Artis Releases Second Quarter Results: Raised $115.0 Million in Equity Offering and Acquired Office Portfolio in Madison, Wisconsin

WINNIPEG, Aug. 4, 2016 /CNW/ - Today Artis Real Estate Investment Trust ("Artis" or the "REIT") issued its financial results and achievements for the three and six months ended June 30, 2016.  All amounts are in thousands of Canadian dollars and are inclusive of Artis' ownership in investments in joint ventures on a proportionate share basis, unless otherwise noted.

"We are pleased to report another quarter of solid results and disciplined growth for Artis. During the second quarter, we made significant progress with our capital recycling initiative, successfully completed an equity offering and provided notice to redeem all outstanding Series F convertible debentures," said Armin Martens, President and Chief Executive Officer of Artis. "We strategically expanded our presence in the U.S., acquiring a portfolio of 16 Class A office properties in Madison, the capital of Wisconsin. We're confident in the stability of this market and are pleased with the calibre of real estate we were able to acquire and the further geographic and tenant diversification it provides the REIT."

SECOND QUARTER HIGHLIGHTS

  • Acquired the first tranche of the Madison Office Lifestyle Portfolio comprised of 14 office properties for a purchase price of US$194.0 million.  On the date of acquisition, Artis hired the existing property management and leasing team and assumed the in-place property management contracts. 

  • Disposed of three non-core properties for aggregate sale prices of $70.2 million and US$7.4 million.

  • Raised $115.0 million of equity pursuant to an equity offering of 8,712,400 units, inclusive of the underwriters' over-allotment option, at a price of $13.20 per unit.

  • Increased the aggregate amount of revolving term credit facilities from $300.0 million to $500.0 million.

  • Reported a Same Property NOI increase, excluding the Calgary office segment, of 2.7% (YTD - increase of 3.5%) for the three months ended June 30, 2016.  Reported a total Same Property NOI decrease of 0.3% (YTD - increase of 0.2%) for the three months ended June 30, 2016.

  • Decreased secured mortgages and loans to GBV to 40.9%, compared to 41.2% at December 31, 2015.

  • Achieved a healthy interest rate coverage ratio of 2.92 times for the three months ended June 30, 2016.

  • Decreased the weighted-average effective mortgage interest rate to 3.80% at June 30, 2016, compared to 3.93% at December 31, 2015.

  • Reported FFO per unit of $0.38 for the three months ended June 30, 2016 (FFO per unit after adjustments of $0.37).

  • Reported solid occupancy of 93.5% (94.3% including commitments) at June 30, 2016.

  • Achieved an increase of 3.7%, excluding the Calgary office segment, in the weighted-average rental rate on renewals that commenced during the three months ended June 30, 2016.  Achieved an increase of 1.6% in the weighted-average rental rate on all renewals that commenced during the three months ended June 30, 2016.

UDPATE ON IMPACT OF FORT MCMURRAY WILDFIRE

Artis' eight retail properties in Fort McMurray sustained minimal (if any) damage resulting from the recent wildfires, and all tenants that were impacted have appropriate insurance coverage in place. Artis' property managers continue to work diligently with tenants and insurance providers to ensure the claims are handled properly and efficiently. As of August 4, 2016, 46 of Artis' 52 tenants in Fort McMurray have re-opened for business.

SELECTED FINANCIAL INFORMATION

 








Three months ended June 30,


$000's, except per unit amounts


2016

2015

% Change






Revenue


$

138,159

$

134,629

2.6 %

Property NOI


85,617

85,660

(0.1)%

Distributions per common unit


0.27

0.27

— %






FFO


$

54,556

$

54,478

0.1 %

FFO per unit


0.38

0.39

(2.6)%

FFO after adjustments (1)


52,598

51,950

1.2 %

FFO per unit after adjustments (1)


0.37

0.37

— %

FFO payout ratio after adjustments (1)


73.0%

73.0%

— %






AFFO


$

45,749

$

47,934

(4.6)%

AFFO per unit


0.32

0.34

(5.9)%

AFFO after adjustments (1)


43,791

44,594

(1.8)%

AFFO per unit after adjustments (1)


0.31

0.32

(3.1)%

AFFO payout ratio after adjustments (1)


87.1%

84.4%

2.7 %

(1) Calculated after adjustments for lease terminations.








Six months ended June 30,


$000's, except per unit amounts


2016

2015

% Change






Revenue


$

277,212

$

269,375

2.9 %

Property NOI


170,913

170,192

0.4 %

Distributions per common unit


0.54

0.54

— %






FFO


$

108,164

$

107,276

0.8 %

FFO per unit


0.76

0.76

— %

FFO after adjustments (1)


106,206

103,938

2.2 %

FFO per unit after adjustments (1)


0.74

0.74

— %

FFO payout ratio after adjustments (1)


73.0%

73.0%

— %






AFFO


$

90,453

$

93,571

(3.3)%

AFFO per unit


0.64

0.67

(4.5)%

AFFO after adjustments (1)


88,495

89,421

(1.0)%

AFFO per unit after adjustments (1)


0.63

0.64

(1.6)%

AFFO payout ratio after adjustments (1)


85.7%

84.4%

1.3 %

(1) Calculated after adjustments for lease terminations.

 

LIQUIDITY AND LEVERAGE





June 30,

December 31,

$000's

2016

2015




Fair value of investment properties

$

5,635,502

$

5,528,026

Cash and cash equivalents

155,389

71,444

Available on revolving term credit facilities

200,000

75,000

Fair value of unencumbered properties

1,034,667

1,059,792




Secured mortgage and loans to GBV

40.9 %

41.2 %

Total long-term debt and bank indebtedness to GBV

52.9 %

52.4 %

Unencumbered assets to unsecured debt

2.1  times

2.5  times




Interest coverage ratio

2.92  times

2.88  times

Weighted-average effective interest rate on mortgages and other loans

3.80 %

3.93 %

Weighted-average term to maturity on mortgages and other loans

3.7  years

3.8  years

Unhedged floating rate mortgage debt as a percentage of total debt

15.5 %

11.6 %

 

PORTFOLIO ACQUISITION AND DISPOSITION ACTIVITY

During Q2-16, Artis acquired the following properties:










Property

Property

count

Acquisition
date

Location

Asset

class

Owned

share of GLA (2)


Purchase
price

Capitalization

rate










Madison Lifestyle Office Portfolio (1)

14

June 13, 2016

Madison, WI

Office

1,306


$ US

194,000

7.75 %

(1) Artis acquired the first tranche of this portfolio during the second quarter.

(2) GLA in thousands of square feet.

 

The first tranche of the Madison Lifestyle Office Portfolio was partially financed with new five-year mortgage debt in the amount of US$106,700, bearing interest at USD LIBOR plus 2.10%.  On August 1, 2016, Artis acquired the second tranche of this portfolio, which included the remaining two properties.  The purchase price of the second tranche was US$66,000 and was financed with cash on hand and new mortgage financing in the amount of US$40,000, bearing interest at USD LIBOR plus 2.10%.

During Q2-16, Artis disposed of the following properties:








Property

Property
count

Disposition

date

Location

Asset

class

Sale price

Capitalization
rate








Tamarack Centre

1

April 28, 2016

Cranbrook, BC

Retail

$

41,500

6.67 %

Whistler Hilton Retail Plaza (1)

1

May 2, 2016

Whistler, BC

Retail

28,730

6.53 %

Crosstown North

1

May 19, 2016

Twin Cities Area, MN

Industrial

 US 7,380

N/A (2)

(1) Artis disposed of its 85% interest in this property.

(2) Property was vacant at the time of disposition.

 

Artis disposed of the above properties for aggregate sale prices of $70.2 million and US$7.4 million.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2016, Artis had $155.4 million of cash and cash equivalents on hand and $200.0 million available on its revolving term credit facilities.  Liquidity and capital resources will be impacted by financings, portfolio acquisition and disposition activities and debt repayments occurring subsequent to June 30, 2016.

DEVELOPMENT PROJECTS

Artis' future development pipeline, which consists of projects that are in early planning stages to be developed over the next several years, includes an opportunity for an office development in the Twin Cities Area, Minnesota, an office development in the Greater Denver Area, Colorado and various opportunities in Winnipeg, Manitoba including a retail development and a mixed-use commercial/residential development.

PORTFOLIO OPERATIONAL AND LEASING RESULTS

Occupancy at June 30, 2016, was 93.5% (94.3% including commitments on vacant space) compared to 92.7% at December 31, 2015, and 93.8% at June 30, 2015, excluding properties held for redevelopment and new developments in process.







$000's

Q2-16

Q1-16

Q4-15

Q3-15

Q2-15







Property NOI

$

85,617

$

85,296

$

85,333

$

86,427

$

85,660

Property NOI change (1)

0.4 %

— %

(1.3)%

0.9%

1.3%







Same Property NOI growth (2) (3)

(0.3)%

0.7 %

4.0 %

5.5%

3.5%







Weighted-average rental rate increase (decrease) on renewals
reported in the period

1.6 %

5.9 %

(0.1)%

3.0%

12.0%

(1) Property NOI has been impacted by acquisition and disposition activity, the impact of foreign exchange and lease termination income.

(2) Excluding GAAP adjustments for straight-line rent, amortization of tenant inducements and lease termination income.

(3) The same property results are impacted by foreign exchange.

 

Artis' portfolio has a stable lease expiry profile and significant progress on lease renewals has been made, with 47.9% of the remaining 2016 expiries and 9.5% of the 2017 expiries already renewed or committed to new leases at June 30, 2016.  Weighted-average in-place rents for the entire portfolio are $13.35 per square foot and are estimated to be 2.6% below market rents.  Information about Artis' lease expiry profile follows:














2016


2017


2018


2019


2020

& later












Expiring square footage


11.0 %


13.3 %


10.2 %


9.8 %


47.5 %

Committed percentage


47.9 %


9.5 %


1.2 %


1.8 %


0.3 %

In-place rents


$

10.45


$

11.69


$

13.67


$

14.92


$

14.10

Comparison of in-place to market rents


3.3 %


(0.8)%


0.7 %


(0.4)%


4.3 %

 

Artis' Calgary office portfolio represents 14.4% of Property NOI and 9.4% of overall portfolio by GLA.  During the remainder of 2016, Calgary office expiries represent 0.7% of Artis' total GLA.  Of this expiring square footage, 16.6% has been renewed or committed to new leases.  In 2017, Calgary office expiries represent 1.0% of Artis' total GLA.
















2016


2017


2018


2019


2020
& later













Calgary office expiring square footage as a %
of total GLA



0.7%


1.0%


1.0%


0.8%


4.6%

 

UPCOMING WEBCAST AND CONFERENCE CALL

Interested parties are invited to participate in a conference call with management on Friday, August 5, 2016 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 http://www.artisreit.com/investor-link/conference-callspresentations/. 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, August 5, 2016, a replay of the conference call will be available by dialing 1-416-764-8677 or 1-888-390-0541 and entering passcode 069187#. The replay will be available until Friday, September 2, 2016. The webcast will be archived 24 hours after the end of the conference call and will be accessible for 90 days.

********

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 June 30, 2016, Artis' commercial property comprises approximately 27.1 million square feet of leasable area.

During the three months ended June 30, 2016, Property Net Operating Income ("Property NOI") by asset class, was approximately 50.0% office, 24.1% retail and 25.9% industrial.  Property NOI by geographical region, was approximately 5.2% in British Columbia, 35.4% in Alberta, 6.2% in Saskatchewan, 12.7% in Manitoba, 10.7% in Ontario and 29.8% in the U.S.

Non-GAAP Performance Measures

Property Net Operating Income ("Property NOI"), Gross Book Value ("GBV"), Funds from Operations ("FFO"), Adjusted Funds from Operations ("AFFO") and Proportionate Share are non-GAAP measures commonly used by Canadian real estate investment trusts as an indicator of financial performance. "GAAP" means the generally accepted accounting principles described by the CPA Canada Handbook - Accounting, which are applicable as at the date on which any calculation using GAAP is to be made. As a publicly accountable enterprise, Artis applies the International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

Artis calculates Property NOI as revenues less property operating expenses such as utilities, repairs and maintenance and realty taxes. Property NOI does not include charges for interest and amortization.  Management considers Property NOI to be a valuable measure for evaluating the operating performance of the REIT's properties.

Artis calculates GBV based on the consolidated net book value of the consolidated assets of the REIT, adding back the amount of accumulated depreciation of property and equipment.

Artis calculates FFO substantially in accordance with the guidelines set out by the Real Property Association of Canada ("REALpac"), as issued in April 2014.  These guidelines include certain additional adjustments to FFO under IFRS from the previous definition of FFO. Management considers FFO to be a valuable measure for evaluating the REIT's operating performance in achieving its objectives.

Artis calculates AFFO based on FFO for the period, net of allowances for normalized capital expenditures and leasing costs and excluding straight-line rent adjustments and unit-based compensation expense.

Artis accounts for its joint ventures using the equity method in its consolidated financial statements in accordance with IFRS.  Proportionate Share includes Artis' interest in joint ventures based on its percentage of ownership in addition to the amounts per its consolidated financial statements.

Property NOI, GBV, FFO, AFFO and Proportionate Share are not measures defined under IFRS. Property NOI, GBV, FFO and AFFO and Proportionate Share are not intended to represent operating profits for the period, or from a property, nor should any of these measures be viewed as an alternative to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS.  Readers should be further cautioned that Property NOI, GBV, FFO, AFFO and Proportionate Share as calculated by Artis may not be comparable to similar measures presented by other issuers.

Cautionary Statements

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.  Particularly, statements regarding the REIT's future operating results, performance and achievements are 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.  Such risk factors include, but are not limited to, risks associated with real property ownership, availability of cash flow, general uninsured losses, future property acquisitions and dispositions, environmental matters, tax related matters, debt financing, unitholder liability, potential conflicts of interest, potential dilution, reliance on key personnel, changes in legislation and changes in the tax treatment of trusts.  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.

Suite 300 - 360 Main Street
Winnipeg, MB  R3C 3Z3
T 204.947.1250  F 204.947.0453
www.artisreit.com 
AX.UN on the TSX

SOURCE Artis Real Estate Investment Trust

For further information: Mr. Armin Martens, President and Chief Executive Officer, Mr. Jim Green, Chief Financial Officer or Ms. Heather Nikkel, Director - Investor Relations of the REIT at (204) 947-1250.


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