Artis Releases 2017 Annual Results: Improves Portfolio Diversification

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Artis Releases 2017 Annual Results: Improves Portfolio Diversification

Canada NewsWire

WINNIPEG, March 1, 2018 /CNW/ - Today Artis Real Estate Investment Trust ("Artis" or the "REIT") issued its financial results and achievements for the year ended December 31, 2017. All amounts are in thousands of Canadian dollars and are inclusive of Artis' ownership in investments in joint ventures on a Proportionate Share basis, unless otherwise noted. Information in this press release should be read in conjunction with the REIT's consolidated financial statements and MD&A for the year ended December 31, 2017.

"Since the beginning of 2015, Artis has diversified its portfolio by reducing its NOI weighting in Alberta from 39% to 23% and its Calgary office weighting from 18% to 9%, and by selling properties at prices that equate to a NAV significantly higher than our current unit price," said Armin Martens, President and Chief Executive Officer of Artis. "Artis' management continues to manage its portfolio in a patient and disciplined manner, so as to maximize unitholder value.

"We are also pleased to note that Artis' total unitholder return in 2017 was approximately 20%, compared to the TSX REIT index total return of approximately 10% in 2017, and that the gap between our unit price and NAV has narrowed considerably, owing in large part to the sound execution of Artis' strategic plan."

2017 ANNUAL HIGHLIGHTS

  • Disposed of 23 properties, 11 of which were located in Alberta (five Calgary office properties), for aggregate sale prices of $353.1 million and US$70.6 million. Subsequent to the end of the year, sold an office property in the Greater Phoenix Area, Arizona, for US$19.1 million. The net IFRS gain on these properties in mixed dollars was $11.4 million.

  • Reduced total Alberta Property NOI from 39.1% for the quarter ended December 31, 2014, to 23.1% for the quarter ended December 31, 2017, and reduced the Calgary office Property NOI from 17.7% to 8.5%, respectively. During this time frame, Artis sold 25 assets in Alberta, including seven office properties, seven retail properties and 11 industrial properties; 10 of these assets were located in Calgary. These Alberta assets, totalling approximately 2.6 million square feet of gross leasable area, were sold for an aggregate price of $533.4 million. The net IFRS gain on these properties was $10.0 million.

  • Acquired four industrial properties in the U.S. for an aggregate purchase price of US$66.9 million. Two of the properties are located in the Greater Phoenix Area, Arizona, one property is located in the Greater Denver Area, Colorado, and the remaining property is located in Twin Cities Area, Minnesota.

  • Entered into two unsecured non-revolving term credit facilities in the aggregate amount of $300.0 million which can be utilized for general corporate and working capital purposes, property acquisitions and development financing. The facilities were fully drawn in 2017 and mature in 2022. Interest rate swaps were placed on top of the facilities to effectively lock the interest rates at 3.57% and 3.50% for each $150.0 million facility.

  • Increased unencumbered assets to $1.7 billion at December 31, 2017, from $1.0 billion at December 31, 2016.

  • Stabilized Same Property NOI in Canadian dollars increased 0.9% for the year ended December 31, 2017. Same Property NOI for the total portfolio in Canadian dollars, including the Calgary office segment and properties planned for disposition and re-purposing, decreased 0.3% for the year ended December 31, 2017. Stabilized Same Property NOI in Canadian dollars and Same Property NOI for the total portfolio in Canadian dollars decreased 0.2% and 0.3%, respectively, for the quarter ended December 31, 2017.

  • Weighted-average rental rate on renewals that commenced during the year ended December 31, 2017, increased 4.9%, excluding the Calgary office segment, and increased 2.3% including the Calgary office segment.

  • Increased EBITDA interest coverage ratio to 3.24 for the year ended December 31, 2017, compared to 3.11 for the year ended December 31, 2016.

  • Decreased total debt to GBV to 49.3% at December 31, 2017, compared to 51.0% at December 31, 2016, and maintained total debt to EBITDA of 8.4 at December 31, 2017, compared to December 31, 2016.

  • Decreased secured mortgages and loans to GBV to 31.9% at December 31, 2017, compared to 40.6% at December 31, 2016.

  • Reported FFO per unit of $1.43 for the year ended December 31, 2017, compared to $1.55 for the year ended December 31, 2016. The decline was primarily due to the disposition of properties and the repayment of debt to overall improve Artis' liquidity.

  • Decreased the unhedged variable rate mortgage debt to total debt to 17.1% at December 31, 2017, compared to 19.0% at December 31, 2016.

SELECTED FINANCIAL INFORMATION







Year ended December 31,


$000's, except per unit amounts


2017


2016

% Change







Revenue


$

542,929


$

572,515

(5.2)%

Property NOI


325,645


348,714

(6.6)%

Distributions per common unit


1.08


1.08

—%







FFO (1)


$

215,360


$

225,876

(4.7)%

FFO per unit


1.43


1.55

(7.7)%

FFO payout ratio (1)


75.5%


69.7%

5.8%







AFFO (1)


$

157,467


$

168,748

(6.7)%

AFFO per unit (1)


1.04


1.16

(10.3)%

AFFO payout ratio (1)


103.8%


93.1%

10.7%



(1)

The 2016 comparative information has been revised to reflect the impact of the new FFO and AFFO guidelines as issued by REALpac in February 2017.

 







Three months ended December 31,


$000's, except per unit amounts


2017


2016

% Change







Revenue


$

133,083


$

146,378

(9.1)%

Property NOI


78,714


85,946

(8.4)%

Distributions per common unit


0.27


0.27

—%







FFO (1)


$

52,375


$

56,408

(7.1)%

FFO per unit


0.35


0.37

(5.4)%

FFO payout ratio (1)


77.1%


73.0%

4.1%







AFFO (1)


$

37,993


$

40,669

(6.6)%

AFFO per unit (1)


0.25


0.27

(7.4)%

AFFO payout ratio (1)


108.0%


100.0%

8.0%



(1)

The 2016 comparative information has been revised to reflect the impact of the new FFO and AFFO guidelines as issued by REALpac in February 2017.

 

LIQUIDITY AND LEVERAGE




 

$000's, except per unit amounts

December 31,
2017

December 31,
2016




Fair value of investment properties

$

5,268,797

$

5,552,756

Cash

42,844

59,041

Available on revolving term credit facilities

61,617

230,320

Fair value of unencumbered properties

1,687,754

998,770

NAV per unit

14.86

15.00




Secured mortgage and loans to GBV

31.9%

40.6%

Total long-term debt and credit facilities to GBV

49.3%

51.0%

Total long-term debt and credit facilities to EBITDA

8.4

8.4

Unencumbered assets to unsecured debt

1.8

2.1




EBITDA interest coverage ratio

3.23

3.17

Weighted-average effective interest rate on mortgages and other loans

3.96%

3.74%

Weighted-average term to maturity on mortgages and other loans (in years)

3.6

3.8

Unhedged variable rate mortgage debt as a percentage of total debt

17.1%

19.0%

 

PORTFOLIO ACTIVITY

During 2017, Artis acquired the following properties:








Property

Property
count

Location

Disposition date

Asset class

Owned
share of
GLA

Purchase
price

U.S. Industrial Portfolio

3

Various cities in the U.S. (1)

December 11, 2017

Industrial

377,956

$ US40,000

Clearwater Creek Distribution








Center                

1

Twin Cities Area, MN

December 20, 2017

Industrial

402,522

US26,850



(1)

Two of the properties are located in the Greater Phoenix Area, Arizona and the third property is located in the Greater Denver Area, Colorado.

 

On September 7, 2017, the REIT acquired the remaining 10% interest in each of Park Lucero I, Park Lucero III and Park Lucero IV, phases of the Park Lucero industrial project located in the Greater Phoenix Area, Arizona, for total consideration of US$2,290.

On September 29, 2017, the REIT also acquired a parkade that is ancillary to an existing office property in Winnipeg, Manitoba for $13,850.

During 2017, Artis completed the disposition of the following properties:









Property

Property
count

Location

Disposition date

Asset class

Owned
share of
GLA


Sale price

Airdrie Flex Industrial

1

Airdrie, AB

February 6, 2017

Industrial

27,535


$

5,432

Southview Centre

1

Medicine Hat, AB

March 10, 2017

Retail

162,062


28,100

Westbank Hub Shopping Centre

2

Westbank, BC

March 15, 2017

Retail

326,934


80,100


and Westbank Hub Centre









North (1)                                








Ford Tower and Alpine Building

2

Calgary, AB

March 30, 2017

Office

201,349


37,500

Edson Shoppers

1

Edson, AB

April 7, 2017

Retail

20,405


7,025

Horizon Heights

1

Calgary, AB

July 5, 2017

Retail

73,428


34,000

Sherwood Centre

1

Edmonton, AB

August 15, 2017

Industrial

162,975


13,500

6075 Kestrel Road

1

Greater Toronto Area, ON

September 1, 2017

Industrial

32,281


5,400

Quarry Park Portfolio

3

Calgary, AB

September 15, 2017

Office

282,327


98,000

488 Albert Street

1

Nanaimo, BC

October 10, 2017

Office

30,278


7,950

Twin Cities Industrial Portfolio

7

Twin Cities Area, MN

November 17, 2017

Industrial

1,204,612


US70,600

Millennium Centre

1

Red Deer, AB

December 7, 2017

Office

148,871


33,000

12 Indell Lane

1

Greater Toronto Area, ON

December 21, 2017

Industrial

20,752


3,061



(1)

The REIT disposed of its 75% interest in these properties.

 

During 2017, Artis repaid $108,323 and US$47,573 of mortgage debt related to the disposition of the above properties.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2017, Artis had $42.8 million of cash on hand and $61.6 million available on its revolving term credit facilities. Liquidity and capital resources will be impacted by financing activity, portfolio acquisition and disposition activities and debt repayments occurring subsequent to December 31, 2017.

NEW DEVELOPMENT ACTIVITY

Artis has numerous development projects in process. The table below lists the ongoing projects and completion progress.  Additional information pertaining to each project can be found in the 2017 Management's Discussion and Analysis.






Property

Location

Asset class

Approximate
GLA (Artis'
share)

%
Completed

Millwright Building

Minneapolis, MN

Office

139,200

100.0%

Park Lucero Phase II

Greater Phoenix Area, AZ

Industrial

118,800

100.0%

Park 8Ninety Phase I

Houston, TX

Industrial

418,000

100.0%

169 Inverness Drive West Phase I

Greater Denver Area, CO

Office

118,000

98.0%

 

NEW DEVELOPMENT INITIATIVES

Artis has an extensive development pipeline, which consists of projects that are in the early planning stages to be developed over the next several years and projects that are being considered for future development. These development projects are designed to create value for unitholders while improving the overall quality of Artis' portfolio. Artis' pipeline consists of 14 development projects, including both commercial and multi-family assets, totalling up to 6 million square feet of gross leasable area.

Projects that are in the early planning stages include a retail development and a mixed-use commercial/apartment densification development opportunity in Winnipeg, Manitoba, two mixed-use commercial/apartment densification projects in the Greater Toronto Area, Ontario, and a mixed-use commercial/apartment project in Calgary, Alberta.

Additional information pertaining to these projects and Artis' future development initiatives can be found in the 2017 Management's Discussion and Analysis.

PORTFOLIO OPERATIONAL AND LEASING RESULTS

Occupancy at December 31, 2017, was 91.6% (93.2% including commitments on vacant space) compared to 91.9% at December 31, 2016, excluding properties held for redevelopment, completed new developments and new developments in process.








Q4-17

Q3-17

Q2-17

Q1-17

Q4-16







Property NOI

$

78,714

$

81,261

$

82,268

$

83,402

$

85,946

Property NOI change (1)

(3.1)%

(1.2)%

(1.4)%

(3.0)%

(6.4)%







Same Property NOI change (2)

(0.3)%

0.5%

0.4%

(1.6)%

(0.6)%






Weighted-average rental rate increase on renewals







reported in the period                               

1.6%

0.6%

0.8%

6.6%

2.6%



(1)

Property NOI has been impacted by acquisition, disposition and (re)development activity, the impact of foreign exchange and lease termination income.

(2)

Same Property NOI results are impacted by foreign exchange.

 

Artis' portfolio has a stable lease expiry profile with 42.4% of gross leasable area expiring in 2022 or later and 32.7% of the 2018 expiries already renewed or committed to new leases at December 31, 2017. Weighted-average in-place rents for the entire portfolio are $13.40 per square foot and are estimated to be 1.3% below market rents. Information about Artis' lease expiry profile is as follows:










2018

2019

2020

2021

2022

& later








Expiring square footage


12.2%

11.6%

12.0%

12.9%

42.4%

Committed percentage


32.7%

5.6%

4.6%

1.0%

3.4%

In-place rents


$

13.42

$

13.49

$

13.87

$

12.92

$

13.38

Comparison of in-place to market rents


(4.2)%

(3.3)%

0.4%

0.3%

4.6%

Comparison of in-place to market rents








 excluding Calgary office segment


2.3%

1.8%

0.3%

0.7%

2.7%

 

Artis' Calgary office segment represents 8.5% of 2017 Property NOI and 8.3% of the overall portfolio by GLA. In 2018, Calgary office expiries represent 0.8% of Artis' total GLA. Of this expiring square footage, 0.3% has been renewed or committed to new leases.  In 2019, Calgary office expiries represent 0.6% of Artis' total GLA.








2018

2019

2020

2021

2022
& later







Calgary office expiring square footage as a % of total GLA

0.8%

0.6%

0.2%

1.5%

2.7%

 

UPCOMING WEBCAST AND CONFERENCE CALL

Interested parties are invited to participate in a conference call with management on Friday, March 2, 2018, 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/relatedlinks/conference-callspresentations-2/. 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 2, 2018, a replay of the conference call will be available by dialing 1.416.764.8677 or 1.888.390.0541 and entering passcode 975271#. The replay will be available until Monday, April 2, 2018. The webcast will be archived 24 hours after the end of the conference call and will be accessible for 90 days.

********

Artis is a diversified Canadian real estate investment trust investing in office, retail and industrial properties. Since 2004, Artis has executed an aggressive but disciplined growth strategy, building a portfolio of commercial properties in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and select markets in the United States. As of December 31, 2017, Artis' commercial property comprises approximately 24.8 million square feet of leasable area.

During the three months ended December 31, 2017, Property Net Operating Income ("Property NOI") by asset class, was approximately 53.6% office, 21.2% retail and 25.2% industrial. Property NOI by geographical region, was approximately 4.4% in British Columbia, 23.1% in Alberta, 6.7% in Saskatchewan, 14.3% in Manitoba, 12.2% in Ontario, 8.0% in Arizona, 17.6% in Minnesota, 9.1% in Wisconsin and 4.6% in U.S. - Other.

NOTICE WITH RESPECT TO NON-GAAP MEASURES

The following measures are non-GAAP measures 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. As a publicly accountable enterprise, Artis applies the International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). These non-GAAP measures are not defined under IFRS and are not intended to represent operating profits for the period, or from a property, nor should any of these measures be viewed as an alternative to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. Readers should be further cautioned that the following measures as calculated by Artis may not be comparable to similar measures presented by other issuers.

Property Net Operating Income

Artis calculates Property NOI as revenues less property operating expenses such as utilities, repairs and maintenance and realty taxes. Property NOI does not include charges for interest or other expenses not specific to the day-to-day operation of the REIT's properties. Management considers Property NOI to be a valuable measure for evaluating the operating performance of the REIT's properties.

Same Property NOI

Artis calculates Same Property NOI by including Property NOI for investment properties that were owned for a full quarterly reporting period in both the current and comparative year, and excludes properties held for (re)development. Adjustments are made to this measure to exclude non-cash revenue items and other non-recurring revenue amounts such as lease termination income. Management considers Same Property NOI to be a valuable measure for evaluating the operating performance of the REIT's properties.

Funds from Operations ("FFO")

Artis calculates FFO substantially in accordance with the guidelines set out by the Real Property Association of Canada ("REALpac"), as issued in February 2017. These guidelines include certain adjustments to FFO under IFRS from the previous definition of FFO, as issued in April 2014. These adjustments did not materially impact the REIT's calculation of FFO and have been applied consistently to comparative periods. Management considers FFO to be a valuable measure for evaluating the REIT's operating performance in achieving its objectives.

Adjusted Funds from Operations ("AFFO")

Artis calculates AFFO substantially in accordance with new guidelines set out by REALpac, as issued in February 2017.  Q1-17 was the first quarter the REIT presented AFFO in accordance with these guidelines. AFFO has been revised to comply with these guidelines for the comparative periods in 2016.  Management considers AFFO to be a valuable measure for evaluating the REIT's operating performance in achieving its objectives.

Proportionate Share

Artis accounts for its joint ventures using the equity method in its consolidated financial statements in accordance with IFRS. Amounts presented on a Proportionate Share basis include Artis' interest in properties held in its joint ventures based on its percentage of ownership in these properties in addition to the amounts per its consolidated financial statements. Management considers Proportionate Share to be representative of how Artis manages its properties.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") Interest Coverage Ratio

Artis calculates EBITDA as Property NOI, adjusted for interest income, corporate expenses and all non-cash revenue and expense items. Management considers this ratio to be a valuable measure of Artis' ability to service the interest requirements on its outstanding debt.

Debt to Gross Book Value ("GBV")

Artis calculates GBV based on the total consolidated assets of the REIT, adding back the amount of accumulated depreciation of property and equipment. The REIT has adopted debt to GBV as an indebtedness ratio guideline used to measure its leverage.

Debt to EBITDA Ratio

Artis calculates debt to EBITDA based on annualizing the current quarter's EBITDA as defined above and comparing that balance to Artis' total outstanding debt. Management considers this ratio to be a valuable measure of Artis' leverage.

Net Asset Value ("NAV") per Unit

Artis calculates NAV per unit as its unitholders' equity, adjusted for the outstanding face value in Canadian dollars of its preferred units, divided by its total number of dilutive units outstanding. Management considers this metric to be a valuable measure of the REIT's residual equity available to its common unitholders.

CAUTIONARY STATEMENTS

This press release contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Particularly, statements regarding the REIT's future operating results, performance and achievements are forward-looking statements. Without limiting the foregoing, the words "expects", "anticipates", "intends", "estimates", "projects", and similar expressions are intended to identify forward-looking statements.

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, risks associated with real property ownership, availability of cash flow, general uninsured losses, future property acquisitions and dispositions, environmental matters, tax related matters, debt financing, unitholder liability, potential conflicts of interest, potential dilution, reliance on key personnel, changes in legislation and changes in the tax treatment of trusts. 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. All forward-looking statements contained in this press release are qualified by this cautionary statement.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

600 - 220 Portage Avenue
Winnipeg, MB  R3C 0A5
T 204.947.1250  F 204.947.0453
www.artisreit.com
AX.UN on the TSX

SOURCE Artis Real Estate Investment Trust

View original content: http://www.newswire.ca/en/releases/archive/February2018/01/c3172.html

Copyright CNW Group 2018

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