Artis Real Estate Investment Pref Shs Series E T.AX.PR.E

Scotia comment on results

[incomedreamer11]

Q4 Glance: Tough End to 2022 on ~9% FFOPU Variance to Street; IFRS NAVPU Also Down ~10% Q/Q

OUR TAKE: Net Negative. Reported FFOPU was $0.30. Ex. $2M of lease termination fees, a net $1.2M of equity securities expenses, and $0.4M of unit-based comp reval, we est. recurring FFOPU of $0.30 vs. $0.348 q/q and $0.305 y/y, ~9% below our and consensus $0.33 (range = $0.30-$0.35); we’re working through the variance (some of it = higher interest expense, including Cominar with some non-recurring financing fees; amount is n/a). The print = 2% y/y erosion (Q3/22 = +6.7% y/y; 2022A = +1.6%). There was no distribution increase vs. our 5% forecast; most recent increase was 8% in March 2021. Our 2023E FFOPU of $1.29 compares to $1.23 consensus.

IFRS NAVPU fell $1.88 (-10%) q/q to $17.38 vs. our $14.25 (Q3 = -0.6% q/q), incl. a $157M FV loss ($1.35/un; 2022A = $178M loss). SPNOI was +5.2% in CAD but a more modest 0.5% in local currency (Q3 = +4.3%/+1.7%; 2022A = 1.8%/-0.5%). It was also an active disposition Q, selling 17 industrial properties in Minnesota and 1 Office property in NY for ~$350M of gross dispositions proceeds (Q3 = $24M), although most was previously disclosed. Assets HFS at year-end = $336M (down $322M q/q) = 9% of IPP (Q3 = 16%).

Full update post conference call tomorrow, at 1:00 p.m. ET (1-416-764-8688, or webcast).

Capital recycling update. Investment in equity securities was flat q/q at $42.4M (Q3 = $41.5M; 2022A = $336M), although dispositions slowed to $13M (Q3 = $29M; 2022A = $41M), bringing the total market value to $317M (Q3 = $270M) at quarter-end (incl. our est. $18M FV gain during Q4 vs $20M loss in Q3). AX noted it owns ~9% of FCR (and 14% of Dream Office). In Q4/22, AX renewed its NCIB and repurchased 0.4M units @ $8.94/un for $3.5M total (= 0.3% of Q3/22 units). Post-Q, AX sold a Saskatoon Office asset for $14.6M, disposed of $19.5M of equity securities, repurchased 11k units (@ $9.00/un) and extended several credit facilities.

In-place occupancy falls modestly q/q, while committed goes up a bit. In-place occupancy fell 40bp q/q to 90.1% (Q3 = -20bp q/q), while committed occupancy was +30bp q/q to 92.3% (Q3 = flat q/q). In-Place CAD and U.S. fell 30bp and 60bp q/q respectively to 90.2% and 89.9% (Q3 = +90bp and -80bp). Avg. total portfolio rent on lease renewal was 6.9% (Q3 = +3.0%; 2022A avg. = 4.9%). In-place rent ($14.45/sf; Q3 = $13.30/sf) is 1.1% below AX-est. market (Q3 = 1.2% below). Canada and the U.S. SSNOI were down 4.3% and up 6.7%, respectively (Q3 = -2%/+5.7%). By asset class, y/y SPNOI in CAD was: Industrial (7.6%; Q3 = +4.4%), Office (7.0%; Q3 = +6.1%), Retail (-1.8%; Q3 = -0.4%).

Detail on q/q fair value changes. The $157M FV gain/loss (Q3 = -$74M) = 4.3% of IPP (Q3 = 1.8%) was broad-based, with each asset class seeing a decline, including a $92M loss in Office (Q3 = -$14M), $36M loss in Industrial (Q3 = -$63M), $19M loss in Retail (Q3 = $5M gain) and $10M loss in Retail (Q3 = +$5M gain). Portfolio IFRS cap rate rose 22bp q/q to 6.40% (vs. our 6.62%), with Industrial +23bp (5.81%), Office +27bp (6.94%) and Retail +18bp (6.65%). Residential was 4.50%.

Liquidity and debt/EBITDA fall while debt/GBV up a bit (on large FV loss). Q4 liquidity fell $136M q/q to $127M (Q3 = -$89M q/q), incl. $29.2M in cash and $98.1M in available revolving credit; = 0.2x 2023 mortgage debt maturities (Q3 = 0.5x). Total debt/GBV rose 60bp q/q to 48.5% (Q3 = +190bp q/q); AX does not disclose proportionate. Disclosed debt/EBITDA fell 0.9x q/q to 8.3x (Q3 = +0.3x q/q). Unhedged variable-rate debt as a % of total debt was flat q/q at 14.2% (Q3 = +220bp q/q). Unencumbered assets to unsecured debt increased 0.04x q/q to 1.54x (Q3 = -0.06x q/q)