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

Scotia comments on result

[incomedreamer11]

Q4 Glance: Negligible Strategic Review Update

OUR TAKE: Slight negative. Reported FFOPU was $0.25. Ex. $0.5M of lease termination fees and $0.7M of other non-recurring items, we estimate recurring FFOPU was $0.253 vs. $0.265 q/q and $0.300 y/y, below our $0.266 and $0.264 consensus (range = $0.25-$0.27); The print = 16% y/y erosion (Q3/23A = 24% y/y erosion).

Limited completed dispositions in Q4, but large uptick in disclosed assets held for sale. It appears that only $24M (1 office, 1 industrial) of the $110M that was previously cited as closed/unconditional transacted in Q4/23. That said, assets HFS were +$303M q/q to $572M and = 19% of IPP (Q3 = +$126M q/q to $269M).

Special Committee update: Limited. A sale of the REIT was pursued but didn’t yield bids in proximity to IFRS NAVPU (Q4/23A = $13.96, down 9% q/q). Office assets appear to be the stumbling block given disclosed healthy private market demand for Industrial and Retail. We didn’t expect “status quo” to be the outcome of the Strategic Review, and the Board remains committed to pursuing near-term strategic alternatives, but its a bit more unclear what those may be. No disclosed change to the distribution (for now, in our view).

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

Capital recycling update. AX renewed its NCIB on December 19th, but did not repurchase units in Q4/23. AX FV investment in equity securities were +$18M q/q to $152M (all FV gains; Q3 = fell $35M q/q). Post-Q, AX sold equity securities for $27M of net proceeds and purchased $2M.

IFRS NAVPU fell $1.30 (-9%) q/q to $13.96 vs. our $12.50 (Q3 = -$1.02 q/q to $15.26), incl. a $120M FV loss ($1.10/un; Q3 = $88M FV loss). The $120M FV loss = 4% of IPP (Q3 = 3%) was driven primarily by a $92M FV loss in Office (Q3 = -$80M). Portfolio IFRS cap rate was +17bp q/q to 6.89% (vs. our 7.21%; Q3 = +12bp q/q), driven by Industrial +13bp (Q3 = +17bp), Office +29bp (Q3 = +18bp) and Retail +9bp (Q3 = +7bp). Residential was flat q/q at 4.50% (Q3 = flat).

Occupancy improves slightly q/q. In-place occupancy was +20bp q/q to 90.1% (Q3 = -40bp q/q to 89.9%), while committed occupancy fell 20bp q/q to 90.9% (Q3 = -80bp q/q to 91.1%). In-place CAD was +50bp q/q to 89.8% (Q3 = -40bp q/q), while U.S. fell 10bp q/q to 90.3% (Q3 = -30bp q/q). Avg. total portfolio rent on lease renewal was +5.8% (Q3 = +3.5%). In-place rent was +0.4% q/q to $15.15/sf (Q3 = +2.4% q/q) and is 1.7% above AX-est. market (Q3 = 1.0% above). SPNOI was +9.2% in CAD and 9.0% in local currency (Q3 = +6.0%/+3.8%). By asset class, y/y SPNOI in CAD was: Industrial (+17.6%; Q3 = +21.3%), Office 4.3%; Q3 = -5.3%), Retail (+12.4%; Q3 = -2.6%)

Liquidity and D/EBITDA improves, while floating-rate debt exposure decreases. Q4 liquidity was +$17M q/q to $164M (Q3 = -$304M q/q to $147M), incl. $29M in cash and $135M in available revolving credit; = 0.63x 2024 mortgage debt maturities (Q3 = 0.45x 2023-2024). Total debt/GBV was +150bp q/q to 50.9% (Q3 = +220bp q/q to 49.4%) on large FV loss; Again, AX does not disclose proportionate, which in both cases is likely notably higher than disclosed total metrics. Disclosed debt/EBITDA fell 0.3x q/q to 7.7x (Q3 = +0.2x q/q to 8.0x). Unhedged variable-rate debt as a % of total debt fell 10.2% q/q to 62.8%. Unencumbered assets to unsecured debt fell 0.05x q/q to 1.62x (Q3 = -0.1x q/q to 1.67x).