Investment Q&A

Recurring FFOPU or Funds from Operations per Unit came in at $0.58, missing consensus by nearly 2%, and down nearly 3.3% from the same quarter of last year. The decline in FFOPU is slowing down. AP also announced the scheduled closing date for the sale of its UDC portfolio in Downtown Toronto, with most of the proceeds going toward debt. For the company, occupancy declined by 1.2% to 87.6% this quarter. Management expects to achieve full-year net occupancy gains during 2023. Management is targeting its historical 75-80% renewal leasing rate for 2023. Only 12% of leases are maturing in 2024, giving AP a bit more time cushion. Management (revised) guided lower reflecting a decline in funds from operations of 0.7% and a decline in adjusted funds from operations of 0.4% for the fiscal year 2023. Same-asset net operating income, FFO, and AFFO growth are expected to be in the flat-to-low single-digit growth rate for the year. The revision in guidance was attributed to higher than expected first half of 2023 interest expense, which is mostly likely to resolve with the UDC proceeds. Tour activity is back to pre-pandemic levels and management highlighted strength in many cities such as Toronto, Vancouver, and Calgary. The downward revision on guidance definitely spooked investors who are already wary of office REITs. With debt, weak sentiment and declining occupancy, it is quite hard to paint a rosy picture here, even at low valuations of 6X cash flow. Payout ratio is 83.3%, which is still 'ok', however.