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

td cowan quick note

[MARKOPOLIS]

THE TD COWEN INSIGHT Artis reported headline Q2 results that were ahead of TD/cons expectations. The beat was driven by development fee income, which is episodic in nature. Excluding this item, earnings would have missed as SPNOI turned negative in the quarter. Artis continues to improve to its leverage metrics YTD with over $1bln in sales announced/closed thus far, moving closer to its sub-45% target. Impact: NEUTRAL Management continues to progress nicely on its disposition program, having now sold over $650mm in assets YTD with a further $370mm in conditional agreements to close this year. The completion of these sales are expected to reduce leverage closer to the sub-45% target (Artis' calc for Q2/24: 49.8%). FFO/unit (f.d.) of $0.27 was +2% y/y and ahead of our estimate/consensus of $0.25/$0.24. Higher NOI from non-recurring development fee income drove the beat. While not disclosed specifically, we estimate the fee income was ~$6mm ($0.055/unit). Operating Highlights Q2/24 Portfolio SPNOI was -0.4% (Q1/24: +4.0%) and -1.4% in functional currency. Canada was -1.0%, while the U.S. was -1.7% (flat in CAD). Office was -3.0%, Industrial +5.1%, and Retail +0.2%. In-place occupancy held steady q/q at 89.5% with increases in Industrial (+20bps to 96.8%) offset by declines in Office (-10bps to 81.6%) and Retail (-150bps to 89.8%). Renewal rental rates were steady at +3.1%, marking the 14th consecutive quarter of positive renewal spreads. Capital Activity Post Q2, entered an agreement to sell nine U.S. industrial properties (aggregate 822k sf) in Arizona/Minnesota for US$197.4mm (US$173/sf). The properties have US$58.8mm in mortgage financing. Closing is expected in Q3. Also completed the sale of five office and six retail properties, and a parcel of land for $292.4mm, and the previously-announced sale of Park 8Ninety for US$234.2mm ($128/sf). Acquired an additional 50% interest of an office asset in Vancouver for $22.5mm. NCIB. Repurchased 2.2mm units at an average price of $6.43/unit. Equity securities: During and post Q2, sold $8mm in equities and purchased $12mm. Balance Sheet Artis recorded a $13mm (excluding JVs) IFRS FV gain in Q2. On cap rates, Industrial was unchanged q/q at 6.28%, Office was +22bps to 7.70% and Retail was +19bps at 7.24%. IFRS NAV/unit increased modestly 0.3% q/q to $14.11. Conference call at 1:00 PM today (416-764-8688; webcast l