as to what was the driver there. Thank you. And I'll turn it back after that. Thank you.

Samir Manji

Great. So yes, the answer to the first part of the question, Tower was fully occupied with two significant tenants, and then your comment around the upcoming dispositions. I think one has to look into this a bit with a bit of a different lens. This represents our lasting closed retail shopping center and from our vantage point, just based on what we want to focus on strategically, we felt that after a fully marketed process exercise that the highest and best offer that was presented was one that we were comfortable negotiating and ultimately landing on transaction in and as we've conveyed they're unconditional, and we anticipate that's going losing.

Operator

Thank you. Your next question comes from Matt Logan with RBC Capital Markets. Matt, please go ahead.

Matt Logan

Wondering, Samir, if you could give us a few of your high-level thoughts on your first couple of months on the job. Just what you've learned and how your views have changed about Artis as a business, if at all?

Samir Manji

Sure, Matt. I'm going to keep my comments relatively brief because I think a lot of what we look forward to presenting in the days ahead, following the 100 day review, we'll respond to that question. But let me start by saying or reinforcing what I conveyed in my earlier remarks, I've had the privilege and opportunity to get to know many of the incredible individuals who work at Artis over the last few months. And we've got a committed, dedicated, hard-working team of individuals and I think that the second comment I would share is, and I touched on this earlier. We have strong conviction in the assets and our underlying business that we believe, for a variety of reasons, historically, and even currently, is undervalued and perhaps underappreciated by the market.

Third, I would say that while there are some challenges that we anticipated, and we have now confirmed that we're confident that we'll be able to work through those challenges. And then finally, insofar as the opportunities ahead of us, including some of the operational efficiencies that we believe we're going to be able to together as a unified team materialize and put in place, we think that, that's going to pave the way for positive road ahead. So, I'll just keep my comments to those for now. And like I said, look forward to sharing more in the days ahead.

Matt Logan

Appreciate the color and maybe just clarifying your earlier comments saying that the IFRS values don't always align with fair market values. Would that mean that you expect to sell assets on average in line with your IFRS NAV? Or would that be maybe the office and retail assets might be sold a bit lower and the industrial assets might be sold a bit higher? How should we think about that? And any comments would be appreciated.

Samir Manji

Sure. Again, the general comment I'll make is not specific to asset class. We have engaged in negotiations and discussions on specific individual assets across each of the asset classes. And in many instances, when -- particularly when someone comes forward on an unsolicited basis to express interest in an asset, ultimately, the market speaks, and generally, there's never a perfect correlation between the cap rates that we use for IFRS purposes and what in a practical sense, happens in the specific market and with a specific asset, all that to say, do I think that $15.03 is an accurate net asset value, for Artis? I would say that and I speak on behalf of the entire management team and the Board, we are very comfortable with $15.03, and one can interpret that as they choose.

Matt Logan

And maybe just following up on some comments from the prior management team last quarter who noted that they were still in discussions with potential purchase orders for Artis for the entire business, would that still be the case following the reconstitution of the Board?

Samir Manji

No. As Jim already mentioned, we've -- if I understand the question correctly, we've suspended all activities that were in place last year as it relates to the strategic review as it relates to the retail spin. We have undertaken a very exhaustive exercise under the leadership of our Board of Trustees in this 100-day review that we will be coming back to the market on in the days ahead. And the outcome of that, we look forward to presenting will include what the go-forward vision and strategy is for Artis. And at this point, that go forward vision and strategy does not contemplate putting the Company up for sale.

Matt Logan

So no plans for sale at the moment, but we'll hear more on the future of Artis in a few weeks. Would it be fair to say that those potential purchasers would still be interested? You're simply taking a bit of a step back to reassess at the moment?

Samir Manji

Yes. I can't comment on that. We have not, in a proactive way, engaged with any parties related to potential sale of the Company.

Matt Logan

Have you received any inbound since you've taken or reconstituted the Board?

Samir Manji

I can't comment on that. Okay.

Operator

Thank you. Your next question comes from Jenny Ma with BMO. Jenny, please go ahead.

Jenny Ma

Samir, I wanted to get your thoughts on the distribution. We've seen some high-profile distribution cuts in the very recent past. And I know earlier in the fall, there was a view of raising the distribution by a little bit on the back of some lower G&A costs. So just net-net, how are you feeling about the distribution? And excuse me, if I'm getting ahead of head of 100-day review results. But when you look at what other REITs have done and when you look at where the other diversified REITs are trading at in terms of yield, how is your philosophy or approach to the distribution changed in light of the past few months?

Samir Manji

Thanks, Jenny. I'll provide a couple of comments, and then I'll also invite Jim to share his thoughts. But let me simply say that we have, we believe, a safe distribution, a conservative distribution that we are including on a ratio to FFO and AFFO that includes the bump that the predecessor Board announced and management announced in November. And on a go-forward basis, we are certainly very comfortable with this distribution. We do not intend to reduce the distribution.

And insofar as what may happen with the distribution going in the other direction, upwards, I think we'll have to just wait and see what the Board determines on the other end of the 100 day review. And then also, obviously, how we perform operationally and financially in the quarters ahead. Jim, do you want to add anything?

Jim Green

Just very quickly, I think the -- as Samir just mentioned, we remain very comfortable with that 3% distribution increase at the time that was implemented. I think it was appropriate and sustainable and likely could be increased further down the road. But again, we'll have to invite you all to wait for the results of the 100 day review.

Jenny Ma

Okay. I guess we'll wait. I wanted to ask about office leasing and the outlook. On your part, you can see what's happening in the Canada and the U.S., and there's been a lot of talk about the rise or the revival of suburban office space. And I'm just wondering if you could talk to us about if you're seeing any differences in the approach to any sort of moved suburban office between Canada and the U.S.? And if there's differences across the borders or just basically any color you could share with us?

Samir Manji

Sure. Again, let me invite Frank and Phillip to comment, respectively, on the Canadian and U.S. side.

Frank Sherlock

Okay. Just speaking about Canada, where our two major office markets in Canada are Manitoba and Alberta. We haven't really seen any movement away from our downtown office in Manitoba. Again, it remains flat at about 86% occupied right now. It is slow as far as new leasing goals, but we've been very, very solid on renewals. So -- and part of the reason why we're doing well on renewals at the same reason why it's low on new leasing, it's the cost of new construction and relocating. It tenants are tending to stay put and haven't been making any real decisions on relocating or increasing or downsizing for that matter in recent quarters.

We don't -- again, in those two markets, see any real change in our occupancy based on work from home. Alberta has its own problems right now, and that's a demand problem for office space in general. But again, there may very well be new requirements for more space for employees going forward, especially in the higher density offices, more circulation space, larger workstations and we have some reason to believe that, that could offset any of the work from home trends that we might see, especially in some of our government offices, we're finding now that that they are already looking at possibly taking more space because of that to spread their people out a little bit more.

So hopefully, that answers your question.

Philip Martens

Jenny, in regards to the U.S., because we're -- we do have a lot of suburban office, and we're in very unique cities, so to speak, I can go by one by one quickly. Madison, we are all -- we are completely suburban office, and it's generated a fly in the quieter market, and we do see some level of the severity of COVID lockdowns in the downtown area of Madison has given us a lot more looks in RFPs from downtown, so not we haven't closed any deals yet on that, but there's been a distinct interest where that's never been before.

Minneapolis remains at the center of the political upheavals from last year, and that will continue on with the trial the Police officer starting next week. And overall, Minneapolis market has been quiet. In Denver, we are starting to see interesting signs, particularly at [indiscernible] [0:46:07.9] for our leasing. And also, particularly in Phoenix, where our assets ranging from Union Hills Office Plaza to Stapley and even Max where these are, again, primarily -- I wouldn't call it quite suburban because Phoenix is a bit different that way, but definitely distinct nodes outside of the CBD.

We are seeing quite a bit of activity and has been going on for the last couple of quarters, so Phoenix from a suburban standpoint for all our markets is the strongest.

Jenny Ma

So I guess in Phoenix's case, is that a slight from downtown? Or is that just an increase in demand that would have been targeted towards suburban anyway?

Philip Martens

Right. Because Phoenix doesn't have a significant CBD office product, it's a combination of people wanting to -- particularly for stable, let's say, it's a smaller square footage overall for the size of suites. They have not been as COVID impacted. They still have been going to work. And overall in the market right now, I would say, of all the states we're in, Arizona, by far, is the most loose in policy. And that also has created a lot of -- we're seeing actually a lot of in migration from California, Oregon and Washington states. So that's also been something quite significant in the amount of people that are moving in, particularly as how COVID fast forward as sense that potential. So we're seeing a lot of new companies coming into Phoenix.

Jenny Ma

That's interesting. And then my final question relates to the floating rate debt proportion, a question for Jim. You've always maintained that proportion sort of in that high-teen to low 20% range. You see a little bit of a downtick in Q4, but just in light of the backup in yields that we've seen over the very short term. Has that changed your view on where rates are? It looks like definitely momentum on the boot up. Do you intend to maintain that proportion of floating rate debt? Or have you been more active in locking in some of the historical level rates we've seen?

Jim Green

I would say we have been a little more active in locking in some of the floating rate debt into longer term. We are keeping things still shorter-term depending on the asset, if it's an asset that may or may not be subject to disposition in the relatively near future then we keep the debt shorter-term to avoid big mortgage penalties. But if it's an asset that is kind of considered core to the REIT, we would be looking to lock in that debt at longer-term fixed rates.

Jenny Ma

So is it fair to say, we might expect a continuation of the downtick in the first couple of quarters of the year on the slowly like debt?

Jim Green

Yes. I would say that's likely.

Operator

Thank you. We have a following question from Matt Kornack with National Bank. Matt, please go ahead.

Matt Kornack

Matt just wanted to quickly get a sense on the development side. If you could provide any color on the outlays with regards to remaining cost complete, and then how we should think of NOI coming in particularly on the residential assets in Winnipeg?

Samir Manji

Jim, do you want to take a lead on that? And then if you want to invite either Kim or Phil to add, please do so.

Jim Green

Sure. So the largest piece of the development is, of course, the apartment building that's being built at 300 Main Street in Winnipeg. There is roughly I'm going to say $90 million to $100 million left to spend on that project that will be over the two-year time frame. We are expecting roughly 50% completion of that building by the end of this year from an occupancy standpoint and the balance at the end of 2022.

The Tower is progressing well. It's -- as I drove into the office this morning, they were standing the steel for the 37th floor on a 40 story building. So, we're getting close to topping it out. On the U.S. developments, there will be the Park 8Ninety Phase IV that we are just commencing. Kim, do you have a price on what that was or do it Phil? Maybe I'll turn that to par in a second. And then there's the joint venture with our partner, Nuveen in Phoenix, and I'll let Phil comment on that as well.

Philip Martens

Thanks, Jim. In regards to Park 8Ninety Phase IV, that will be a $55 million project where we have 95% ownership in a joint venture with Tramco. And we have just, as I said before, broken ground. So that's just beginning now. We hope to complete construction in the first quarter of next year, maybe even a little bit sooner, but we have had some rain delays, as you probably heard in Texas the last couple of weeks. Park 8Ninety phase -- sorry, Park Lucero East, as we're calling, it's really Park Lucero East is going to be a $60 million project, and we also are beginning, hopefully this month construction. So, that also construction completion is anticipated to be in the first quarter of 2022.

Matt Kornack

Okay. And Jim, I don't know if you've disclosed this in the past, but what is the total cost of $300 million and the yield anticipated on that cost?

Jim Green

It will be over $200 million yield on cost will be somewhere in the low 4s range.

Matt Kornack

Perfect.

Jim Green

Sorry, I've been corrected. It's closer to a 5% yield on cost.

Matt Kornack

And when you say it's 50%, like is it being done in stages? Or is that just the lease-up anticipation like?

Jim Green

So, the first 20 floors, we're expecting to get a partial occupancy permit by the end of the year. And the top 20 floors will be a year later.

Matt Kornack

Okay. No, that's great color. I appreciate that. Last one for me. I think in '21, you have Worley Parsons maturing. Is there any status update on the negotiations for renewal of that lease?

Samir Manji

Jim or Frank, do you want to comment?

Frank Sherlock

Yes. They're going to be moving out.

Matt Kornack

Okay. And any prospects at this point for re-leasing the space?

Frank Sherlock

There's been tours, but nothing on paper yet.

Operator

Thank you. [Operator Instructions] There are no further questions at this time. Ms. Nickel, you may proceed.

Heather Nikkel

Thank you, operator. That concludes our call for today. The webcast and the dial-in numbers for an archived recording of this call can be found on our website. Please don't hesitate to reach out to us if you have any further questions.

Thank you, everyone, for joining us today, and have a good day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you disconnect your lines.