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ARTIS REAL ESTATE INVESTMENT TRUST RELEASES SECOND QUARTER RESULTS

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WINNIPEG, MB, Aug. 4, 2022 /CNW/ - Artis Real Estate Investment Trust ("Artis" or the "REIT") (TSX: AX.UN) (TSX: AX.PR.A) (TSX: AX.PR.E) (TSX: AX.PR.I) announced today its financial results for the three and six months ended June 30, 2022. The second quarter press release should be read in conjunction with the REIT's consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the period ended June 30, 2022. All amounts are in thousands of Canadian dollars, unless otherwise noted.

Artis Real Estate Investment Trust (CNW Group/Artis Real Estate Investment Trust) (CNW Group/Artis Real Estate Investment Trust)
Artis Real Estate Investment Trust (CNW Group/Artis Real Estate Investment Trust) (CNW Group/Artis Real Estate Investment Trust)

"Leasing activity was strong across all of our asset classes and markets throughout the second quarter," said Samir Manji, President and Chief Executive Officer of Artis. "Occupancy including commitments increased to 92.0%, the highest level reported in over a year. Interest from new prospective tenants has improved noticeably while the volume of renewals completed (in square feet) during the quarter increased 51.8% over the prior quarter and 19.0% over the comparative quarter last year. The renewals that commenced in the quarter were negotiated at a healthy weighted-average rate increase of 3.7%. We are also pleased to report that FFO per unit and AFFO per unit for the three months ended June 30, 2022, increased 11.8% and 8.0%, respectively, over the comparative quarter last year and that FFO and AFFO payout ratios remain conservative at 39.5% and 55.6%, respectively. We remain focused on the execution of our Business Transformation Plan announced in March 2021 including our commitment to enhance net asset value per unit. This is our most important key performance indicator and reflects our long-term objective of maximizing value for our unitholders."

SECOND QUARTER HIGHLIGHTS

Business Strategy Update

  • Utilized the normal course issuer bid ("NCIB") to purchase 3,543,855 common units at a weighted-average price of $12.54 and 59,300 preferred units at a weighted-average price of $24.32.

  • Invested in equity securities for an aggregate cost of $158.1 million.

  • Disposed of one office property located in Canada and one industrial property located in the U.S. for an aggregate sale price of $68.7 million.

  • Completed the development of Blaine 35 I, an industrial property comprising 118,500 square feet, located in the Twin Cities Area, Minnesota.

Balance Sheet and Liquidity

  • Issued Series E senior unsecured debentures for gross proceeds of $200.0 million, maturing on April 29, 2025 and bearing interest at a fixed rate of 5.60% per annum.

  • Renewed the non-revolving credit facility maturing July 18, 2022 in the amount of $150.0 million for a one-year term.

  • Increased NAV per unit (1) to $19.37 at June 30, 2022, compared to $17.37 at December 31, 2021.

  • Reported total debt to GBV (1) of 46.0% at June 30, 2022, compared to 42.9% at December 31, 2021.

  • Reported total debt to Adjusted EBITDA (1) of 8.9 at June 30, 2022, compared to 8.2 at December 31, 2021.

  • Reported Adjusted EBITDA interest coverage ratio (1) of 3.35 for the second quarter of 2022, compared to 3.86 for the second quarter of 2021.

Financial and Operational

  • Increased FFO per unit (1) to $0.38 for the second quarter of 2022, compared to $0.34 for the second quarter of 2021, and increased AFFO per unit (1) to $0.27 for the second quarter of 2022, compared to $0.25 for the second quarter of 2021.

  • Reported a conservative AFFO payout ratio (1) of 55.6% for the second quarter of 2022, improved from 60.0% for the second quarter of 2021.

  • Same Property NOI (1) in Canadian dollars for the second quarter of 2022 increased 0.7% compared to the second quarter of 2021.

  • Reported portfolio occupancy of 90.7% (92.0% including commitments) at June 30, 2022, increased from 89.5% (91.6% including commitments) at March 31, 2022.

  • Renewals totalling 388,424 square feet and new leases totalling 227,201 square feet commenced during the second quarter of 2022.

  • Weighted-average rental rate on renewals that commenced during the second quarter of 2022 increased 3.7%.

 (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.

BUSINESS STRATEGY UPDATE

Strengthening the Balance Sheet

A pillar of the REIT's strategy is to strengthen the balance sheet through accretive dispositions, unit repurchases and debt reduction.

During Q2-22, the REIT continued unlocking value through the monetization of certain assets and sold one office property located in Canada and one industrial property located in the U.S. for an aggregate sale price of $68.7 million. The sale proceeds, net of costs of $1.9 million and related debt of $20.7 million, were $46.1 million.

Also during Q2-22, the REIT utilized the NCIB to purchase 3,543,855 common units at a weighted-average price of $12.54 and 59,300 preferred units at a weighted-average price of $24.32. The REIT has purchased the maximum number of common units permitted under its NCIB that was renewed on December 17, 2021.

Driving Organic Growth

Blaine 35 is a two-phase industrial development project located in the Twin Cities Area, Minnesota, with prominent interstate frontage at the intersection of I-35W and 85th Ave N. During Q2-22, construction of the first phase of the project, Blaine 35 I, comprising 118,500 square feet of leasable area was complete.  Approximately 73.4% of the building was leased upon completion of construction while leasing for the remainder of the building is in progress. Construction of the second phase, Blaine 35 II, is currently underway and will comprise two buildings expected to total approximately 198,900 square feet of leasable area upon completion. Pre-leasing is in progress and Artis has negotiated a lease for approximately 50.3% of the gross leasable area of Blaine 35 II.

The REIT also has a commercial and residential development project under construction. 300 Main is a 580,000 square foot building located in Winnipeg, Manitoba. 300 Main will be a best-in-class amenity-rich apartment building with main floor commercial space.  Pre-leasing of the first 20 floors of the 40-storey residential apartments is currently underway.

Focusing on Value Investing

During Q2-22, the REIT invested in equity securities for an aggregate cost of $158.1 million. This includes equity securities of Dream Office Real Estate Investment Trust where, together with its joint-actors, Artis announced on June 22, 2022, that it had acquired a 14% ownership position.

BALANCE SHEET AND LIQUIDITY

The REIT's balance sheet highlights and metrics, are as follows:


June 30,


December 31,


2022


2021







Total investment properties

$     4,016,838


$     3,999,609

Unencumbered assets

1,954,006


1,902,748

NAV per unit (1)


19.37



17.37

Total debt to GBV (1)

46.0 %


42.9 %

Total debt to Adjusted EBITDA (1)


8.9



8.2

Adjusted EBITDA interest coverage ratio (1)


3.35



3.77

Unencumbered assets to unsecured debt (1)

1.56


2.20

(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 June 30, 2022, Artis had $79.7 million of cash on hand and $272.0 million available on its revolving term credit facilities. Under the terms of the revolving credit facilities, the REIT must maintain certain financial covenants which limit the total borrowing capacity of the revolving credit facilities to $572.9 million.

Liquidity and capital resources may be impacted by financing activities, portfolio acquisition, disposition and development activities or debt repayments occurring subsequent to June 30, 2022.

FINANCIAL AND OPERATIONAL RESULTS


Three months ended

June 30,



Six months ended

June 30,


$000's, except per unit amounts

2022


2021

% Change


2022


2021

% Change











Revenue

$     91,055


$   103,299

(11.9) %


$   184,296


$   224,176

(17.8) %

Net operating income

52,425


62,037

(15.5) %


103,887


126,269

(17.7) %

Net (loss) income

(19,556)


217,056

(109.0) %


217,457


288,916

(24.7) %

Total comprehensive income

30,553


198,431

(84.6) %


244,329


253,422

(3.6) %

Distributions per common unit

0.15


0.15

— %


0.30


0.29

3.4 %











FFO (1)

$     44,939


$     45,428

(1.1) %


$     86,947


$     92,001

(5.5) %

FFO per unit (1)

0.38


0.34

11.8 %


0.72


0.69

4.3 %

FFO payout ratio (1)

39.5 %


44.1 %

(4.6) %


41.7 %


42.0 %

(0.3) %











AFFO (1)

$     31,567


$     32,795

(3.7) %


$     61,138


$     66,730

(8.4) %

AFFO per unit (1)

0.27


0.25

8.0 %


0.51


0.50

2.0 %

AFFO payout ratio (1)

55.6 %


60.0 %

(4.4) %


58.8 %


58.0 %

0.8 %

(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.

Artis reported portfolio occupancy of 90.7% at June 30, 2022, increased from 89.5% at March 31, 2022. Weighted-average rental rate on renewals that commenced during the second quarter of 2022 increased 3.7%.

Artis' portfolio has a stable lease expiry profile with 48.5% of gross leasable area expiring in 2026 or later. Weighted-average in-place rents for the total portfolio are $13.56 per square foot and are estimated to be 1.5% below market rents.  Information about Artis' lease expiry profile is as follows:


Current
vacancy


Monthly
tenants


2022


2023


2024


2025


2026 & later


Total
portfolio

















Expiring square footage

9.3 %


0.3 %


9.1 %


13.0 %


12.3 %


7.5 %


48.5 %


100.0 %

In-place rents

N/A


N/A  


$ 14.19


$ 14.27


$ 11.62


$ 16.30


$ 13.33


$  13.56

Market rents

N/A


N/A


$ 14.03


$ 15.05


$ 11.71


$ 16.25


$ 13.53


$  13.77

 

UPCOMING WEBCAST AND CONFERENCE CALL

A conference call with management will be held on Friday, August 5, 2022, 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 http://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, August 5, 2022, a replay of the conference call will be available by dialing 1-416-764-8677 or 1-888-390-0541 and entering passcode 181748#. The replay will be available until Friday, August 12, 2022. The webcast will be archived 24 hours after the end of the conference call and will be accessible for 90 days.

CAUTIONARY STATEMENTS

This press release contains forward-looking statements within the meaning of applicable Canadian securities laws. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "outlook", "objective", "expects", "anticipates", "intends", "estimates", "projects", "believes", "plans", "seeks", and similar expressions or variations of such words and phrases suggesting future outcomes or events, or which state that certain actions, events or results ''may'', ''would'', "should" or ''will'' occur or be achieved are intended to identify forward-looking statements. Such forward-looking information reflects management's current beliefs and is based on information currently available to management.

Forward-looking statements are based on a number of factors and assumptions which are subject to numerous risks and uncertainties, which have been used to develop such statements, but which may prove to be incorrect. Although Artis believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Assumptions have been made regarding, among other things: the general stability of the economic and political environment in which Artis operates, treatment under governmental regulatory regimes, securities laws and tax laws, the ability of Artis and its service providers to obtain and retain qualified staff, equipment and services in a timely and cost efficient manner, currency, exchange and interest rates, global economic, financial markets and economic conditions in Canada and the United States will not, in the long term, be adversely impacted by the COVID-19 pandemic, disruptions resulting from the temporary restrictions that governments imposed on businesses to address the COVID-19 pandemic will not be long term.

Artis is subject to significant risks and uncertainties which may cause the actual results, performance or achievements of the REIT to be materially different from any future results, performance or achievements expressed or implied in these forward-looking statements. Such risk factors include, but are not limited to risk related to tax matters; and, credit, market, currency, operational, liquidity and funding risks generally and relating specifically to the Cominar Transaction; the COVID-19 pandemic, real property ownership, geographic concentration, current economic conditions, strategic initiatives, debt financing, interest rate fluctuations, foreign currency, tenants, SIFT rules, other tax-related factors, illiquidity, competition, reliance on key personnel, future property transactions, general uninsured losses, dependence on information technology, cyber security, environmental matters and climate change, land and air rights leases, public markets, market price of common units, changes in legislation and investment eligibility, availability of cash flow, fluctuations in cash distributions, nature of units, legal rights attaching to units, preferred units, debentures, dilution, unitholder liability, failure to obtain additional financing, potential conflicts of interest, developments and trustees.

For more information on the risks, uncertainties and assumptions that could cause Artis' actual results to materially differ from current expectations, refer to the section entitled "Risk Factors" of Artis' Annual Information Form for the year ended December 31, 2021, the section entitled "Risk and Uncertainties" of Artis' Q2-22 MD&A, as well as Artis' other public filings, available at www.sedar.com.

Artis cannot assure investors that actual results will be consistent with any forward-looking statements and Artis assumes no obligation to update or revise such forward-looking statements to reflect actual events or new circumstances other than as required by applicable securities laws.  All forward-looking statements contained in this press release are qualified by this cautionary statement.

NOTICE WITH RESPECT TO NON-GAAP & SUPPLEMENTARY FINANCIAL MEASURES DISCLOSURE

In addition to reported IFRS measures, certain non-GAAP and supplementary financial measures are commonly used by Canadian real estate investment trusts as an indicator of financial performance. "GAAP" means the generally accepted accounting principles described by the CPA Canada Handbook - Accounting, which are applicable as at the date on which any calculation using GAAP is to be made. Artis applies IFRS, which is the section of GAAP applicable to publicly accountable enterprises.

Non-GAAP measures and ratios include Same Property Net Operating Income ("Same Property NOI"), Funds From Operations ("FFO"), Adjusted Funds from Operations ("AFFO"), FFO per Unit, AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio, NAV per Unit, Total Debt to GBV, Adjusted EBITDA Interest Coverage Ratio and Total Debt to Adjusted EBITDA.

Supplementary financial measures includes unencumbered assets to unsecured debt.

Management believes that these measures are helpful to investors because they are widely recognized measures of Artis' performance and provide a relevant basis for comparison among real estate entities.

These non-GAAP and supplementary financial measures are not defined under IFRS and are not intended to represent financial performance, financial position or cash flows for the period, nor should any of these measures be viewed as an alternative to net income, cash flow from operations or other measures of financial performance calculated in accordance with IFRS.

The above measures are not standardized financial measures under the financial reporting framework used to prepare the financial statements of Artis. Readers should be further cautioned that the above measures as calculated by Artis may not be comparable to similar measures presented by other issuers. Refer to the Notice With Respect to Non-GAAP & Supplementary Financial Measures Disclosure of Artis' Q2-22 MD&A, which is incorporated by reference herein, for further information (available on SEDAR at www.sedar.com or Artis' website at www.artisreit.com).

The reconciliation for each non-GAAP measure or ratio and other supplementary financial measures included in this Press Release is outlined below.

NAV per Unit


June 30,
2022


December 31,
2021





Unitholders' equity

$         2,550,704


$         2,455,353

Less face value of preferred equity

(296,174)


(299,017)





NAV attributable to common unitholders

$         2,254,530


$         2,156,336





Total number of dilutive units outstanding:




Common units

115,787,008


123,544,536

Restricted units

465,254


462,891

Deferred units

164,957


133,552






116,417,219


124,140,979





NAV per unit

$               19.37


$               17.37

 

Total Debt to GBV


June 30,
2022


December 31,
2021





Total assets

$     4,998,257


$     4,576,024

Add: accumulated depreciation

9,916


9,275





Gross book value

5,008,173


4,585,299





Secured mortgages and loans

1,024,668


1,085,039

Preferred shares liability

904


889

Carrying value of debentures

448,807


249,346

Credit facilities

827,510


631,253





Total debt

$     2,301,889


$     1,966,527





Total debt to GBV

46.0 %


42.9 %

 

Unencumbered Assets to Unsecured Debt


June 30,
2022


December 31,
2021





Unencumbered assets

$         1,954,006


$         1,902,748

Unencumbered assets in properties held under joint venture arrangements

37,408


36,805





Total unencumbered assets

1,991,414


1,939,553





Senior unsecured debentures

448,807


249,346

Unsecured credit facilities

827,510


631,253





Total unsecured debt

$         1,276,317


$            880,599





Unencumbered assets to unsecured debt

1.56


2.20

 

Adjusted EBITDA Interest Coverage Ratio


Three months ended


Six months ended


June 30,


June 30,


2022


2021


2022


2021









Net (loss) income

$          (19,556)


$         217,056


$         217,457


$         288,916

Add (deduct):








Tenant inducements amortized to revenue

6,429


6,420


12,835


12,743

Straight-line rent adjustments

(243)


(1,178)


(531)


(2,217)

Interest expense

19,903


17,562


35,960


36,350

Net (income) loss from equity accounted investments

(7,310)


136


(147,594)


(6,209)

Distributions from equity accounted investments (1)

728


628


2,613


2,173

Fair value loss (gain) on investment properties

18,767


(173,874)


(52,174)


(192,221)

Foreign currency translation loss

2,573


3,716


1,310


5,771

Transaction costs




11

 Strategic initiative expenses




18

 Fair value loss (gain) on financial instruments

43,854


(6,026)


23,661


(13,144)

Depreciation of property and equipment

314


344


628


671

Income tax (recovery) expense

(790)


667


31,177


801









Adjusted EBITDA

64,669


65,451


125,342


133,663









Interest expense

19,903


17,562


35,960


36,350

Add (deduct):








Amortization of financing costs

(801)


(803)


(1,528)


(1,730)

Amortization of above- and below-market mortgages, net

219


185


437


366









Adjusted interest expense

$           19,321


$           16,944


$           34,869


$           34,986









Adjusted EBITDA interest coverage ratio

3.35


3.86