Year end results Artis REIT earns $122.73-million in 2019 2020-02-27 17:42 ET - News Release Mr. Armin Martens reports ARTIS REAL ESTATE INVESTMENT TRUST RELEASES 2019 ANNUAL RESULTS Today Artis Real Estate Investment Trust issued its financial results and achievements for the year ended Dec. 31, 2019, and provided an update on its new initiatives announced on Nov. 1, 2018. 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, 2019. All amounts are in thousands of Canadian dollars unless otherwise noted. 2019 ANNUAL HIGHLIGHTS (1) Portfolio Activity Disposed of five office (including two in Calgary, Alberta) and six retail properties in Canada, and three office properties, six retail properties and two parcels of development land in the United States ("U.S."), for aggregate sale prices of $267.7 million and US$232.0 million, respectively. Reduced the Calgary office segment, on a proforma basis adjusted for dispositions in January and February 2020, to 2.1% of total Property NOI for the quarter ended December 31, 2019. Acquired Boulder Lakes Business Park II, an office property located in the Twin Cities Area, Minnesota, which is 100% leased to a national tenant for a 15-year term, with annual rental increases of 2.0%. The property was purchased for US$42.0 million, representing an initial capitalization rate of 6.20%. Completed the development of five U.S. industrial properties comprising a total of 1.5 million square feet, the majority of which were substantially leased upon completion. Financial and Operational Increased year-over-year FFO per unit by 8.5% to $1.41 in 2019, compared to $1.30 in 2018. Increased year-over-year AFFO per unit by 8.2% to $1.05 in 2019, compared to $0.97 in 2018. Stabilized Same Property NOI in Canadian dollars increased 5.1% year-over-year. Same Property NOI in Canadian dollars increased 3.8% year-over-year, or increased 2.6% year-over-year in functional currency. Reported positive Same Property NOI growth throughout all quarters of 2019, representing a total of six consecutive quarters of positive growth. Weighted-average rental rate on renewals that commenced during 2019 increased 5.6%. Reported portfolio occupancy of 91.5% (93.4% including commitments) at December 31, 2019, compared to 92.1% at December 31, 2018. Balance Sheet and Liquidity Maintained stable NAV per unit of $15.56 at December 31, 2019, compared to $15.55 at December 31, 2018. Increased unencumbered assets to $2.0 billion at December 31, 2019, compared to $1.8 billion at December 31, 2018. Reported total long-term debt and credit facilities to normalized EBITDA of 8.8 at December 31, 2019, compared to 9.0 at December 31, 2018. Capital Structure Utilized the normal course issuer bid ("NCIB") to purchase 12.4 million common units and 0.3 million preferred units at weighted-average prices of $11.15 and $21.10, respectively, in 2019. Issued two-year Series C fixed rate senior unsecured debentures for $250.0 million, bearing interest at 3.674%. Repaid the outstanding Series A senior unsecured debentures upon maturity in the amount of $200.0 million. Completed the redemption of the outstanding Series G preferred units for $78.5 million. (1)Inclusive of properties held under joint venture arrangements. FINANCIAL AND OPERATIONAL RESULTS Selected Financial Information Three months ended December 31, Year ended December 31, $000's, except per unit amounts2019 2018 % Change 2019 2018 % Change Revenue $ 127,180 $ 132,864 (4.3)% $ 521,660 $ 512,870 1.7% Property NOI (1) 75,121 77,259 (2.8)% 309,856 304,323 1.8% Net income 32,877 7,220 355.4% 122,737 158,636 (22.6)% Total comprehensive income 4,097 83,904 (95.1)% 51,069 274,388 (81.4)% Distributions per common unit 0.14 0.18 (22.2)% 0.54 0.99 (45.5)% FFO (1) (2) 51,602 50,107 3.0% 202,398 200,139 1.1% FFO per unit (1) (2) 0.37 0.33 12.1% 1.41 1.30 8.5% FFO payout ratio (1) (2) 37.8% 54.5% (16.7)% 38.3% 76.2% (37.9)% AFFO (1) (2) 37,772 37,544 0.6% 150,518 149,428 0.7% AFFO per unit (1) (2) 0.27 0.24 12.5% 1.05 0.97 8.2% AFFO payout ratio (1) (2) 51.9% 75.0% (23.1)% 51.4% 102.1 (50.7)% (1)Represents a non-GAAP measure. Refer to the Notice with Respect to non-GAAP Measures. (2)Calculated after excluding a non-recurring pension liability adjustment and non-recurring property management termination fees in Q1-18. Same Property NOI The REIT is pleased to report a sixth consecutive quarter of Same Property NOI growth. Q4-19 Q3-19 Q2-19 Q1-19 Q4-18 Same Property NOI growth 3.3% 2.0% 4.6% 5.1% 2.7% Stabilized Same Property NOI growth 4.4% 3.8% 6.3% 5.7% 4.4% Year-over-year Same Property NOI for the total portfolio increased 3.8% in Canadian dollars, or increased 2.6% in functional currency for 2019. Year-over-year stabilized Same Property NOI (which excludes properties planned for disposition and the Calgary office segment) in Canadian dollars increased 5.1% for 2019. Occupancy and Leasing Occupancy at December 31, 2019, was 91.5% (93.4% including commitments on vacant space) compared to 92.1% at December 31, 2018, excluding properties held for redevelopment and new development projects. Weighted-average rental rate on renewals that commenced during 2019 increased 5.6%. Artis' portfolio has a stable lease expiry profile with 45.6% of gross leasable area expiring in 2024 or later and 31.8% of the 2020 expiries renewed or committed to new leases at December 31, 2019. Weighted-average in-place rents for the entire portfolio are $12.64 per square foot and are estimated to be 1.5% below market rents. Information about Artis' lease expiry profile is as follows: 2020 2021 2022 2023 2024& later Expiring square footage 11.4% 13.8% 10.5% 10.0% 45.6% Committed percentage 31.8% 6.0% 4.7% 4.1% 6.5% In-place rents $13.69$12.63$10.80$14.41$ 12.38 Comparison of market to in-place rents3.9% (2.5)%4.4% 4.8% 0.6% BALANCE SHEET AND LIQUIDITY Balance Sheet Highlights and Metrics The REIT's balance sheet highlights and metrics, on a Proportionate Share basis, are as follows: December 31,December 31, 2019 2018 Fair value of investment properties $ 5,249,275 $ 5,678,190 Fair value of unencumbered assets 1,968,369 1,847,443 NAV per unit (1) 15.56 15.55 Secured mortgages and loans to GBV (1) 27.9% 30.6% Total long-term debt and credit facilities to GBV (1) 52.3% 50.6% Total long-term debt and credit facilities to EBITDA (1) (2)8.8 9.0 EBITDA interest coverage ratio (1) (2) 2.97 3.11 Unencumbered assets to unsecured debt 1.5 1.6 (1)Represents a non-GAAP measure. Refer to the Notice with Respect to non-GAAP Measures. (2)Calculated after excluding a non-recurring pension liability adjustment and non-recurring property management termination fees in Q1-18. Looking ahead to 2020, the REIT's primary focus will be to use proceeds from the disposition of investment properties to reduce debt. Information regarding the REIT's mortgage financing, on a Proportionate Share basis, is as follows: December 31, December 31, 2019 2018 Weighted-average effective interest rate 3.98% 4.30% Weighted-average term to maturity (in years) 2.4 3.3 Unhedged variable rate mortgage debt as a percentage of total debt22.7% 18.1% Liquidity and Capital Resources At December 31, 2019, Artis had $42.5 million of cash on hand and $111.9 million available on its revolving term credit facilities. Liquidity and capital resources will be impacted by financing activities, portfolio acquisition, disposition and development activities, debt repayments and unit purchases under the NCIB occurring subsequent to December 31, 2019. PORTFOLIO ACTIVITY Acquisitions During 2019, Artis acquired Boulder Lakes Business Park II, an office property located in the Twin Cities Area, Minnesota, which is 100% leased to a national tenant for a 15-year term, with annual rental increases of 2.0%. This property was purchased for US$42.0 million, representing an initial capitalization rate of 6.20%. Artis also acquired a surface parking lot ancillary to an existing office property located in Winnipeg, Manitoba, for a purchase price of $3.8 million, and a parcel of industrial development land adjacent to an existing industrial property in the Greater Houston Area, Texas of US$3.6 million. During 2019, Artis acquired the remaining 15% interest in an office property in Calgary, Alberta, for total consideration of $3.0 million and the remaining 5% interest in an industrial property in the Greater Houston Area, Texas, for total consideration of US$4.7 million. Dispositions During 2019, Artis sold the following properties: Property Property Location Disposition Date Asset Owned share of GLA Sale Price Count Class (000's of S.F.) 169 Inverness Drive West I & II (1)1 Greater Denver April 9, 2019 Office 119 $ 36,113 Area, CO Reenders Square 1 Winnipeg, MB May 21, 2019 Retail 66 20,550 Britannia Building 1 Calgary, AB May 22, 2019 Office 134 10,650 Nanaimo Portfolio 4 Nanaimo, BC June 17, 2019 Office/ 112 37,038 Retail 1700 Broadway 1 Greater Denver June 27, 2019 Office 394 104,325 Area, CO GSA Professional Office Building 1 Greater Phoenix July 26, 2019 Office 210 121,825 Area, AZ 415 Yonge Street 1 Greater Toronto Sept. 27, 2019 Office 192 124,000 Area, ON Estevan Retail Portfolio 2 Estevan, SK Oct. 30, 2019 Retail 167 13,000 495 Richmond Road 1 Ottawa, ON Nov. 27, 2019 Office 106 39,000 Centre 70 Building 1 Calgary, AB Dec. 16, 2019 Office 134 23,500 Minnesota Retail Portfolio (1) 6 Twin Cities Dec. 19, 2019 Retail 298 45,870 Area, MN 20 1,932 $ 575,871 (1)This disposition includes a parcel of development land Artis sold the properties listed above for a total sale price of $575.9 million, which compares well to their IFRS value of $562.8 million. At December 31, 2019, the REIT had also entered into unconditional agreements to sell five office properties (four of which are in Calgary, Alberta) and one parcel of development land for an aggregate sale price of $140.3 million. New Developments During the year ended December 31, 2019, the REIT completed five new industrial developments projects, inclusive of properties held under joint venture arrangements, totalling approximately 1.6 million square feet (1.5 million square feet of owned leasable area). The REIT will continue to focus on pursuing high-yield, accretive industrial development projects in our target markets. Property Property Location Quarter Asset Owned share of GLA % Occupied% Committed (1) count Complete class (000's of S.F.) Park Lucero IV 1 Greater Phoenix Q2-19 Industrial 96 100.0% 100.0% Area, AZ Cedar Port I 1 Greater Houston Q2-19 Industrial 519 100.0% 100.0% Area, TX Park 8Ninety III 1 Greater Houston Q2-19 Industrial 33 100.0% 100.0% Area, TX Park 8Ninety II (2) 1 Greater Houston Q3-19 Industrial 543 48.4% 69.2% Area, TX Tower Business Center (2)1 Greater Denver Q4-19 Industrial 336 69.0% 69.0% Area, CO (1)Percentage committed is based on occupancy at December 31, 2019, plus commitments on vacant space. (2)The REIT has a 95% interest in Park 8Ninety II and an 80% interest in Tower Business Center, in the form of joint venture arrangements. The table below lists Artis' ongoing development projects and completion progress, inclusive of properties held under joint venture arrangements. Additional information pertaining to each project can be found in the 2019 Annual MD&A. Property Location Asset class Owned share of GLA % Complete% Committed (1) (000's of S.F.) 330 Main Winnipeg, MB Retail 27 80.0% 90.0% 300 Main Winnipeg, MB Residential/ 580 35.0% 0.0% Multi-Family Park 8Ninety IV Greater Houston Industrial 95 5.0% 100.0% Area, TX Linden Ridge Shopping Winnipeg, MB Retail 17 15.0% 100.0% Centre II (1)Percentage committed is based on occupancy at December 31, 2019, plus commitments on vacant space. UPDATE ON NEW INITIATIVES In November 2018, we announced several new initiatives that are focused on improving our growth profile, strengthening our balance sheet and ensuring the REIT is best positioned for long-term and sustainable AFFO and NAV per unit growth. These initiatives included revising the REIT's distribution, immediately and continually purchasing units under the NCIB, optimizing our portfolio by narrowing our focus to key assets in fewer markets, and pursuing high-yield, accretive development projects in our target markets that will improve the value and quality of our portfolio. NCIB Activity and Preferred Unit Redemption During 2019, the REIT purchased 12.4 million common units for a weighted-average price of $11.15 and 0.3 million preferred units for a weighted-average price of $21.10 under its NCIB program. From November 1, 2018, when Artis announced its intention to purchase units under the NCIB until December 31, 2019, the REIT purchased 16.0 million common units for a weighted-average price of $10.84 and 0.3 million preferred units for a weighted-average price of $21.04. The total aggregate market price of common units and preferred units purchased under the NCIB from November 1, 2018, to December 31, 2019, was $173.0 million and $6.1 million, respectively. On July 31, 2019, Artis completed the redemption of its outstanding Series G preferred units for an aggregate face value of $78.5 million. Property Dispositions In November 2018, Artis announced its intention to sell between $800.0 million to $1.0 billion of non-core assets over the following three years. In accordance with these initiatives, at December 31, 2019, Artis has sold or entered into unconditional sale agreements for 26 properties and three parcels of development land, including 14 office (six Calgary office properties) and 12 retail properties, for a total sale price of $743.4 million, which compares well to the IFRS value of $730.0 million. At December 31, 2019, the REIT had seven office properties (five of which are located in Calgary, Alberta), one retail property and one parcel of development land classified as held for sale for a total IFRS value of $221.9 million. Subsequent to December 31, 2019 the REIT sold four office properties and one parcel of development land located in Calgary, Alberta for an aggregate sale price of $117.8 million. All dispositions subsequent to the end of the year correspond well to their IFRS values. New Developments During 2019, the REIT completed five new industrial development projects located in key target markets in the U.S., adding 1.5 million square feet to the portfolio. Additionally, the REIT currently has three new development projects in process in Winnipeg, Manitoba and the fourth phase of an industrial development project in process in the Greater Houston Area, Texas. The REIT will continue to provide updates on the New Initiatives as progress is made. UPCOMING WEBCAST AND CONFERENCE CALL Interested parties are invited to participate in a conference call with management on Friday, February 28, 2020, 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 www.artisreit.com/investor-link/conference-calls/ during or after the conference call and webcast. 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, February 28, 2020, a replay of the conference call will be available by dialing 1.416.764.8677 or 1.888.390.0541 and entering passcode 029110#. The replay will be available until Saturday, March 28, 2020. The webcast will be archived 24 hours after the end of the conference call and will be accessible for 90 days. ABOUT ARTIS REAL ESTATE INVESTMENT TRUST 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, 2019, Artis' commercial property comprises approximately 24.8 million square feet of leasable area.