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WSP World Inc. (OTCPK:WSPOF) Q3 2024 Earnings Convention Name November 7, 2024 8:00 AM ET

Firm Individuals

Quentin Weber – Investor Relations
Alexandre L’Heureux – President & Chief Government Officer
Alain Michaud – Chief Monetary Officer

Convention Name Individuals

Sabahat Khan – RBC
Yuri Lynk – Canaccord Genuity
Steven Fisher – UBS
Jacob Bout – CIBC
Frederic Bastien – Raymond James
Ian Gillies – Stifel
Maxim Sytchev – NBF
Michael Tupholme – TD Cowen

Operator

Good day, and thanks for standing by. Welcome to the WSP World Third Quarter 2024 Outcomes Convention. Right now, all members are in a listen-only mode. After the audio system’ presentation, there might be a question-and-answer session. [Operator Instructions] Please be suggested immediately’s convention is being recorded.

I might now like at hand the convention over to your first speaker immediately, Quentin Weber. Please go forward.

Quentin Weber

Thanks, Sarah. Good morning, everybody. Thanks for becoming a member of the decision. As we speak, we’ll talk about our Q3 2024 efficiency adopted by a Q&A session. Alexandre L’Heureux, our President and CEO; and Alain Michaud, our CFO are becoming a member of us this morning. Please word that this name can be accessible by way of webcast on our web site.

Through the name, we’ll make forward-looking statements. Precise outcomes may differ from these expressed or implied. We undertake no obligation to replace or revise any of those statements. Related elements that would trigger precise outcomes to vary materially from these forward-looking statements are listed in our MD&A for the quarter that ended September 28, 2024 which may be discovered on SEDAR+ and on our web site.

As well as, through the name, we could consult with particular non-IFRS measures. These measures are additionally outlined within the MD&A for the September 28, 2024 quarter. Our MD&A contains reconciliations of non-IFRS measures to essentially the most immediately comparable IFRS measures. Administration believes

Essential Data

Previous efficiency isn’t any assure of future outcomes. Internet complete return and contribution to return is internet the common of the annual working bills for the product over the required time interval. The Fund is actively managed and doesn’t search to copy its benchmark in portfolio building. Holdings and sector weightings are topic to alter. Supply: Royce Funding Companions, based mostly partially on knowledge supplied by FactSet. The attribution figures above are based mostly on the Fund’s holdings as of the shut of enterprise of every day in the course of the interval ended 9/30/24 and mirror estimated charges and bills of the Fund. These figures are for analytical functions solely. This data shouldn’t be construed as funding recommendation or suggestions with respect to the sectors listed. Sector weightings is probably not consultant of the portfolio managers’ present or future investments and are topic to alter at any time. The sum of all contributions to and detractions from efficiency for all securities would equal the Fund’s gross or internet cumulative complete return for the one-year interval ended 9/30/24.

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Metropolis Workplace REIT, Inc. (NYSE:), in its Third Quarter 2024 Earnings Convention Name, introduced a sturdy efficiency with an optimistic outlook for future progress. The corporate skilled a lower in nationwide workplace house availability, the primary since 2019, attributed to a discount in new provide and an increase in workplace conversions. Metropolis Workplace REIT’s leasing exercise noticed important enchancment, with 141,000 sq. ft leased in Q3.

Monetary highlights included a web working earnings of $24.6 million and core funds from operations (FFO) of $11.1 million, or $0.27 per share. The corporate’s adjusted funds from operations (AFFO) have been reported at $4.eight million, or $0.12 per share. Portfolio occupancy reached 83.4%, with an anticipated improve to 87.0% factoring in signed leases. The corporate’s strategic actions and market optimism have been underscored by optimistic leasing tendencies and a concentrate on bigger tenants looking for trendy, amenitized areas.

Key Takeaways

• Metropolis Workplace REIT’s Q3 leasing exercise improved with 141,000 sq. ft leased; 98% occupancy at Block 83 together with future leases.
• A lease extension with WeWork elevated lease by 6% to $42.50 at Block 83.
• Renovations at Pima Heart in Phoenix led to a 10% occupancy improve; complete renovation prices anticipated to be round $10 million.
• Financially, Q3 web working earnings was $24.6 million, core FFO at $11.1 million, and AFFO at $4.eight million.
• The corporate raised year-end occupancy and same-store money NOI projections, with complete debt at $648 million and no maturities till October 2025.
• Elevated curiosity from bigger tenants and stabilized lease concessions have been famous, with free lease averaging one month per 12 months of the lease time period.
• Occupancy positive aspects are primarily anticipated in This fall 2024, with extra leases to begin in early 2025.
• Metropolis Heart redevelopment in St. Petersburg is progressing, with a website plan software submitted and approvals anticipated by early 2025.
• Financing choices for Block 83 are being explored forward of two property mortgage maturities in This fall 2025.

Firm Outlook

• Anticipates occupancy positive aspects primarily in This fall 2024 with additional leases beginning in early 2025.
• Metropolis Heart redevelopment in St. Petersburg is shifting ahead, aiming for approvals by early 2025.
• Exploring financing choices for Block 83, with potential refinancing discussions intensifying in early 2025.

Bearish Highlights

• AFFO impacted by tenant enhancements and renovations.

Bullish Highlights

• Optimistic leasing surroundings with a shift in the direction of bigger tenants committing to longer leases.
• Florida portfolio carried out properly regardless of latest hurricanes.
• The corporate is optimistic about market circumstances and its strategic positioning.

Misses

• Particular particulars concerning the detrimental impression of tenant enhancements and renovations on AFFO weren’t supplied.

Q&A Highlights

• Craig Kucera from Lucid (NASDAQ:) Capital Markets requested about occupancy positive aspects and the Metropolis Heart redevelopment.
• CEO Jamie Farrar and CFO Tony Maretic mentioned occupancy will increase, the Metropolis Heart challenge, and financing choices for Block 83.

Metropolis Workplace REIT’s Q3 2024 efficiency demonstrates resilience within the face of market challenges and a strategic concentrate on progress. With a optimistic outlook supported by a proactive strategy to leasing and improvement, the corporate is poised for continued success within the coming intervals.

InvestingPro Insights

Metropolis Workplace REIT’s (CIO) third-quarter efficiency and future outlook will be additional contextualized with key monetary metrics and skilled insights from InvestingPro.

The corporate’s market capitalization stands at $206.39 million, reflecting its place in the actual property funding belief sector. Regardless of the optimistic leasing exercise and occupancy positive aspects reported within the earnings name, CIO’s income progress has been barely detrimental, with a -2.95% decline within the final twelve months as of Q2 2024. This aligns with the challenges confronted within the workplace actual property market, as talked about within the firm’s dialogue of nationwide workplace house availability.

One of the hanging InvestingPro Suggestions is that CIO “pays a big dividend to shareholders.” Certainly, the present dividend yield is a powerful 7.81%, which may very well be notably enticing to income-focused traders within the REIT house. This excessive yield could also be seen as a optimistic issue, particularly given the corporate’s optimistic outlook and projected occupancy positive aspects.

One other related InvestingPro Tip notes that the inventory is “buying and selling at a low Value / E-book a number of.” The Value to E-book ratio stands at 0.33, suggesting that the inventory could also be undervalued relative to its e-book worth. This may very well be of curiosity to worth traders, notably in mild of the corporate’s strategic actions and market optimism highlighted within the earnings name.

It is price noting that InvestingPro has 9 extra suggestions obtainable for CIO, which might present additional insights into the corporate’s monetary well being and market place. Traders in search of a extra complete evaluation may discover these extra suggestions beneficial in making knowledgeable selections.

The corporate’s monetary efficiency exhibits some blended indicators. Whereas the gross revenue margin is wholesome at 59.93%, the detrimental EPS of -$0.36 during the last twelve months signifies that profitability stays a problem. That is in line with the InvestingPro Tip suggesting that analysts don’t anticipate the corporate to be worthwhile this 12 months.

These InvestingPro insights present extra context to Metropolis Workplace REIT’s earnings report, providing a extra rounded view of the corporate’s monetary place and market valuation. As the corporate continues to navigate the evolving workplace actual property market, these metrics and suggestions can function beneficial indicators for traders monitoring CIO’s progress.

Full transcript – Metropolis Workplace (CIO) Q3 2024:

Operator: Good morning. And welcome to the Metropolis Workplace REIT, Inc. Third Quarter 2024 Earnings Convention Name. At the moment, all individuals are in a listen-only mode. A short question-and-answer part will comply with the formal presentation. [Operator Instructions] As a reminder, this convention name is being recorded. [Operator Instructions] It’s now my pleasure to introduce you to Tony Maretic, the corporate’s Chief Monetary Officer, Treasurer and Company Secretary. Thanks, Mr. Maretic. Chances are you’ll start.

Tony Maretic: Good morning. Earlier than we start, I want to direct you to our web site at cioreit.com, the place you may view our third quarter earnings press launch and supplemental info package deal. The earnings launch and supplemental package deal each embrace a reconciliation of non-GAAP measures that can be mentioned right this moment to their most straight comparable GAAP monetary measures. Sure statements made right this moment that debate the corporate’s beliefs or expectations, or that aren’t based mostly on historic reality, might represent forward-looking statements throughout the that means of the federal securities regulation. Whereas the corporate believes that these expectations mirrored in such forward-looking statements are based mostly upon affordable assumptions, we can provide no assurance that these expectations can be achieved. Please see the forward-looking statements disclaimer in our third quarter earnings press launch and the corporate’s filings with the SEC for elements that would trigger materials variations between forward-looking statements and precise outcomes. The corporate undertakes no obligation to replace any forward-looking statements that could be made in the middle of this name. I’ll evaluation our monetary outcomes after Jamie Farrar, our Chief Govt Officer, discusses among the quarter’s operational highlights. I’ll now flip the decision over to Jamie.

Jamie Farrar: Good morning. All through 2024, we’ve been highlighting the enhancing sentiment and leasing dynamics for the workplace business. These tendencies proceed to collect momentum within the third quarter. The whole quantity of workplace house obtainable nationally declined within the third quarter. This was the primary quarterly decline in obtainable house since 2019. One of many important drivers is the sharp discount in new provide of workplace buildings. This has been coupled with 4 years of record-setting workplace constructing conversion, demolitions and redevelopment. Over the four-year interval since 2021, over 100 million sq. ft of workplace buildings have been faraway from stock, in line with JLL. Whereas extra is finally wanted, these are favorable tendencies. Leasing circumstances additionally proceed to enhance. The leasing exercise nationally stays roughly 20% under pre-pandemic ranges. The second and third quarters of 2024 have been two of the perfect leasing quarters during the last 5 years. This has been aided by executives specializing in bringing staff again to the workplace on a extra constant foundation. In JLL’s third quarter workplace market report, they highlighted that the Solar Belt has skilled an outsized leasing restoration. This has been pushed by company relocations and the decrease value and better high quality of life that Solar Belt markets supply. Workplace capital markets exercise continues to be suppressed, largely pushed by restricted debt availability for the sector. Nonetheless, we’ve began to see indicators of enchancment for high quality and well-leased properties. Turning to our portfolio, we achieved wholesome leasing exercise throughout the quarter with 141,000 sq. ft of complete leasing. Of this quantity, 78,000 sq. ft represented new leases. After quarter finish, we accomplished a full ground lease extension at our Block 83 property in Raleigh that was set to run out on November 1st of this 12 months. We beforehand communicated that we have been taking again one in all WeWork’s full ground areas at Block 83, representing 28,000 sq. ft. A excessive profile enterprise shopper of WeWork that has been utilizing the house requested to proceed their occupancy by way of the top of calendar 2026. Because of this, we prolonged WeWork on this ground for 26 months and elevated the beginning lease by roughly 6% to $42.50. We see this as a optimistic end result and can outcome within the workplace part of Block 83 being 98% leased when together with signed leases that begin later in 2024. At Pima Heart in Phoenix, we additionally signed two new leases for 26,000 sq. ft throughout the quarter, which can improve occupancy by 10% upon graduation. The renovations at Pima are actually full. The property has been reworked and it’s leading to superb leasing traction on our remaining vacancies. Past Pima, we’re additionally finishing renovation initiatives at three different properties. These initiatives at 5090 in Phoenix, Metropolis Heart in St. Petersburg and 2525 McKinnon in Dallas must be concluded over the subsequent few months. In complete, we anticipate to spend roughly $10 million on these 4 renovations, with roughly $6.Four million spent by way of September 30. Along with the renovations, we’re evaluating a couple of different worth enhancing alternatives inside our portfolio. One alternative we touched on final quarter is the potential redevelopment of our parking storage at Metropolis Heart in Downtown St. Petersburg right into a residential and mixed-use apartment tower. In our October investor presentation, we’ve included some renderings of the apartment constructing design from our latest website plan software. This potential redevelopment continues to advance by way of an approval course of with the Metropolis of St. Petersburg. We’re additionally advancing agreements with a really skilled developer to steer the challenge’s execution. A redevelopment of Metropolis Heart stays topic to a lot of circumstances, a few of that are past our management. We’ll present additional updates on our progress on future calls. We’re additionally happy to report that our Florida portfolio weathered the 2 latest hurricanes extraordinarily properly. We’ve got unbelievable operators on the bottom in Florida they usually rapidly had our buildings again on-line after the storms. We sincerely thank them for his or her dedication and the way properly they appear after our tenants. Lastly, we up to date our steerage expectation ranges. Particularly, we narrowed a number of ranges and elevated each our anticipated year-end occupancy and same-store money NOI change on account of sturdy leasing outcomes year-to-date. These developments won’t solely profit our 2024 outcomes, however are favorable tailwinds for 2025 and past. With that, I’ll flip the decision over to Tony to debate our monetary leads to extra element.

Tony Maretic: Thanks, Jamie. Our web working earnings within the third quarter was $24.6 million, which is $300,000 decrease than the quantity we reported within the second quarter. NOI was marginally decrease in Q3 than in Q2, primarily a results of the disposition of Cascade Station throughout the second quarter. We reported core FFO of $11.1 million or $0.27 per share for the third quarter. Core FFO was $400,000 decrease than the quantity we reported within the second quarter, pushed primarily by the online working earnings lower and marginally greater curiosity expense. Our third quarter AFFO was $4.eight million or $0.12 per share, which resulted in continued dividend protection this quarter. The biggest impression AFFO was a $700,000 tenant enchancment deduction associated to a brand new lease [Technical Difficulty] we anticipate will take occupancy in November 2024. The 4 important property renovations which Jamie described resulted in a $1 million discount to AFFO this quarter. We additionally spent $200,000 on spec suites and emptiness conditioning. Shifting on to a few of our operational metrics, our same-store money NOI change returned to optimistic territory within the third quarter. There was a rise of 0.2% or $55,000, as in comparison with the third quarter of 2023. We anticipate additional enchancment of this metric within the fourth quarter. Our portfolio occupancy ended the quarter at 83.4%, a rise from the prior quarter. Together with the 201,000 sq. ft of signed leases that haven’t but commenced, our occupancy, inclusive of those leases was 87.0% as of quarter finish. Our complete debt as of September 30th was $648 million. Our web debt, together with restricted money to EBITDA was 7 instances. As of September 30th, we had roughly $42 million undrawn and approved on our credit score facility. We additionally had money and restricted money of $43 million as of quarter finish. Throughout the quarter, as deliberate, we drew $50 million on our line of credit score to repay the $50 million time period mortgage that matured in September. We’ve got no additional debt maturities till October of 2025. We even have two properties of great worth, Block 83 in Raleigh and Metropolis Heart in Tampa, which might be unencumbered and we’re exploring potential financing alternate options at Block 83. And lastly for me, as Jamie talked about, we’ve got made upward revisions to a number of steerage classes. The numerous variety of signed leases which have or are anticipated to begin within the fourth quarter of 2024 are driving these revisions. That concludes our ready remarks and we are going to open up the road for questions. Operator?

Operator: Thanks very a lot, Mr. Maretic. [Operator Instructions] We’ve got our first query from Upal Rana with KeyBanc Capital Markets. Your line is open. Please go forward.

Upal Rana: Nice. Thanks. Good morning on the market. Jamie, might you stroll us by way of how the renewal with WeWork and Block 83 got here to fruition, and do you’ve gotten any plans or expectations after the lease expires in 2026?

Jamie Farrar: So, we have been to get again one in all our three flooring in Raleigh as of November 1st, and there may be an enterprise tenant that had been utilizing that house and fairly completely happy, they usually determined they needed to push out their utilization till the top of 2026. So, we had a dialogue with them and we have been completely happy to maintain them there within the challenge, and we have been proud of the economics of successfully no TI and shifting the beginning lease about 6%.

Upal Rana: Okay. Nice. After which, concerning occupancy, what are among the shifting items that get you to that 85.5% midpoint of your steerage? And I do know I’m positive WeWork isn’t an enormous driver of that, however is there anything there that’s included in your assumption?

Jamie Farrar: Positive. So, I’ll begin right here, it’s Jamie. The signed leases that haven’t commenced, a good portion of them can be commencing in This fall. So, while you take a look at the place a few of our impactful present emptiness is, we’ve acquired about 74,000 ft of leases that can begin in Phoenix, 33,000 in Raleigh, about 50,000 in Orlando, and so these are signed which might be being accomplished as we converse and we’ll begin in This fall.

Tony Maretic: The only largest tenant that’s shifting in in This fall, Upal, is at our Ingenuity Drive property, which is a part of the FRP Assortment Complicated. That property had a emptiness. It’ll go to 100%. The tenant has moved in in October with 42,000 sq. ft. So, that’s the one largest part to that. With WeWork renewing, clearly there’s much less to pull from that after which the remainder of the sort of tenants are sort of smaller to medium measurement.

Upal Rana: Okay. Nice. That was useful. After which final one from me, you talked about on prior name that you just began to see curiosity from comparatively bigger tenants. Is that also the case or what kind of tenant demographics are you seeing with reference to leasing demand right this moment?

Jamie Farrar: So, that’s most likely some of the favorable issues that we’re seeing is, this time final 12 months you have been beginning to see some bigger tenants discover, and I’d say, that’s picked up considerably, and it’s tied again to extra of a development of employers wanting the staff again within the workplace and what was once sort of short-term extensions and bigger tenants making an attempt to keep away from doing longer leases, that’s actually turned. The opposite development that sort of ties to that’s the greatest house, the most recent, essentially the most trendy, amenitized, in addition to renovated areas in those self same submarkets are what’s in demand and we’re seeing that in our personal leasing pipeline. So, greater customers eager to commit and prepared to commit long run, which is improbable for our business.

Upal Rana: Okay. Nice. Thanks.

Tony Maretic: Thanks.

Jamie Farrar: Thanks for the query.

Operator: Thanks. The subsequent query is from Barry Oxford with Colliers. Your line is open. Please go forward.

Barry Oxford: Nice. Thanks, guys. Jamie, while you’re wanting and signing leases, what are you seeing right this moment, like possibly versus a 12 months in the past, relating to concessions and free lease? Are you having to sort of give extra to get offers performed or are you holding the road and really doing higher?

Jamie Farrar: So it’s a great query, Barry. A 12 months in the past, building prices have been shifting very quickly. I’d say that has are available in examine. It’s nonetheless at a excessive value, however we’re not seeing the inflation that we have been. Rents, the precise face rents we’re signing are very wholesome, proceed to develop, once more, for good properties. And the concessions on free lease, I’d say, are about the identical as the place they have been on new leases, usually one month per 12 months of time period. In order that’s sort of stabilized as properly. So, all in all, I’d say we’re a lot happier than the place we have been a 12 months in the past.

Barry Oxford: Okay. Nice. Nice. After which, Tony, I do know you don’t have a number of expirations, however as you’re employed into 2025 and the later half of 2025, do you anticipate the banks supplying you with a number of pushback on refinancing or, look, I’m in conversations with them, Barry, and proper now, I don’t suppose we’re going to have problem?

Tony Maretic: Yeah. Hey, Barry. It’s a great query.

Jamie Farrar: Yeah.

Tony Maretic: You spotlight the truth that we have to we do not need any pending debt maturities over the subsequent 4 quarters. We do have two debt maturities in This fall 2025. And to be sincere, these conversations actually haven’t begun in earnest. I anticipate these discussions will actually acquire traction beginning quickly and definitely by early 2025. So it’s a bit of too early to inform. It’ll clearly rely on the state of these properties and the place that can go. So I anticipate these conversations to start in early 2025 and it’s most likely too early to inform, as I sit right here right this moment, however we’ve got a while.

Barry Oxford: Nice. Thanks for the decision, guys.

Jamie Farrar: Thanks, Barry.

Operator: Thanks. [Operator Instructions] The subsequent query is from Craig Kucera with Lucid Capital Markets. Your line is open. Please go forward.

Craig Kucera: Yeah. Hey. Good morning, guys. It seems like the majority of occupancy positive aspects are occurring right here within the fourth quarter. Are you able to give us some coloration on when the remaining, name it, 100 foundation factors to 150 foundation factors are anticipated to take occupancy and begin paying lease in 2025?

Tony Maretic: Hey. Good morning, Craig. Yeah. So we’ve got a lot of move-ins in This fall. The remainder of the steadiness will occur early in 2025. Clearly, building schedules will dictate precisely when that falls in, however early 2025 for the steadiness.

Craig Kucera: Okay. Nice. Altering gears, I’d like to speak concerning the Metropolis Heart redevelopment. How would Metropolis Workplace monetize that? I imply, most probably I’d suppose possibly a sale to the developer may make sense, however might it’s a floor lease or possibly some form of income sharing settlement? Any coloration that might be appreciated?

Jamie Farrar: Positive. So we will’t get into too many particulars proper now. The place we’re at is we’ve submitted a website plan software with the town of St. Petersburg. That’s ongoing. As we anticipate to conclude the general public components over the subsequent like 30-ish days and by early 2025, if all goes properly, have our approvals in place. The way in which we’ve been approaching it’s, we’re large believers in that market. We’d like to remain concerned in that market. The way in which we’ve approached it’s contributing the numerous land worth that we’ve got right into a partnership with a really skilled developer and ideally aren’t contributing more money past that, however we profit because the challenge is developed and the condos are offered off.

Craig Kucera: Received it. Okay. And only one extra for me. [Technical Difficulty] I do know they’re all within the fourth quarter of subsequent 12 months, however are you giving some thought to the way you anticipate dealing with them after utilizing a number of liquidity right here within the third quarter with the road of credit score, possibly exploring utilizing Block 83 as a supply of liquidity or different sources?

Tony Maretic: Yeah. I feel it’s a great query, Craig. As I discussed in my earlier remarks, we’re exploring financing choices for Block 83. I imply, the CMBS market seems to be enhancing and is open. Block 83 is a kind of trophy asset that seems to be getting performed. So it’s a bit of too early to invest. However definitely, Block 83 is our most beneficial property. There’s two separate towers there and Metropolis Centre can be unencumbered. So we’ve got some unencumbered belongings. We’ve got some chess items we will transfer across the Board and we’ve acquired a bit of little bit of time earlier than we determine what transfer we’re going to make.

Jamie Farrar: And only for readability, we’ve got two property loans that mature within the fourth quarter. We even have our working line. We do have a one-year extension possibility, which we consider we’re going to have the ability to set off. So it truly is the 2 property loans that have been mentioned earlier.

Craig Kucera: Okay. Nice. Admire the telecast. Thanks.

Jamie Farrar: Nice. Thanks.

Tony Maretic: Thanks.

Operator: Thanks. As there are not any extra questions, I’ll flip the decision again over to Mr. Farrar to conclude.

Jamie Farrar: Thanks for becoming a member of right this moment. Please attain out when you have any additional questions. Goodbye.

Operator: Thanks. This concludes right this moment’s name. Thanks all for becoming a member of. Chances are you’ll now disconnect your strains.

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