Artis releases first quarter 2009 results; quarter over quarter FFO per unit increases 7.5%



    WINNIPEG, May 13 /CNW/ - Today Artis Real Estate Investment Trust
("Artis" or "the REIT") issued its financial results and achievements for the
three month period ended March 31, 2009.

    
    FINANCIAL AND OPERATIONAL HIGHLIGHTS

    -   Q1-09 revenue increased 12.2% ($4.0 million) over Q1-08 to reach a
        total of $36.6 million.
    -   Q1-09 property net operating income ("Property NOI") increased 8.9%
        ($2.0 million) over Q1-08 to reach $24.8 million.
    -   Q1-09 distributable income ("DI") increased 4.5% ($595,000) over
        Q1-08 to $13.9 million; Q1-09 DI per unit increased to $0.42, a 2.4%
        increase over Q1-08 results.
    -   Q1-09 funds from operations ("FFO") increased 9.1% ($1.2 million)
        over Q1-08 to $14.2 million; Q1-09 FFO per unit increased to $0.43,
        a 7.5% increase over Q1-08 results.
    -   Q1-09 same Property NOI, excluding non-cash revenue adjustments,
        increased 6.3% ($1.1 million) over Q1-08 to $18.8 million.
    -   At March 31, 2009, mortgage debt-to-gross book value ("GBV") was
        51.8% relatively unchanged from 51.6% at December 31, 2008.
    -   Q1-09 interest coverage ratio was 2.29, up from 2.26 for Q1-08.
    -   At March 31, 2009, portfolio occupancy was 95.8% (96.8% including
        committed space).
    -   Effective January 1, 2009, Artis met the conditions to qualify as a
        tax exempt "real estate investment trust" under the Canadian income
        tax rules and the tax provisions set up at December 31, 2008 were
        reversed in Q1-09.


    SELECTED FINANCIAL INFORMATION

    -------------------------------------------------------------------------
                                                    Three month period ended
    $000's, except per unit amounts                          March 31,
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------
    Revenue                                        $    36,577   $    32,593
    NOI                                                 24,775        22,748
    DI                                                  13,898        13,303
    FFO                                                 14,245        13,052

    DI per unit (basic)                                   0.42          0.41
    FFO per unit (basic)                                  0.43          0.40
    Distributions                                         0.27          0.26
    FFO payout ratio                                     62.8%         65.0%


    -------------------------------------------------------------------------
                                                      March 31,  December 31,
    $000's                                                2009          2008
    -------------------------------------------------------------------------
    Total assets                                   $ 1,209,170   $ 1,243,693
    GBV                                              1,355,007     1,374,377
    Mortgages, loans and bank indebtedness             701,895       708,869
    Debt-to-GBV                                          51.8%         51.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    "Artis' performance continues to be strong in the face of this
challenging economy," said Armin Martens, President and Chief Executive
Officer of Artis REIT. "We achieved significant milestones thus far this year,
and we will continue to prudently manage our balance sheet and work hard to
maximize our portfolio results."

    Artis Meets REIT Conditions

    At December 31, 2008, Artis had recorded a future income tax asset of
$11.1 million. While there are uncertainties in the interpretation and
application of the newly enacted Canadian federal income tax rules applicable
to a specified investment flow-through trust or partnership (the "New SIFT
Rules"), the REIT believes that it has successfully reorganized its affairs
such that it qualifies as a real estate investment trust under this
legislation. A real estate investment trust, under the rules, is exempt from
Canadian income tax; thus in Q1-09 Artis reversed the full future income tax
amount of $11.1 million.

    Operational Improvements and Internal Growth

    Portfolio occupancy was 95.8% at March 31, 2009 (96.8% including
committed space), compared to 96.5% occupied (97.3% leased) at December 31,
2008. Stable occupancy across the portfolio was offset by new vacancy in two
of the REIT's properties. In Q1-09, the REIT had one retail tenant
unexpectedly vacate approximately 31,900 square feet in one of its Nanaimo,
B.C. properties. The period end occupancy was also impacted by the expected
vacancy of an approximately 18,300 square foot retail tenant in a Grande
Prairie property; the space is committed under lease, with occupancy
commencing subsequent to March 31, 2009. Occupancy at March 31, 2009 excludes
the impact of the properties sold on March 31, 2009, and April 1, 2009.
Occupancy at March 31, 2009, also excludes the Willingdon Green property in
Burnaby, B.C. This property was acquired with the intent to redevelop the
space for new tenancies, commencing in Q1-09. At March 31, 2009, 43.5% of the
GLA (representing one full floor of the building) is committed under new
leases while the remaining two floors (representing approximately 27,000
square feet) have yet to be redeveloped for new tenants.
    Excluding GAAP adjustments for straight-line rent and above- and
below-market rent adjustments, Q1-08 same Property NOI results increased 6.3%
over Q1-08. The same Property NOI growth was driven primarily by increases in
base rental rates achieved on lease turnovers.
    In Q1-09, excluding the property in redevelopment, Artis leased or
renewed approximately 208,600 square feet of leasable area and the weighted
average rental rates achieved on lease turnovers in the period were
approximately 14.1% higher than the rates in place at expiry. At March 31,
2009, the weighted average in-place rent per square foot across the portfolio
was $13.64, compared to $13.07 at December 31, 2008. To date, approximately
48% of the 2009 lease expiries and 14% of the 2010 lease expiries have been
renewed or new lease commitments secured.

    Disposition Activity

    On March 31, 2009, the sale of the property known as the Plainsman
Building, a Class "B" office property located in Kamloops, B.C., was
completed. This property was sold for $8.05 million, which represented a
capitalization rate of 7.52%. Artis recorded a gain on sale of approximately
$591,000 and realized cash proceeds on the sale of approximately $2.95 million
on the transaction.
    Subsequent to March 31, 2009, Artis announced two further dispositions.
On April 1, 2009, the sale of the properties known as Airways Business Plaza
and Glenmore Commerce Court was completed. Both properties are Class "B"
Suburban office properties in Calgary, Alberta. The properties were sold for
$24.9 million, representing a cap rate of 6.3%. Artis expects to record a gain
on sale of approximately $6.38 million in the second quarter of 2009 on the
transaction. Cash proceeds realized on the transaction totaled $12.69 million.
Artis has also entered into an unconditional agreement to sell the property
known as McKnight Village Mall to an institutional investor for a total of
$23.15 million, which represents a cap rate of 8.35%. The sale of this Calgary
retail property is expected to close on May 15, 2009. Artis expects to record
a gain on sale of approximately $2.24 million on the transaction and will in
addition realize cash proceeds of approximately $9.25 million.

    Update on Interplex II and Interplex III Agreements

    Subsequent to March 31, 2009, Artis negotiated the termination of the
agreements related to the acquisition of the Interplex II office building in
Calgary, and the joint venture development of Interplex III, also in Calgary.
Additional details on the terms of the termination agreement are disclosed in
the REIT's Management Discussion and Analysis and Interim Consolidated
Financial Statements for the three month period ended March 31, 2009.

    Liquidity and Capital Resources

    At March 31, 2009, Artis had $13.0 million of cash and cash equivalents
on hand or held in trust. In addition, Artis expects to realize a further
$11.4 million in cash proceeds (net of deposits already received) from
dispositions to be closed in Q2-09. In addition to cash resources, the REIT
also has $27.5 million undrawn and available on its Line of Credit. The
undrawn balance can be utilized to fund future acquisitions; alternately, up
to $10 million of the undrawn facility may be utilized for general corporate
purposes, up to $10 million may be utilized to provide mezzanine financing and
up to $7.5 million may be utilized to purchase units under the REIT's normal
course issuer bid.
    At March 31, 2009, the debt-to-GBV ratio (exclusive of convertible
debentures) was 51.8%, relatively unchanged from 51.6% at December 31, 2008.
The ratio is well within the 70% limit set out in the REIT's Amended and
Restated Declaration of Trust. Artis successfully replaced a $5.1 million
mortgage during the period with new three-year mortgage financing in the
amount of $6.5 million.
    Artis has limited exposure to short-term re-financing risk, with
approximately 4.7% of its mortgage debt maturing in the balance of 2009,
including a $5 million vendor take-back mortgage that the REIT expects to pay
out at maturity. The remaining 2009 mortgage maturities occur in the second
half of 2009; in Q1-10 an additional 1.2% of its mortgage debt matures. None
of these mortgages are held by conduit lenders, nor have they, to the
knowledge of Artis, been securitized by the lender. Management is currently in
discussion with various lenders with respect to these refinancings.

    Capital Structure Guidelines

    In its 2009 Management Information Circular, the REIT tabled a motion
seeking Unitholder approval to amend its Declaration of Trust to authorize
Artis to create and issue a new class of preferred equity securities
("Preferred Units"). Artis believes that Preferred Units would be an
attractive investment for certain investors in the current economic and market
conditions. The issuance of Preference Units would enable the REIT to attract
new investors as well as to potentially provide Artis with an opportunity to
reduce its cost of capital. The issuance of such Preference Units is
conditional on Unitholders' approving the motion to amend the Declaration of
Trust, the receipt of a favourable tax ruling from the Canada Revenue Agency
as well as support and demand for such a security in the market.
    Artis REIT is currently committed to maintaining a total debt to GBV
ratio of 60% or lower. In the event that the REIT issues Preferred Units, the
Trustees have approved a guideline stipulating that for purposes of
calculating the debt to GBV ratio, Preferred Units (although considered equity
under Canadian GAAP) would be included in the debt component of the
calculation.

    Portfolio Leasing and Tenant Profile

    Artis' lease expiry profile at March 31, 2009, excluding expiries
attributable to the three properties sold on March 31 and April 1, 2009, is
summarized as follows:

    
                                                          Calgary
    Expiry      British   Saskat-                          Office
     Year      Columbia    chewan   Manitoba   Alberta       Only      Total
    -------------------------------------------------------------------------
    2009(1)        0.4%     0.7%       3.1%       4.3%       1.6%       8.5%
    2010           0.4%     1.4%       6.5%       7.3%       1.9%      15.6%
    2011           0.2%     0.8%       5.3%       9.2%       5.2%      15.5%
    2012           1.3%     0.4%       1.6%       4.3%       2.2%       7.6%
    2013           0.3%     1.9%       4.3%       8.0%       5.0%      14.5%
    2014           0.4%     0.5%       4.4%       2.7%       1.2%       8.0%
    2015 & later   1.6%     2.0%       4.2%      17.7%       7.0%      25.5%
    Vacant         1.1%     0.0%       0.9%       2.8%       1.5%       4.8%
    -------------------------------------------------------------------------
    Total
     square
     feet       362,195  493,999  1,933,706  3,596,836  1,637,201  6,386,736
    -------------------------------------------------------------------------
    (1) Includes month-to month leases
    

    Artis' management reviews the current market rents across its portfolio
on an on-going basis. Management estimates that the weighted average market
rent rates at March 31, 2009 for all remaining 2009 lease expiries are
approximately 18.7% higher than the rates in place at lease expiry.
    At March 31, 2009, 53.9% of the REIT's GLA is occupied by national
tenants, 8.5% by government tenants and the remainder by regional and local
tenants. Artis' top ten (non-government) tenants in the portfolio account for
23.7% of the REIT's gross revenues and the term to maturity on those leases is
9.4 years. The top tenants by asset class, and their share of the REIT's gross
revenues is summarized as follows:

    
       Office                      Retail               Industrial
    -------------------------------------------------------------------------
    AMEC Americas Ltd.      5.9%  Sobeys         2.1%  Bell Canada      1.6%

    Provincial Government   3.8%  Shoppers       1.9%  Q9 Networks      1.4%
    Departments (various)          Drug Mart

    Federal Government      3.5%  Cineplex       1.2%  BW Technologies  1.0%
    Departments (various)          Odeon               (Honeywell)
    

    Further details on the top tenants in the REIT's portfolio can be found
in the Management's Discussion and Analysis for the period ending March 31,
2009, or the Supplemental Package for March 31, 2009.

    Upcoming Webcast and Conference Call:

    Interested parties are invited to participate in a conference call with
management on Thursday, May 14, 2009 at 10:00 a.m. EST. In order to
participate, please dial 1-416-340-8018 or 1-866-223-7781. 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.ca/areit_investor.php. Prior to
the webcast, you may follow the link to confirm you have the right software
and system requirements.
    If you cannot participate on May 14, 2009, a replay of the conference
call will be available by dialing 1-416-695-5800 or 1-800-408-3053 and
entering passcode No. 7087282. The replay will be available until May 28,
2009. The webcast will be archived 24 hours after the end of the conference
call and will be accessible for 90 days.

    Artis is a growth oriented real estate investment trust focused
exclusively on commercial properties located in primary and growing secondary
markets in western Canada. The REIT's goal is to provide unitholders the
opportunity to invest in high quality western Canadian office, retail and
industrial properties, as well as to provide monthly cash distributions that
are stable, tax efficient, and growing over time.
    Artis' commercial property comprises approximately 6.4 million square
feet of leasable area in 86 properties. Leasable area is approximately 30.3%
in Manitoba, 7.7% in Saskatchewan, 56.3% in Alberta, and 5.7% in B.C.; by
asset class the portfolio is 32.4% retail, 40.4% office and 27.2% industrial.
    The REIT's Distribution Reinvestment Plan ("DRIP") allows unitholders to
have their monthly cash distributions used to purchase trust units without
incurring commission or brokerage fees, and receive bonus units equal to 4% of
their monthly cash distributions. More information can be obtained at
www.artisreit.com.

    Non-GAAP Performance Measures

    DI, Property NOI and FFO are non GAAP measures commonly used by Canadian
income trusts as an indicator of financial performance. Management uses DI,
Property NOI and FFO to analyze operating performance. DI, Property NOI and
FFO may not be comparable to similar measures presented by other issuers. DI,
Property NOI and FFO are not intended to represent operating profits for the
period or from a property nor should any such measure be viewed as an
alternative to net income, cash flow from operating activities or other
measures of financial performance calculated in accordance with GAAP.

    Cautionary Statements

    The comments and highlights herein should be read in conjunction with the
consolidated financial statements and management's discussion and analysis for
the same period. These documents are available on the SEDAR website at
www.sedar.com. They are also posted on the Artis web site at
www.artisreit.com.
    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. 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. 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.
    





For further information:

For further information: Mr. Armin Martens, President and Chief
Executive Officer, Mr. Jim Green, Chief Financial Officer or Ms. Kirsty
Stevens, Senior Vice President of the REIT at (204) 947-1250


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