WINNIPEG, MB, Feb. 29, 2024 /CNW/ – Artis Real Estate Investment Trust (“Artis” or the “REIT”) (TSX:AX, AX.PR.E, AX.PR.I)) today provided an update on the strategic review and announced its financial results for the year ended December 31, 2023. The annual results in this press release should be read in conjunction with the REIT’s consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) for the year ended December 31, 2023. All amounts are in thousands of Canadian dollars, unless otherwise noted.
“In the fourth quarter of 2023, Artis met a number of operational and strategic benchmarks, which demonstrate the underlying strength of our portfolio and signal to the market the quality of our real estate and our internal management platform,” said Samir Manji, President and CEO of Artis. “Specifically, we achieved a 5.8% average increase in rental rates across 261,889 square feet of lease renewals that commenced during the three months ended December 31, 2023, while same property net operating income growth in the fourth quarter was 9.2% compared to the same period in the prior year. This increase reflects our ability to generate organic growth while highlighting the demand for the real estate in our portfolio. The significance of this demand is further emphasized by our strategic disposition activities. Since the announcement of the strategic review in August 2023, we have completed or entered into unconditional agreements for $473.6 million of property dispositions. This is a testament to the attractiveness of our real estate portfolio and strategic capacity to monetize assets to support our near-term goals: strengthen the balance sheet by reducing debt and enhance liquidity. In pursing additional dispositions, we will continue to do so with an owner’s mentality. Ultimately, selling any asset at a significantly discounted price is contrary to the fundamental principle of value investing to “buy low and sell high”. This will remain a key consideration for Artis moving forward. As we continue to monetize assets to pay down debt, our current distribution program remains unchanged. The Board and the Special Committee remain committed to exploring all strategic alternatives that may be available to unlock and maximize value for our owners.”
UPDATE ON STRATEGIC REVIEW
On August 2, 2023, Artis’s Board of Trustees (the “Board”) established a Special Committee to initiate a strategic review process to consider and evaluate alternatives that may be available to the REIT to unlock and maximize value for unitholders. Since that time, Artis has entered into unconditional sale agreements or completed sales of nearly $500 million (in line with international financial reporting standards (“IFRS”)) and will continue to remain focused on unlocking value, enhancing liquidity and maximizing net asset value (“NAV”) per unit.
On September 11, 2023, the Board announced that the Special Committee retained BMO Nesbitt Burns Inc. to provide financial advisory services to the REIT and Special Committee in connection with the strategic review process.
Over the past several months, the Special Committee and the Board have been working with the REIT’s financial advisors to explore options available to unlock and maximize value for unitholders, including the potential sale of the REIT. In the current market, Artis and its advisors do not believe that there is a buyer prepared to acquire the REIT at a reasonable value relative to management’s latest published NAV per unit of $13.96. There continues to be a healthy appetite in the private transaction environment for quality retail and industrial assets. There is also buyer interest for certain office assets, but office buyers in general are expecting bargain prices or vendor financing, neither of which are compatible with Artis’s desire to generate financial liquidity from dispositions.
Since the announcement of the strategic review, Artis has completed or entered into unconditional agreements for $161.9 million of office sales at values and on terms that were acceptable to the REIT, and will continue to consider further office dispositions. In addition, Artis has completed or entered into unconditional sale agreements for $256.2 million of retail assets and $55.5 million of industrial assets. This equates to $473.6 million of asset sales (in line with the REIT’s IFRS values reported at December 31, 2023), including unconditional transactions, since August 2, 2023. The REIT is continuing to evaluate opportunities relating to the sale of additional retail, office, and industrial assets, with a focus on the industrial portfolio, in its efforts to further deleverage and strengthen the balance sheet, grow NAV per unit, and enhance liquidity. A portion of this liquidity may be directed towards the normal course issuer bid (“NCIB”) which was renewed on December 19, 2023.
The Board remains committed to pursuing strategic alternatives that may be available to the REIT to unlock and maximize value for unitholders, including pursuing near-term opportunities available to Artis to enhance and grow NAV per unit. The work undertaken over the past several months has enabled Artis to properly assess the current environment and options available to the REIT in an effort to create and maximize value for unitholders.
There can be no assurance that the strategic review process will result in the REIT pursuing any transaction. The REIT has not set a timetable for completion of this process and does not intend to disclose further developments unless it determines that disclosure is appropriate or necessary.
2023 ANNUAL HIGHLIGHTS
Portfolio Activity
Disposed of nine industrial properties, five retail properties, three office properties and a parcel of development land for an aggregate sale price of $322.4 million.
Entered into unconditional agreements to sell four office properties, one industrial property, one retail property and a portfolio of eight retail properties located in Canada and one industrial property located in the U.S. for aggregate sale prices of $393.4 million and US$38.7 million.
Completed the development of Blaine 35 II, comprising two industrial properties totalling 198,900 square feet, located in the Twin Cities Area, Minnesota. The first building was 100.0% committed and the second building was 100.0% occupied upon completion.
Completed the development of Park Lucero East, an industrial property comprising 561,000 square feet, located in the Greater Phoenix Area, Arizona. Artis has a 10% ownership interest in this property.
Completed the development of 300 Main, a residential/commercial property located in Winnipeg, Manitoba.
Balance Sheet and Liquidity
Utilized the NCIB to purchase 7,473,874 common units at a weighted-average price of $7.27 and 583,801 preferred units at a weighted-average price of $17.77. The REIT purchased the maximum number of common units allowed under the NCIB term that expired on December 18, 2023.
Improved Total Debt to Adjusted EBITDA (1) to 7.7 at December 31, 2023, compared to 8.3 at December 31, 2022.
Repaid the Series D senior unsecured debentures upon maturity in the amount of $250.0 million.
Renewed the second tranche of the revolving credit facilities in the amount of $280.0 million for a two-year term maturing on April 29, 2025.
Extended the maturity date of the $100.0 million non-revolving credit facility for a one-year term maturing on February 6, 2024 and extended the maturity date of the $150.0 million non-revolving credit facility for a one-year term maturing on July 18, 2024. Subsequent to the end of the year, extended the maturing date of the $100.0 million non-revolving credit facility for a two-year term maturing February 6, 2026.
Financial and Operational
Same Property NOI (1) in Canadian dollars for 2023 increased 7.6% compared to 2022.
Maintained strong portfolio occupancy of 90.1% at December 31, 2023, unchanged from December 31, 2022.
Renewals totalling 1,024,276 square feet and new leases totalling 1,163,799 square feet commenced during 2023.
Weighted-average rental rate on renewals that commenced during 2023 increased 4.8%.
(1) Represents a non-GAAP measure, ratio or other supplementary financial measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Financial Measures Disclosure.
BALANCE SHEET AND LIQUIDITY
The REIT’s balance sheet metrics are as follows:
December 31,
December 31,
2023
2022
Total investment properties
$ 3,066,841
$ 3,683,571
Unencumbered assets
1,567,001
2,034,409
NAV per unit (1)
13.96
17.38
Total Debt to GBV (1)
50.9 %
48.5 %
Total Debt to Adjusted EBITDA (1)
7.7
8.3
Adjusted EBITDA interest coverage ratio (1)
1.93
2.98
Unencumbered assets to unsecured debt (1)
1.62
1.54
(1) Represents a non-GAAP measure, ratio or other supplementary financial measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Financial Measures Disclosure.
At December 31, 2023, Artis had $28.9 million of cash on hand and $135.3 million available on its revolving credit facilities.
Liquidity and capital resources may be impacted by financing activities, portfolio acquisition, disposition and development activities or debt repayments occurring subsequent to December 31, 2023.
FINANCIAL AND OPERATIONAL RESULTS
Three months
ended December 31,
Year ended
December 31,
$000’s, except per unit amounts
2023
2022
% Change
2023
2022
% Change
Revenue
$ 80,892
$ 94,102
(14.0) %
$ 335,837
$ 372,512
(9.8) %
Net operating income
45,352
52,377
(13.4) %
184,017
209,980
(12.4) %
Net loss
(86,837)
(128,301)
(32.3) %
(332,068)
(5,294)
6,172.5 %
Total comprehensive (loss) income
(116,270)
(147,659)
(21.3) %
(364,399)
105,537
(445.3) %
Distributions per common unit
0.15
0.31
(51.6) %
0.60
0.76
(21.1) %
FFO (1) (2)
$ 27,275
$ 34,690
(21.4) %
$ 120,539
$ 163,189
(26.1) %
FFO per unit – diluted (1) (2)
0.25
0.30
(16.7) %
1.08
1.38
(21.7) %
FFO payout ratio (1) (3)
60.0 %
50.0 %
10.0 %
55.6 %
43.5 %
12.1 %
AFFO (1) (2)
$ 15,418
$ 21,307
(27.6) %
$ 69,998
$ 110,950
(36.9) %
AFFO per unit – diluted (1) (2)
0.14
0.18
(22.2) %
0.63
0.94
(33.0) %
AFFO payout ratio (1) (3)
107.1 %
83.3 %
23.8 %
95.2 %
63.8 %
31.4 %
(1) Represents a non-GAAP measure, ratio or other supplementary financial measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Financial Measures Disclosure.
(2) The REIT also calculates FFO and AFFO, adjusted for the impact of the realized gain (loss) on equity securities. Refer to FFO and AFFO section of Artis’s 2023 Annual MD&A.
(3) FFO payout ratio and AFFO payout ratio are calculated excluding the Special Distribution declared in December 2022. Refer to FFO and AFFO section of Artis’s 2023 Annual MD&A.
Artis reported portfolio occupancy of 90.1% at December 31, 2023, unchanged from December 31, 2022. Weighted-average rental rate on renewals that commenced during 2023 increased 4.8%.
Artis’s portfolio has a stable lease expiry profile with 45.2% of gross leasable area expiring in 2028 or later. Weighted-average in-place rents for the total portfolio are $15.15 per square foot and are estimated to be 1.7% above market rents. Information about Artis’s lease expiry profile is as follows:
Current
vacancy
Monthly
tenants
2024
2025
2026
2027
2028
& later
Total
portfolio
Expiring square footage
10.0 %
0.3 %
11.3 %
9.8 %
12.3 %
11.1 %
45.2 %
100.0 %
In-place rents
N/A
N/A
$ 16.85
$ 16.93
$ 16.71
$ 13.44
$ 14.34
$ 15.15
Market rents
N/A
N/A
$ 16.36
$ 16.62
$ 16.72
$ 12.96
$ 14.13
$ 14.89
UPCOMING WEBCAST AND CONFERENCE CALL
A conference call with management will be held on Friday, March 1, 2024 at 12:00 p.m. CT (1:00 p.m. ET). In order to participate, please dial 1-416-764-8688 or 1-888-390-0546. You will be required to identify yourself and the organization on whose behalf you are participating.
Alternatively, you may access the simultaneous webcast by following the link from our website at https://www.artisreit.com/investor-link/conference-calls/. Prior to the webcast, you may follow the link to confirm you have the right software and system requirements.
If you cannot participate on Friday, March 1, 2024, a replay of the conference call will be available by dialing 1-416-764-8677 or 1-888-390-0541 and entering passcode 805832#. The replay will be available until Friday, March 8, …