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2020
annual
report
message from the chair of the board of trustees
Dear Fellow Unitholders,
The primary responsibility of Artis’ Board of Trustees (the “Board”)
is to vigilantly establish and monitor the corporate governance
practices and to provide oversight of the business and affairs of Artis.
In fulfilling its responsibilities, the Board has made significant
strides towards enhancing Artis’ governance framework, including
the reconstitution of our Board to bring fresh perspectives and a
broad range of knowledge and experience. I am extremely proud
to report that women represent 57% of our Board membership—the
highest representation of all Canadian REITs. We look forward to
exceeding gender and racial diversity best practices at the Board and
Management level as we continue to grow Artis.
The newly reconstituted Board has been working tirelessly, and
during our short time working together, we have overhauled our
Board mandate and committee charters, position descriptions and
other important governance and business policies and practices. Our
governance framework is stronger today than ever before.
Along with our efforts to improve corporate governance and increase
unitholder value, the Board will focus more attention on corporate
social responsibility and sustainability initiatives. This will include
establishing ambitious goals to manage the environmental impact
of our properties and to improve operating efficiencies. The Board’s
commitment to sound governance practices will be top of mind as we
oversee the current and future direction of Artis to ensure the best
interests of our unitholders are served.
I would like to acknowledge our Trustees for their dedication, sound
advice, tenacity and “out of the box” thinking as they oversaw the
100-day review, ultimately arriving at a bold new vision and strategy
for Artis. The rigour with which the Board conducted its review,
analyses and deliberations was impressive and carried out at the
highest standard.
We believe our owners are in for an exciting and highly-rewarding
future as we are on the path to creating something unique in the
Canadian capital markets. While the unknown can be unnerving, it
can also be fruitful. We look forward to delivering on our commitment
to maximizing value for our owners.
To our employees across North America—your hard work,
commitment and many contributions are greatly appreciated.
While the road ahead for Artis brings uncertainty, it also brings new
opportunities. I look forward to our journey ahead together.
On behalf of the Board,
Ben Rodney
Chair of the Board of Trustees
message from the chief executive officer
To Our Valued Owners,
This is my first time writing to you as your Chief Executive Officer. Let
me begin by saying it is an honour to lead our organization. I would
also like to convey my excitement for the future and the opportunity
to work with our Board of Trustees (the “Board”), Management, Team
Members and other stakeholders to help Artis achieve its full potential.
Artis finished the year with a unit price of $10.66. This represented a
29% discount to our IFRS net asset value (“NAV”) per unit of $15.03.
NAV will be our most important metric going forward and we will
focus our efforts and energy on driving both the intrinsic value of
Artis’ units and the price the market recognizes and ascribes to our
units. This, combined with our distribution, is what matters most to
our unitholders and as we have conveyed in our go-forward vision and
strategy, we are committed to doing everything possible to grow NAV
per unit and distributions for the long term.
2020 was a year of significant change at Artis. The year concluded
with new leadership at the Board and Management level and the
commencement of a 100-day review to evaluate and determine the
future of the REIT. In addition to these changes at Artis, COVID-19
created unanticipated challenges for the real estate sector through
most of 2020 and into 2021. Our performance this year demonstrated
for us the strength of our teams across North America and the
resilience of our portfolio during a time of unprecedented economic
uncertainty. With the headwinds from COVID-19 abating, we believe
that our cities will reawaken, offices will once again be a source
of energy and creativity, and many businesses will reignite. As we
prepare this year’s annual letter to our owners, there is optimism,
progress, and hope in the defeat of COVID-19 and a return to our
“new normal” lives. Our thoughts remain with the communities and
individuals, including healthcare workers and first responders, that
have been most deeply impacted by the COVID-19 crisis.
On behalf of the Board, I would like to acknowledge our teams at the
corporate and property levels for their hard work and commitment
over the past year. I would also like to extend our thanks and
appreciation to our tenants, lenders, partners, and other stakeholders
for their continued support.
THE opportunity
Artis has traded at a material discount to its underlying NAV for many
years, and it is widely known that diversified REITs are out of favour.
As we embarked on our 100-day review under the stewardship of the
Board, we said to ourselves “surely we can create something truly
unique.” Our approach was one that tried to use a different lens to
assess and evaluate opportunities to build Artis for the long term. We
also recognized that what had been tried for many years had simply
not worked. Status quo was not an option. It was also imperative
to the Board that we understood how some of our largest fellow
unitholders felt about making a significant pivot and we appreciate
and value the input, encouragement, and support many of them provided.
Where we’re going
Our vision is to become the best-in-class real estate asset
management and investment platform focused on growing NAV per
unit and distributions for our investors through value investing. There
is a lot embedded in this bold and pioneering vision that I would like
to provide more colour and context around.
Our goal is to create Canada’s pre-eminent asset management and
investment platform focused on value investing in real estate. To
achieve this, our starting point will be a fortress balance sheet.
From there, we will focus relentlessly on growing and maximizing
our intrinsic value per unit, measured by our most important key
performance indicator: NAV per unit.
We look forward to monetizing our industrial portfolio with the goal
of maximizing value in a tax-efficient manner. While this means
selling our industrial properties this could take many different
forms, including retaining partial ownership, continuing to manage
the assets, or an outright sale that would result in relinquishing
management to the new owners. While do not know at this time
what the path will be, we do know the desired outcome- to unlock
significant value and substantially strengthen our balance sheet
and liquidity.
As we move forward in these endeavours, divesting partial or entire
ownership positions, we will improve our balance sheet while
deploying some of the proceeds into new investments including
undervalued publicly traded real estate entities and value-add
acquisitions or developments.
Our portfolio will evolve from ten markets and three asset classes
into a selection of high-conviction, value investments where we will
have strategic influence and our capital can and will compound.
As part of this new vision and strategy, we expect our asset mix
to continue to have a material exposure to direct hard assets that
generate healthy returns on invested capital, through development
and value-add opportunities. Our emphasis will be on capital
allocation with a disciplined focus on identifying and pursuing
opportunities with higher hurdle rates for acceptable uses of capital.
An integral part of our plan will involve promoting a corporate
culture that prioritizes environmental, social and governance (“ESG”)
initiatives and establishing an ESG-minded culture that strives
to promote best practices at every level. Optimizing the energy
efficiency of our portfolio will surface property level operating cost
savings that will increase the competitiveness of our assets. As part
of our emphasis on ESG and sustainable initiatives, we may uncover
high IRR capital projects that are compelling or find unique financing
opportunities present themselves that can lower our cost of capital.
Our plan is bold and innovative. It is not the easy path and execution
will require extreme diligence and dedication, but we are confident
that our plan is a roadmap for success and is the right strategy to
create long-term value for our owners. 2021 will be a transition year
and my letter to you will look very different a year from now as will
our organization. We will work hard for you and focus on the various
components of our strategy with discipline and rigour. We thank you,
the owners of Artis, for supporting us and entrusting us with your
capital. We look forward to evolving and building our business by
first unlocking value and then rewarding our owners with NAV and
distribution growth for decades to come.
Next, we will look to sell, on an opportunistic basis, our office and
retail assets over time. The approach to these asset sales will be
disciplined and strategic, again with the goal of maximizing value in a
tax-efficient manner—with “a true owner’s mindset”. As with the sale
of the industrial portfolio, this could take many forms.
Sincerely,
samir manji
Chief Executive Officer
TABLE OF CONTENTS
TABLE OF CONTENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS OVERVIEW
Objectives
2020 OVERVIEW
Proxy Matter and Board Reconstitution
Financial and Operational Results
Balance Sheet and Liquidity
Portfolio Activity
Impact of COVID-19
Environmental, Social and Governance Updates
BUSINESS ENVIRONMENT AND OUTLOOK
PORTFOLIO SUMMARY
Portfolio Summary by Asset Class
2020 ANNUAL HIGHLIGHTS
Portfolio Activity
Financing and Equity Activities
Distributions
SELECTED FINANCIAL INFORMATION
ANALYSIS OF OPERATING RESULTS
Revenue and Property NOI
Same Property NOI Analysis
Property NOI by Asset Class
Property NOI by Geographical Region
Corporate Expenses
Proxy Matter Expenses
Strategic Initiative Expenses
Interest Expense
Fair Value (Loss) Gain on Investment Properties
Foreign Currency Translation Gain
Fair Value (Loss) Gain on Derivative Instruments and Other
Transactions
Income Tax
Other Comprehensive Loss
Funds from Operations and Adjusted Funds from Operations
Portfolio Occupancy
Portfolio Leasing Activity and Lease Expiries
Largest Segments by Property NOI
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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ANALYSIS OF FINANCIAL POSITION
Balance Sheet Metrics
Assets
Liabilities
Unitholders' Equity
LIQUIDITY AND CAPITAL RESOURCES
Distributions
Capital Resources
Debt Metrics
Contractual Obligations
SUMMARIZED QUARTERLY INFORMATION
RELATED PARTY TRANSACTIONS
SUBSEQUENT EVENTS
OUTSTANDING UNIT DATA
RISKS AND UNCERTAINTIES
COVID-19 Pandemic
Real Property Ownership
Developments
Debt Financing and Interest Rate Fluctuations
Foreign Currency
Tenants
SIFT Rules and Other Tax-Related Factors
Cyber Security
CRITICAL ACCOUNTING ESTIMATES
Valuation of Investment Properties
Allowance for Doubtful Accounts
Valuation of Deferred Tax Assets and Liabilities
CHANGES IN ACCOUNTING STANDARDS
CONTROLS AND PROCEDURES
Internal Controls Over Financial Reporting
Disclosure Controls and Procedures
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2020 ANNUAL REPORT
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
The following management's discussion and analysis ("MD&A") of the financial condition and results of operations of Artis Real Estate Investment Trust should be read in
conjunction with the REIT's audited annual consolidated financial statements for the years ended December 31, 2020 and 2019, and the notes thereto. Unless otherwise
noted, all amounts in this MD&A are based on the consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as
issued by the International Accounting Standards Board ("IASB"). Additionally, "Artis", the "REIT", "we", "us" and "our" refers to Artis Real Estate Investment Trust and its
consolidated operations. This MD&A has been prepared taking into account material transactions and events up to and including March 2, 2021. Additional information
about Artis, including the REIT's most recent Annual Information Form, has been filed with applicable Canadian securities regulatory authorities and is available at
www.sedar.com or on our website at www.artisreit.com.
FORWARD-LOOKING DISCLAIMER
This MD&A 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, including the impact of the COVID-19 pandemic,
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 the
COVID-19 pandemic, real property ownership, geographic concentration, current economic conditions, strategic initiatives, debt financing, interest rate fluctuations, foreign
currency, tenants, SIFT rules, other tax-related factors, illiquidity, competition, reliance on key personnel, future property transactions, general uninsured losses, dependence
on information technology, cyber security, environmental matters and climate change, land and air rights leases, public markets, market price of common units, changes in
legislation and investment eligibility, availability of cash flow, fluctuations in cash distributions, nature of units, legal rights attaching to units, preferred units, debentures,
dilution, unitholder liability, failure to obtain additional financing, potential conflicts of interest, developments and trustees.
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 MD&A are qualified by this cautionary statement.
NOTICE WITH RESPECT TO NON-GAAP MEASURES
In addition to reported IFRS measures, the following non-GAAP measures are 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. Artis applies IFRS, which is the section of GAAP applicable to publicly accountable enterprises. These non-GAAP measures
are not defined under IFRS and 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 operations or other measures of financial performance calculated in accordance with IFRS. Readers should be further cautioned that
the following measures as calculated by Artis may not be comparable to similar measures presented by other issuers.
Proportionate Share
The REIT has properties held in its investments in joint ventures, which are accounted for using the equity method in its consolidated financial statements in accordance with
IFRS. Amounts presented on a Proportionate Share basis include Artis' interest in properties held in its joint ventures based on its percentage of ownership in these
properties in addition to the amounts per its consolidated financial statements. Management is of the view that presentation on a Proportionate Share basis is meaningful for
investors as it is representative of how Artis manages its properties as well as certain operating and financial metrics. Artis does not independently control its unconsolidated
joint ventures, and the presentation of pro-rata assets, liabilities, revenue and expenses may not accurately depict the legal and economic implications of the REIT's interest in
its joint ventures. Income statement and balance sheet metrics, such as those identified below, are shown on both an IFRS and a Proportionate Share basis. Artis provides a
reconciliation to its consolidated financial statements in the Analysis of Operating Results and Analysis of Financial Position sections of this MD&A.
Property Net Operating Income ("Property NOI")
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 or other expenses not specific to the day-to-day operation of the REIT's properties. Management considers Property NOI to be a valuable measure for evaluating
the operating performance of the REIT's properties. Refer to the Revenue and Property NOI section of this MD&A for further discussion and calculation of this measure.
Same Property NOI
Artis calculates Same Property NOI by including Property NOI for investment properties that were owned for a full quarterly reporting period in both the current and
comparative year, and excludes properties held for (re)development and properties that are unconditionally sold. Adjustments are made to this measure to exclude certain
non-cash revenue items and other non-recurring revenue amounts such as lease termination income. Management considers Same Property NOI to be a valuable measure
for evaluating the operating performance of the REIT's properties due to changes in occupancy, rental rates and the recovery of property operating expenses and realty taxes.
Refer to the Same Property NOI Analysis section of this MD&A for further discussion and calculation of this measure.
Funds from Operations ("FFO")
Artis calculates FFO substantially in accordance with the guidelines set out by the Real Property Association of Canada ("REALpac"), as issued in February 2019. Management
considers FFO to be a valuable recurring earnings measure for evaluating the REIT's operating performance as it adjusts net income for gains or losses that are not recurring
in nature such as fair value gains or losses on investment properties. Refer to the FFO and AFFO section of this MD&A for further discussion and a reconciliation of net
income to this measure.
Adjusted Funds from Operations ("AFFO")
Artis calculates AFFO substantially in accordance with the guidelines set out by REALpac, as issued in February 2019. Management considers AFFO to be a valuable recurring
earnings measure for evaluating the REIT's operating performance as it adjusts FFO by excluding straight-line rent adjustments, as well as costs incurred relating to leasing
activities and property capital expenditures. Refer to the FFO and AFFO section of this MD&A for further discussion and a reconciliation of net income to this measure.
FFO and AFFO Payout Ratios
Artis calculates FFO and AFFO payout ratios by dividing the distributions per common unit by diluted FFO per unit and diluted AFFO per unit, respectively, over the same
period. Artis calculates FFO and AFFO per unit by asset class based on the Proportionate Share Property NOI for each asset class as a percentage of Artis' total
Proportionate Share Property NOI multiplied by total FFO or AFFO per unit for the period. Management uses the FFO and AFFO payout ratios to measure the REIT's ability
to pay distributions.
ARTIS REAL ESTATE INVESTMENT TRUST
1
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Net Asset Value ("NAV") per Unit
Artis calculates NAV per Unit as its unitholders' equity, adjusted for the outstanding face value of its preferred units, divided by its total number of dilutive units outstanding.
Management considers this metric to be a valuable measure of the REIT's residual equity available to its common unitholders. Refer to the Balance Sheet Metrics section of
this MD&A for a calculation of this measure.
Debt to Gross Book Value ("GBV")
Artis calculates GBV based on the total consolidated assets of the REIT, adding back the amount of accumulated depreciation of property and equipment. The REIT has
adopted debt to GBV as an indebtedness ratio used to measure its leverage. Refer to the Balance Sheet Metrics section of this MD&A for a calculation of this measure.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") Interest Coverage Ratio
Prior to December 31, 2020, the REIT calculated Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") as net income, adjusted for interest expense,
transaction costs, income taxes, all non-cash revenue and expense items on a Proportionate Share basis. Effective December 31, 2020, the REIT calculates Adjusted EBITDA
to include the add back of non-recurring items, such as strategic initiative and proxy matter expenses as the REIT believes this is a better representation of recurring Adjusted
EBITDA.
Adjusted EBITDA Interest Coverage Ratio is calculated by dividing Adjusted EBITDA by interest expense from operations (excluding amortization of financing costs, above-
and below-market mortgage adjustments and accretion on debentures). Management considers this ratio to be a valuable measure of Artis' ability to service the interest
requirements on its outstanding debt. Refer to the Debt Metrics section of this MD&A for a calculation of this measure.
Debt to Adjusted EBITDA Ratio
Artis calculates debt to Adjusted EBITDA based on annualizing the current quarter's Adjusted EBITDA as defined above and comparing that balance to Artis' total
outstanding debt, on a Proportionate Share basis. Management considers this ratio to be a valuable measure of Artis' ability to meet financial obligations. Refer to the Debt
Metrics section of this MD&A for a calculation of this measure.
2020 ANNUAL REPORT
2
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
BUSINESS OVERVIEW
Artis is one of the largest diversified commercial real estate investment trusts in Canada and is an unincorporated closed-end real estate investment trust, created under, and
governed by, the laws of the Province of Manitoba. The REIT was created pursuant to the Declaration of Trust dated November 8, 2004, as most recently amended and
restated on April 15, 2020 (the "Declaration of Trust").
Certain of the REIT's securities are listed on the Toronto Stock Exchange ("TSX"). The REIT's common units trade under the symbol AX.UN and the REIT's preferred units
trade under the symbols AX.PR.A, AX.PR.E and AX.PR.I. The REIT's common units also trade in the United States ("U.S.") on the OTCQX Best Market ("OTCQX"), under the
symbol ARESF. As at March 2, 2021, there were 133,593,711 common units, 12,099,514 preferred units, 416,429 restricted units and 80,983 deferred units of Artis outstanding
(refer to the Outstanding Unit Data section of this MD&A for further details).
OBJECTIVES
Artis' primary objective is to provide a tax-efficient monthly cash distribution as well as long-term appreciation in the value of Artis' units through the accumulation and
effective management of a quality portfolio of commercial real estate.
Since its inception, Artis has provided a steady stream of monthly cash distributions to its unitholders. The amount distributed is set by the Board of Trustees (the "Board") in
accordance with the Declaration of Trust. On November 5, 2020, the REIT announced a 3% increase to common unitholder distributions, from $0.54 per unit annually to
$0.5562 per unit annually, effective for the December 2020 distribution payable on January 15, 2021.
Artis' management utilizes several key strategies to meet its primary objective, which are executed in consideration of current economic and market factors:
•
Strategic Asset Ownership. Artis' portfolio of industrial, office and retail real estate is strategically and diversely located in select primary and secondary markets in
Canada and the U.S. Artis' management conducts on-going analysis of the performance of its assets and the relevant economic fundamentals of its target markets,
identifying opportunities to make accretive acquisitions, develop new generation real estate and dispose of assets that are not aligned with its long-term strategy.
• Disciplined Growth. Artis' management strives to extract maximum value from its portfolio through effective management of assets, including leasing initiatives that
focus on maintaining strong occupancy levels and realizing the gain between in-place rental rates and market rental rates. Artis' management creates value through
strategic asset redevelopment and property intensification initiatives, and through new development projects. New developments provide Artis an opportunity to build
and own new generation real estate, and are considered in circumstances where the return on a development project is higher than that of acquiring an existing
property.
•
Prudent Financial Management. Artis has a long-term conservative approach to financial management, characterized by diligent management of its balance sheet,
and prudent management of financial metrics, such as debt ratios, interest coverage ratios, payout ratios, and per unit metrics. Artis minimizes its risk related to interest
rates by utilizing various sources of capital and staggering debt maturities. Ample access to cash is required to fulfill distribution obligations and for on-going
operations, which includes re-investing in the portfolio, making accretive acquisitions and funding development projects.
2020 OVERVIEW
PROXY MATTER AND BOARD RECONSTITUTION
2020 was a year of significant change for Artis. On September 30, 2020, the REIT received a unitholder requisition from Sandpiper Group ("Sandpiper") requesting that a
special meeting of unitholders be called for the purpose of reconstituting the Board with five new Trustees (the “Proxy Matter”). On November 30, 2020, a settlement
agreement was reached with Sandpiper pursuant to which four existing trustees tendered their resignations from the Board and the Chief Executive Officer and the Chief
Financial Officer announced their retirements. In connection with the settlement, Heather-Anne Irwin, Samir Manji, Mike Shaikh, Aida Tammer and Lis Wigmore were added
to the Board.
Subsequently, on December 1, 2020, the Board approved the appointment of Samir Manji as Chair of the Board and announced the newly structured committees of the
Board. These changes resulted in immediate improvements to the REIT's governance, including the addition of new and diverse perspectives, a reduction in Board fees, and
the implementation of a comprehensive review of the Board mandate, committee charters, and governance policies. Further discussion pertaining to these governance
changes can be found in the Environmental, Social and Governance Updates section of this MD&A.
The newly reconstituted Board commenced a review of the REIT (the "100-Day Review") and committed to completing the review within 100 days of the announcement of the
settlement agreement. In light of these recent developments, the Board has suspended the previously announced retail spin-off. In the meantime, the Board and
management continue to execute a comprehensive plan to reduce debt and optimize the portfolio.
On December 14, 2020, the Board appointed Samir Manji as Interim Chief Executive Officer and Ben Rodney as Lead Trustee of the Board, in each case, effective January 1,
2021.
FINANCIAL AND OPERATIONAL RESULTS
Despite the ongoing challenges related to the COVID-19 pandemic, we reported strong portfolio occupancy of 91.9% (including commitments) at December 31, 2020,
compared to 93.4% at December 31, 2019. During the year, 1,300,461 square feet of new leases and 1,797,146 square feet of lease renewals commenced. The weighted-
average increase in renewal rents compared to expiring rents on renewals that commenced in 2020 was 2.4%.
FFO per unit for the year ended December 31, 2020 was $1.41, unchanged from the year ended December 31, 2019, while AFFO per unit for the year ended December 31,
2020 was $1.02, compared to $1.05 for the year ended December 31, 2019. We reported conservative FFO and AFFO payout ratios of 38.3% and 52.9%, respectively, for the
year ended December 31, 2020.
FFO and AFFO in 2020 were primarily impacted by dispositions in 2019 and 2020 and the ongoing impact of the COVID-19 pandemic, partially offset by acquisitions and new
developments in 2019 and 2020, a decrease in year-over-year interest expense, and a higher US dollar to Canadian dollar average exchange rate in 2020 compared to 2019.
Also contributing to the per unit results is the decrease in the weighted-average number of units outstanding, primarily due to units repurchased under the normal course
issuer bid ("NCIB").
BALANCE SHEET AND LIQUIDITY
At December 31, 2020, NAV per unit was $15.03 compared to $15.56 at December 31, 2019. Artis' debt metrics improved during 2020; we reported that both secured
mortgages and loans to GBV and total long term debt to GBV decreased to 26.2% and 49.3%, respectively, at December 31, 2020, compared to 26.3% and 51.3%,
respectively, at December 31, 2019. Artis' Adjusted EBITDA interest coverage ratio increased to 3.38 for the year ended December 31, 2020, compared to 2.98 for the year
ended December 31, 2019.
ARTIS REAL ESTATE INVESTMENT TRUST
3
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
During 2020, we repaid the Series B senior unsecured debentures with a face value of $200,000 and issued new three-year Series D senior unsecured debentures in the
amount of $250,000. The REIT also entered into a new $200,000 non-revolving credit facility agreement.
During the year, we purchased 3,727,716 common units for an aggregate market price of $33,442 and 31,100 Series A, 45,802 Series E and 34,460 Series I preferred units for an
aggregate market price of $1,850. We remain committed to repurchasing units under the NCIB.
PORTFOLIO ACTIVITY
During 2020, we completed one industrial development project in the U.S. and two retail development projects in Canada. Park 8Ninety IV is a best-in-class build-to-suit
industrial development located in the Greater Houston Area, Texas, which is 100% leased to a multi-national tenant. The REIT had a 95% interest in Park 8Ninety IV in the
form of a joint venture arrangement and, subsequent to December 31, 2020, purchased the remaining 5% interest in the property. We also completed the development of
Linden Ridge Shopping Centre II, a 17,071 square foot retail densification project located in Winnipeg, Manitoba, and 330 Main, a 28,086 square foot state-of-the-art retail
property also located in Winnipeg, Manitoba. Linden Ridge Shopping Centre II is 100% leased to two national tenants while 330 Main is 94% leased to two national tenants.
In November 2018, in conjunction with a number of strategic initiatives aimed at improving Artis’ growth profile and strengthening its balance sheet, we announced our
intention to embark on a disposition program with a target of $800,000 to $1,000,000 of non-core assets sales over a three-year time frame. In September 2020, we had
achieved this target with approximately $800,000 of dispositions completed ahead of schedule and committed to sell an additional $550,000 (together defined as the
"Strategic Initiatives").
Below is a list of properties that were sold in 2020 in accordance with the Strategic Initiatives.
Property
Property
count
Location
Centre 15 Building
Calgary Office
Portfolio (4)
800 5th Avenue
1165 Kenaston
Street
Millwright Building (5)
801 Carlson Land
Concorde
Corporate Centre
Delta Shoppers
Mall
Shoppers
Landmark Centre
Strathcona
Shoppers Centre
ASM America
Headquarters
Building
1110 Pettigrew
Avenue
Disposition date
January 21, 2020
January 30, 2020
January 31, 2020
March 31, 2020
Asset
class
Office
Office
Office
Office
Office
Office
Owned
share of
GLA
Annualized
Property
NOI (1)
Capitalization
rate (2)
Sale
price
Fair
value (3)
76,021 $
497,635
258,445
180,689
138,781
—
1,349
6,727
2,418
638
2,412
(218)
7.50 % $ 14,000 $ 13,991
8.75 %
77,814
78,872
8.00 %
26,000
25,854
N/A
22,500
22,437
6.00 %
54,542
55,781
N/A
7,167
5,185
Calgary, AB
Calgary, AB
Calgary, AB
Ottawa, ON
1
2
1
1
1
Twin Cities Area, MN
August 25, 2020
—
Twin Cities Area, MN
November 9, 2020
2
1
1
1
1
1
13
Toronto, ON
November 16, 2020
Office
565,190
5,176
5.00 % 114,000 112,085
Greater Vancouver Area, BC
November 18, 2020
Retail
74,669
1,683
5.20 %
34,280
34,068
Regina, SK
Regina, SK
Phoenix, AZ
Regina, SK
November 25, 2020
Retail
49,023
December 7, 2020
Retail
21,910
834
456
6.20 %
16,000
15,405
6.30 %
7,625
7,139
December 10, 2020
Office
130,282
1,983
5.60 %
35,181
28,839
December 15, 2020
Industrial
118,957
730
7.10 %
15,250
14,261
2,111,602 $
24,188
$ 424,359 $ 413,917
(1) Based on the annualized Property NOI reported for the quarter prior to disposition.
(2) Capitalization rates based on 12-month forward looking Property NOI, as of the date of closing.
(3) Based on the fair value reported at the quarter prior to disposition.
(4) Disposition includes a parcel of development land.
(5) The REIT held an 80% interest in the Millwright Building in the form of a joint venture arrangement.
At December 31, 2020, we had entered into an unconditional sale agreement for the Victoria Square Retail Portfolio, comprising two retail properties located in Regina,
Saskatchewan, for a sale price of $45,000, which represents a capitalization rate of 9.4%. The sale is expected to close in April 2021.
Subsequent to December 31, 2020, we sold Tower Business Center, an industrial property located in the Greater Denver Area, Colorado, for a sale price of US$53,160 at the
REIT's interest which represents a capitalization rate of 4.0%. Artis had an 80% interest in this property in the form of a joint venture arrangement. The sale closed on
February 9, 2021.
IMPACT OF COVID-19
Health and Safety of Stakeholders
We continue to work diligently to maintain a safe environment for our tenants, employees, customers and visitors to our properties. Our first priority and intention is to keep
our buildings safe and open unless ordered closed by government authority. To ensure this is possible, we have made appropriate contingency plans to maintain building
supplies and necessary personnel for operations.
In accordance with current recommendations, we have increased common area cleaning at all properties. We have instructed our cleaning contractors to maintain a full
complement of staff. The surplus manpower is being used to intensify cleaning and sanitizing in high-traffic areas. High-touch surfaces, such as doorknobs, handles, railings
and elevator buttons are being regularly cleaned throughout the day. Building cleaners are monitoring soap and hand sanitizer dispensers to ensure continued availability of
these products. We have had no service reductions and are currently fully staffed with building operations and cleaning personnel. If this needs to change, we will
immediately notify all tenants. We have asked our non-building operations personnel to work remotely to comply with social distancing requirements.
In an effort to minimize risk related to COVID-19 throughout our buildings, we have also imposed protocols for our employees and contractors, as directed by local or federal
government guidelines and recommendations, and are encouraging tenants to do the same, namely:
2020 ANNUAL REPORT
4
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
•
•
•
Encouraging compliance with handwashing and other hygiene recommendations;
Requiring individuals who have travelled between provinces, states or internationally to follow local government regulations regarding isolation periods;
Directing individuals who experience any symptoms consistent with COVID-19 or have been exposed to someone with COVID-19 to refrain from visiting our
buildings and to follow public health recommendations.
We will continue to closely monitor this situation and will adjust our approach as recommended by public health agencies.
Tenant Support Program and Rent Collection
As a diversified REIT, our portfolio comprises industrial, office and retail properties which, at December 31, 2020, were 89.9% leased (91.9% including commitments on vacant
space) to high-quality tenants across Canada and the U.S. with a weighted-average remaining lease term of 5.3 years. We expect that the COVID-19 pandemic will continue
to have the largest impact on our retail segment, which represented 19.3% of Q4-20 Proportionate Share Property NOI. At December 31, 2020, our retail portfolio was 87.9%
leased (90.7% including commitments on vacant space) with a weighted-average remaining lease term of 4.6 years. Overall, we are confident that the quality of our retail
properties, strong tenant base and our limited exposure to this asset class will mitigate the impact on our overall business. In addition, the Canadian office segment
continues to be impacted by a decline in parking revenues as a result of work from home arrangements due to the COVID-19 pandemic.
Rent Collection
Rent collection has been a key focus for us and our stakeholders during this time. As at December 31, 2020, we have collected 98.5% of rent charges (both excluding and
including deferred rent charges) for the three months ended December 31, 2020. Further detail pertaining to rent collections for the three months ended December 31, 2020,
including information by asset class and geographical region, can be found on the following page.
With respect to Artis' retail portfolio, as at December 31, 2020, we have collected approximately 97.9% of rent charges, excluding deferred rent, for the three months ended
December 31, 2020. We continue to work diligently with our tenants as government restrictions related to the pandemic are constantly evolving.
Rent Deferrals
Due to government-mandated capacity restrictions and temporary closures of certain non-essential businesses, a number of our tenants have had to limit operations.
Although governments had eased COVID-19 restrictions and businesses had started to reopen in mid-2020, a resurgence of COVID-19 in the fall resulted in the re-imposition
of many restrictions and may lead to more restrictions being implemented again in an effort to reduce the spread of COVID-19. To support tenants through this difficult time,
qualifying tenants who are in need of assistance have been given the option to defer a portion of their rent, with an agreement to repay the amount deferred at a specified
later date.
As at December 31, 2020, the outstanding balance of rent deferrals granted to our tenants was $4,901 ($4,988 on a Proportionate Share basis), compared to $5,520 ($5,644 on
a Proportionate Share basis) at September 30, 2020. The quarter-over-quarter change is due to repayments of $753 and foreign exchange loss of $22, partially offset by
deferral agreements executed of $156.
Allowance for Doubtful Accounts
We anticipate that the majority of rent deferrals and rents receivable will be collected, however, there are certain tenants that may not be able to pay their outstanding rent.
As at December 31, 2020, we have recorded an allowance for doubtful accounts in the amount of $1,989 ($1,991 on a Proportionate Share basis), compared to $2,173 ($2,176
on a Proportionate Share basis) at September 30, 2020.
Summary by Asset Class at December 31, 2020 (1)
% of Rent
Collected
Excluding Deferred
Rent (2)
% Rent Collected
Including Deferred
Rent (2)
Deferred Rents
Receivable
Allowance for
Doubtful
Accounts -
Deferred Rents
Receivable
Allowance for
Doubtful
Accounts -
Rents
Receivable
Rents
Receivable
Canada:
Industrial
Office
Retail
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total
98.6 %
98.9 %
97.9 %
98.5 %
98.1 %
98.9 %
98.6 %
98.4 %
98.9 %
97.9 %
98.5 %
98.6 %
98.9 %
97.6 %
98.4 %
98.1 %
98.9 %
98.6 %
98.4 %
98.9 %
97.6 %
$
481
$
1,302
2,887
4,670
84
234
318
565
1,536
2,887
(69)
(76)
(400)
(545)
—
—
—
(69)
(76)
(400)
$
863
$
1,140
1,590
3,593
487
1,632
2,119
1,350
2,772
1,590
(212)
(187)
(692)
(1,091)
(12)
(343)
(355)
(224)
(530)
(692)
98.5 %
$
4,988
$
(545)
$
5,712
$
(1,446)
(1) Information presented on a Proportionate Share basis.
(2) Rent collection is based on rental charges in functional currencies for the three months ended December 31, 2020.
During Q4-20, deferred rents receivable on a Proportionate Share basis for the industrial, office, and retail segments decreased $374, $49 and $233, respectively, due to
repayments during the quarter, net of deferral agreements executed.
ARTIS REAL ESTATE INVESTMENT TRUST
5
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Summary by Geographical Region at December 31, 2020 (1)
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
% of Rent
Collected
Excluding Deferred
Rent (2)
% Rent Collected
Including Deferred
Rent (2)
Deferred Rents
Receivable
Allowance for
Doubtful
Accounts -
Deferred Rents
Receivable
Rents
Receivable
Allowance for
Doubtful
Accounts - Rents
Receivable
98.1 %
96.3 %
99.3 %
98.0 %
98.8 %
98.5 %
98.9 %
98.6 %
99.7 %
100.0 %
92.0 %
98.2 %
98.6 %
98.1 %
96.3 %
99.3 %
98.0 %
98.0 %
98.4 %
98.9 %
98.6 %
99.7 %
100.0 %
92.0 %
98.2 %
98.6 %
$
1,882
$
(259)
$
1,450
$
183
580
1,071
954
4,670
202
33
29
—
54
—
318
(8)
(73)
(22)
(183)
(545)
—
—
—
—
—
—
—
97
912
855
279
3,593
292
626
357
14
320
510
2,119
(494)
(2)
(129)
(269)
(197)
(1,091)
(79)
(131)
(86)
—
—
(59)
(355)
Total
98.5 %
98.5 %
$
4,988
$
(545)
$
5,712
$
(1,446)
(1) Information presented on a Proportionate Share basis.
(2) Rent collection is based on rental charges in functional currencies for the three months ended December 31, 2020.
Valuation of Investment Properties
During the year ended December 31, 2020, significant fair value adjustments were recorded for our retail and office assets as a result of management’s assessment of the risks
and impacts of the COVID-19 pandemic. These included adjustments to vacancy allowances, market rents and capitalization rates to reflect the acceleration of the
challenging environment plaguing the retail sector and a decrease in demand for office space particularly within regions dependent on the energy industry.
Emergency measures enacted by governments in response to the COVID-19 pandemic, including travel restrictions, physical distancing and the temporary closure of non-
essential businesses, have created significant estimation uncertainty in the determination of the fair value of investment properties as at December 31, 2020. The REIT has
made assumptions with respect to the duration and severity of these emergency measures as well as the duration of the subsequent economic recovery in estimating the
amount and timing of future cash flows generated from investment properties and used in the determination of fair value. As a result of this significant estimation uncertainty,
there is a risk that the assumptions used to determine fair values as at December 31, 2020 may change as more information becomes available, resulting in a material
adjustment to the fair value of investment properties in future reporting periods.
For further discussion on the fair value of investment properties, refer to the Fair Value (Loss) Gain on Investment Properties section of this MD&A.
Risks
Due to uncertainty with respect to the duration and severity of the COVID-19 pandemic, it is not possible to reliably estimate the future impact of the COVID-19 pandemic on
financial results and operations. For more information on risks related to the COVID-19 pandemic, please refer to the Risks and Uncertainties section of this MD&A.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE UPDATES
As one of Canada's most prominent landlords, we consider it our responsibility to set a high standard of sustainable practices and to demonstrate the importance of striving
for excellence and promoting best practices in the areas of environmental, social and governance ("ESG"). We are on a path of continuous improvement in all areas of ESG
and are committed to ensuring that excellence in ESG practices are an integral part of our business model and as a core component of our corporate culture.
During 2020, notable initiatives and improvements in ESG include (but are not limited to):
•
•
•
•
•
•
•
•
•
a 25% reduction in Board fees;
an increase in female representation on the Board from 25% at December 31, 2019, to 57% at December 31, 2020;
an increase in female representation in senior management positions from 33% at December 31, 2019, to 40% at December 31, 2020;
a significant decrease in average board tenure;
a comprehensive review of the Board Mandate, Committee Charters, and various governance policies commenced and is ongoing;
the utilization of GOBY as a consultant and to track consumption at all properties (to the extent that it is possible to do so) for the fifth consecutive year;
an increase in the number of Energy Star certified properties from 18 at December 31, 2019, to 20 at December 31, 2020;
the prioritization of health and wellness initiatives for employees, including healthy lifestyle challenges and webinars related to stress and personal finance
management to offer support and connectivity during a year of unprecedented change related to the COVID-19 pandemic; and
the organization of various employee fundraising initiatives and challenges to raise funds for numerous charitable organizations.
At December 31, 2020, we had 15 properties with a Leadership in Energy and Environmental Design ("LEED") certification, 17 properties with a Building Owners and
Managers Association ("BOMA") Building Environmental Standards ("BEST") certification and 20 properties with an Energy Star certification.
For additional information about Artis' comprehensive corporate sustainability program, including Artis' Environmental, Social and Governance Report, please visit
www.artisreit.com.
2020 ANNUAL REPORT
6
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
BUSINESS ENVIRONMENT AND OUTLOOK
The last year brought unanticipated and unprecedented challenges for the real estate sector. Government-mandated capacity restrictions and temporary closures of many
non-essential businesses forced a number of retailers to limit operations. Further, many office tenants have shifted to a work-from-home model wherever possible to comply
with social distancing and other requirements or measures implemented due to the global pandemic. While governments had eased restrictions and businesses had started
to reopen mid-year, a resurgence of COVID-19 in the fall of 2020 resulted in the re-implementation of many of the restrictions in an effort to reduce the spread of the virus.
The impact on the economy was significant with some estimating that real gross domestic product (“GDP”) contracted by over 5% in Canada and 3% in the United States in
2020.
With respect to the overall market for commercial real estate, the disruption caused by the pandemic meant reduced visibility and fewer transactions, creating challenges in
assessing overall capitalization rates during 2020, especially during the second and third quarters. Despite all of this, industrial real estate continued to witness downward
pressure on capitalization rates; however, interest in office and retail real estate was muted due to the impact of the pandemic and resulting lack of visibility for these sectors.
Notwithstanding the decrease in transaction activity throughout the middle of the year, Artis sold 13 assets (nine office, three retail and one industrial property) and two
parcels of development land in 2020. These assets represented 2.1 million square feet of gross leasable area and were sold for an aggregate sale price of $424,359. The
aggregate IFRS fair value reported at the quarter prior to disposition for these assets was $413,917. As might be expected, the majority of these sales occurred prior to the
implementation of the COVID-19 restrictions in March and after the vaccine announcement in November.
Looking forward to 2021, as the rollout of the vaccine progresses and we look forward to a post-pandemic environment, we continue to see opportunities for all three of Artis’
asset classes. Clearly, the industrial asset class has proven to be defensive in this environment and we anticipate it will continue as such for the foreseeable future. We expect
that needs and service-based open-air retail will continue to be a resilient asset type. With respect to the office market, we believe that employers will rethink and reassess
their office needs; however, they will continue to see the benefit of face-to-face collaboration, the ability to make decisions in real time, social interaction, efficiencies that
result from immediate access to supplies and company resources such as human resources and information technologies, among other things and will ultimately continue to
see a need for office space. Further, we anticipate that, while some tenants may require less space due to work from home arrangements, this will be partially offset by the
need for more space per employee and a shift towards private workspaces to accommodate social distancing requirements.
As we embark upon 2021 with a strong balance sheet and a portfolio that has proven to be resilient through challenging times, we are well positioned to take advantage of
the opportunities that lie ahead. Artis’ Board and management are committed to maximizing unitholder value. The Board looks forward to sharing the results of the 100-Day
Review in the coming days.
ARTIS REAL ESTATE INVESTMENT TRUST
7
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
PORTFOLIO SUMMARY
At December 31, 2020, the REIT's portfolio was comprised of 209 commercial properties (inclusive of properties held in joint venture arrangements) totalling approximately
22.9 million square feet ("S.F.") of gross leasable area ("GLA").
Diversification by Geographical Region (Proportionate Share basis)
Canada
U.S.
47.8%
52.2%
Canada
U.S.
49.3%
50.7%
Diversification by Asset Class (Proportionate Share basis)
2020 ANNUAL REPORT
8
ARTIS REAL ESTATE INVESTMENT TRUST
GLAAB 12.2%BC 1.5%MB 16.5%ON 12.8%SK 4.8%AZ 7.7%CO 4.4%MN 24.8%NY 0.5%TX 7.1%WI 7.7%Property NOI (Q4-20)AB 17.2%BC 2.5%MB 12.5%ON 10.3%SK 6.8%AZ 9.8%CO 3.7%MN 22.7%NY 0.7%TX 4.0%WI 9.8%GLAIndustrial54.0%Office34.5%Retail11.5%Property NOI (Q4-20)Industrial 36.5%Office44.2%Retail 19.3%
Portfolio by Asset Class (1)
Asset class
City
Canadian portfolio:
Industrial
Calgary
Greater Edmonton Area
Greater Toronto Area
Greater Vancouver Area
Red Deer
Regina
Saskatoon
Winnipeg
Industrial total
Office
Calgary
Office total
Retail
Greater Edmonton Area
Greater Toronto Area
Greater Vancouver Area
Saskatoon
Winnipeg
Calgary
Fort McMurray
Grande Prairie
Greater Edmonton Area
Regina
Saskatoon
Winnipeg
Retail total
Total Canadian portfolio
U.S. portfolio:
Industrial
Greater Denver Area
Greater Phoenix Area
Twin Cities Area
Greater Houston Area
Greater Denver Area
Greater Phoenix Area
Madison
New Hartford
Twin Cities Area
Industrial total
Office
Office total
Total U.S. portfolio
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Province /
State
Property
count
Owned share
of GLA
(000's S.F.)
% of
portfolio
GLA
%
Occupied
%
Committed (2)
AB
AB
ON
BC
AB
SK
SK
MB
AB
AB
ON
BC
SK
MB
AB
AB
AB
AB
SK
SK
MB
CO
AZ
MN
TX
CO
AZ
WI
NY
MN
6
3
28
2
1
1
5
28
74
7
1
4
2
1
9
24
5
8
5
5
6
3
7
362
156
2,527
98
126
24
327
1,690
5,310
756
29
342
248
64
1,516
2,955
345
195
355
459
470
219
578
1.6 %
0.7 %
11.0 %
0.4 %
0.6 %
0.1 %
1.4 %
7.4 %
23.2 %
3.2 %
0.1 %
1.6 %
1.1 %
0.3 %
6.6 %
12.9 %
1.5 %
0.9 %
1.6 %
2.0 %
2.0 %
1.0 %
2.5 %
39
2,621
11.5 %
100.0 %
100.0 %
97.6 %
100.0 %
63.1 %
100.0 %
100.0 %
92.8 %
95.7 %
64.1 %
100.0 %
89.7 %
88.0 %
78.0 %
79.3 %
77.5 %
85.0 %
81.0 %
66.4 %
97.6 %
90.3 %
98.1 %
91.9 %
87.9 %
100.0 %
100.0 %
97.8 %
100.0 %
63.1 %
100.0 %
100.0 %
93.3 %
96.0 %
64.2 %
100.0 %
89.7 %
92.8 %
78.0 %
86.5 %
81.6 %
96.3 %
81.3 %
66.4 %
98.0 %
90.8 %
98.1 %
96.9 %
90.7 %
137
10,886
47.6 %
88.9 %
90.8 %
2
7
26
5
40
3
4
16
1
7
31
71
476
921
3,952
1,630
6,979
525
822
1,772
123
1,714
4,956
2.1 %
4.1 %
17.3 %
7.1 %
30.6 %
2.3 %
3.6 %
7.7 %
0.5 %
7.5 %
21.6 %
69.1 %
98.8 %
95.5 %
89.9 %
92.9 %
89.6 %
83.7 %
86.4 %
100.0 %
90.0 %
87.9 %
94.7 %
98.8 %
96.2 %
90.9 %
95.2 %
91.0 %
91.9 %
87.2 %
100.0 %
90.0 %
89.7 %
11,935
52.2 %
90.8 %
92.9 %
Total Canadian and U.S. portfolio
208
22,821
99.8 %
89.9 %
91.9 %
(1) Information is as at December 31, 2020, and excludes properties listed in the Property Held for Redevelopment table and the New Developments in Process section on the following page, and includes properties held in joint venture arrangements.
(2) Percentage committed is based on occupancy at December 31, 2020, plus commitments on vacant space.
ARTIS REAL ESTATE INVESTMENT TRUST
9
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Property Held for Redevelopment
Asset class
City
Province /
State
Property
count
Owned share
of GLA
(000's of S.F.)
% of
portfolio
GLA
Property
Industrial
Greater Toronto Area
ON
Total properties held for redevelopment
(1) Percentage committed is based on occupancy at December 31, 2020, plus commitments on vacant space.
1
1
53
53
0.2 % 2145-2155 Dunwin Drive
0.2 %
%
Committed (1)
74.2 %
74.2 %
2145-2155 Dunwin Drive is a 52,969 square foot two-storey complex that is located just minutes from Queen Elizabeth Way and Highway 403 in the Greater Toronto Area,
Ontario. Artis has undertaken a project to convert this industrial property into commercial condominium units and, at December 31, 2020, units representing 85.8% of the
total square footage of the converted complex were under conditional sale agreements.
Subsequent to December 31, 2020, 2145-2155 Dunwin Drive became registered as a condominium property.
New Developments in Process
At December 31, 2020, Artis had two development projects in process: 300 Main and Park 8Ninety V.
300 Main is a 580,000 square foot commercial and residential/multi-family development project in Winnipeg, Manitoba. 300 Main is connected to 330 Main, a state-of-the-art
multi-tenant retail property constructed in 2020. The properties are located at the iconic intersection of Portage and Main in downtown Winnipeg, Manitoba and will span
nearly one city block when complete. The sites are located above the Shops of Winnipeg Square retail concourse and Winnipeg Square Parkade, and adjacent to 360 Main, a
30-storey Class A office tower, all of which are owned by Artis. 300 Main will be a best-in-class amenity-rich apartment building with main floor commercial space.
Refer to the Risks and Uncertainties section of this MD&A for discussion of the risks related to the 300 Main development project.
Park 8Ninety is a multi-phase industrial development project situated on a 127 acre parcel of land in the Southwest industrial submarket in the Greater Houston Area, Texas.
The first four phases of Park 8Ninety are complete and total 1,144,907 square feet of leasable area. At December 31, 2020, Artis had a 95% ownership interest in Park 8Ninety
II and Park 8Ninety IV in the form of joint venture arrangements. Subsequent to December 31, 2020, Artis acquired the remaining 5% interest in Park 8Ninety IV and now owns
100% of the property.
Construction of the final phase, Park 8Ninety V, began Q4-20. Park 8Ninety V is expected to comprise three buildings totalling 677,000 square feet of leasable area when
complete. Artis has a 95% ownership interest in Park 8Ninety V in the form of a joint venture arrangement.
Future Development Program
Asset class
City
Province / State
Estimated owned share of
GLA (000's of S.F.)
Property
Industrial
Industrial
Office
Office
Greater Houston Area
Greater Phoenix Area
Madison
Madison
TX
AZ
WI
WI
1,270
Cedar Port - Future Phases
56
43
50
Park Lucero East
1630 Aspen
Heartland Trail Land
In January 2021, Artis entered into a partnership with Nuveen Real Estate for the development of Park Lucero East, an industrial development project located in the Greater
Phoenix Area, Arizona, totaling approximately 561,000 square feet. Artis will develop the project as a 10% partner. In January 2021, the Park Lucero East partnership
purchased a parcel of land for US$9,700.
Additional information about these developments will be released as progress is made and key milestones are achieved.
Rezoning and Densification Initiatives
Artis is exploring opportunities for a densification project at Poco Place in Port Coquitlam, British Columbia. The site provides access to major transportation routes and
frontage on four streets, including Lougheed Highway, an east-west arterial corridor. Preliminary plans to build 600 to 900 apartment units are underway. This project will be
planned for sale once rezoning and densification entitlement is achieved. Additional information about this project will be released as progress is made.
2020 ANNUAL REPORT
10
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
PORTFOLIO SUMMARY BY ASSET CLASS
Industrial Portfolio
Artis’ industrial portfolio is comprised of both single tenant and multi-tenant properties strategically located in key Canadian and U.S. markets. At December 31, 2020, the
REIT's industrial portfolio was comprised of 115 properties (inclusive of properties held in joint venture arrangements) totalling approximately 12.3 million square feet of gross
leasable area.
At December 31, 2020, the fair value of the properties in Artis’ industrial portfolio (inclusive of properties held in joint venture arrangements) was $1,878,274, and represented
54.0% of the REIT’s GLA at December 31, 2020, and 36.5% of Q4-20 Proportionate Share Property NOI. Below is a breakdown of REIT’s industrial portfolio by geographical
region:
Canada
U.S.
43.4%
56.6%
Canada
U.S.
48.1%
51.9%
The following is a historical summary of key performance indicators related to the REIT’s industrial portfolio:
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
Q3-19
Q2-19
Q1-19
Number of properties
Occupancy (including commitments)
Same Property NOI growth
115
95.5 %
0.9 %
116
95.0 %
1.9 %
115
96.5 %
4.8 %
115
95.4 %
5.5 %
115
97.2 %
7.9 %
113
99.2 %
9.5 %
112
98.5 %
8.2 %
110
98.6 %
8.8 %
Leasable area renewed (in S.F.)
37,004
151,354
480,613
161,946
299,631
87,089
198,257
201,963
Increase (decrease) in weighted-average rental rate
29.4 %
24.8 %
(7.3) %
11.3 %
12.9 %
10.0 %
2.3 %
(0.8) %
Artis’ industrial properties are a mix of single tenant and multi-tenant buildings. The following is a breakdown of the REIT’s industrial property type based on Q4-20
Proportionate Share Property NOI:
Artis' industrial portfolio includes 465 tenant leases with a weighted-average term to maturity of 5.3 years. Approximately 42.5% of the REIT's industrial gross revenue is
derived from national or government tenants. As indicated below, the largest tenant by gross revenue is Graham Group Ltd., which provides construction management,
general contracting, design build and public-private partnership services to industrial, commercial and infrastructure sectors.
ARTIS REAL ESTATE INVESTMENT TRUST
11
2020 ANNUAL REPORT
GLAAB 5.2%BC 0.8%MB 13.7%ON 20.9%SK 2.8%AZ 7.5%CO 3.9%MN 32.0%TX 13.2%Proportionate Share Property NOI (Q4-20)AB 12.5%BC 1.4%MB 9.5%ON 19.4%SK 5.3%AZ 11.1%CO 1.2%MN 28.4%TX 11.2%Single tenant 43.7%Multi tenant 56.3%
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
The following is a list of Artis’ top 10 industrial tenants by gross revenue:
Tenant
Graham Group Ltd.
Bell Canada
PBP, Inc.
3M Canada Company
Silent Aire USA Inc.
Civeo
Clarke Transport Inc.
Maple Leaf Consumer Foods Inc.
Distribution Alternatives, Inc.
ABB Inc.
Total
Top 10 Industrial Tenants by Gross Revenue (1)
Tenant location
% of total industrial
gross revenue (2)
Owned share of GLA
(000's of S.F.)
% of total
industrial GLA
Weighted-average
remaining lease
term
Canada
Canada
U.S.
Canada
U.S.
Canada
Canada
Canada
U.S.
Canada
6.5 %
4.8 %
3.2 %
2.5 %
2.2 %
2.1 %
1.8 %
1.8 %
1.8 %
1.6 %
243
111
519
319
289
72
148
163
403
151
2.0 %
0.9 %
4.2 %
2.6 %
2.3 %
0.6 %
1.2 %
1.3 %
3.3 %
1.2 %
28.3 %
2,418
19.6 %
13.6
9.0
10.9
4.2
6.2
7.5
4.3
8.5
12.0
3.8
8.7
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) Total gross revenue is in Canadian and US dollars.
Office Portfolio
Artis’ office portfolio is strategically located across primary and secondary markets in both Canada and the U.S. At December 31, 2020, the REIT's office portfolio was
comprised of 55 properties (inclusive of properties held in joint venture arrangements) totalling approximately 7.9 million square feet of gross leasable area.
At December 31, 2020, the fair value of the properties in Artis’ office portfolio was $2,231,173 (inclusive of properties held in joint venture arrangements), representing 34.5%
of the REIT’s GLA at December 31, 2020, and 44.2% of Q4-20 Proportionate Share Property NOI. Below is a breakdown of REIT’s office portfolio by geographical region:
Canada
U.S.
37.3%
62.7%
Canada
U.S.
28.3%
71.7%
The following is a historical summary of key performance indicators related to the REIT’s office portfolio:
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
Q3-19
Q2-19
Q1-19
Number of properties
Occupancy (including commitments)
Same Property NOI (decline) growth
55
86.7 %
(9.4) %
58
87.4 %
(3.5) %
59
88.8 %
(1.6) %
59
89.4 %
1.1 %
64
89.2 %
2.2 %
65
90.3 %
(1.5) %
67
90.8 %
3.9 %
71
89.7 %
4.9 %
Leasable area renewed (in S.F.)
334,727
360,697
56,193
150,908
178,949
228,853
101,710
82,238
Increase (decrease) in weighted-average rental rate
(8.7) %
10.3 %
4.0 %
1.8 %
6.0 %
13.1 %
3.0 %
0.2 %
2020 ANNUAL REPORT
12
ARTIS REAL ESTATE INVESTMENT TRUST
GLAAB 9.9%BC 3.1%MB 19.2%ON 4.3%SK 0.8%AZ 10.4%CO 6.6%MN 21.7%NY 1.6%WI 22.4%Proportionate Share Property NOI (Q4-20)AB 5.7%BC 3.7%MB 11.1%ON 0.5%SK 7.3%AZ 13.0%CO 7.3%MN 27.4%NY 1.7%WI 22.3%
Artis’ office portfolio consists of properties located in both downtown and suburban markets. The following is a breakdown of the REIT’s office property type based on Q4-20
Proportionate Share Property NOI:
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Artis' office portfolio includes 619 tenant leases with a weighted-average term to maturity of 5.8 years. Approximately 52.4% of the REIT's office gross revenue is derived from
national or government tenants. As indicated below, the largest tenant by gross revenue is Bell MTS, which is one of Canada's leading national communication companies
providing voice services, internet and data services and television.
The following is a list of Artis’ top 10 office tenants by gross revenue:
Top 10 Office Tenants by Gross Revenue (1)
Tenant location
% of total office
gross revenue (2)
Owned share of GLA
(000's of S.F.)
% of total
office GLA
Weighted-average
remaining lease term
Tenant
Bell MTS Inc.
Government tenants
AT&T
WorleyParsons Canada Services Ltd.
Prime Therapeutics LLC
TDS Telecommunications Corporation
Catalent Pharma Solutions, LLC
CB Richard Ellis, Inc.
Fairview Health Services
Choice Hotels International Services Corp.
Canada
Canada
U.S.
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
5.3 %
4.0 %
3.8 %
3.6 %
3.4 %
2.6 %
2.4 %
2.3 %
2.1 %
2.0 %
314
261
257
164
386
174
233
108
179
114
4.0 %
3.3 %
3.2 %
2.1 %
4.9 %
2.2 %
2.9 %
1.4 %
2.3 %
1.4 %
Total
31.5 %
2,190
27.7 %
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) Total gross revenue is in Canadian and US dollars.
Retail Portfolio
Artis’ retail portfolio is primarily open-air, service-based properties located across Western Canada. At December 31, 2020, the REIT's retail portfolio was comprised of 39
properties totalling approximately 2.6 million square feet of gross leasable area.
At December 31, 2020, the fair value of the properties in Artis’ retail portfolio was $749,699, and represented 11.5% of the REIT’s GLA at December 31, 2020, and 19.3% of
Q4-20 Proportionate Share Property NOI. Below is a breakdown of REIT’s retail portfolio by geographical region:
ARTIS REAL ESTATE INVESTMENT TRUST
13
2020 ANNUAL REPORT
4.4
9.1
4.5
0.7
13.8
4.0
15.6
6.0
2.7
1.0
7.3
Suburban 78.5%Downtown 21.5%
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
The following is a historical summary of key performance indicators related to the REIT’s retail portfolio:
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
Q3-19
Q2-19
Q1-19
Number of properties
Occupancy (including commitments)
Same Property NOI (decline) growth
39
90.7 %
(5.8) %
42
89.5 %
(0.9) %
42
90.0 %
(13.4) %
41
90.9 %
(3.2) %
41
91.4 %
(0.8) %
50
93.6 %
0.5 %
50
93.7 %
1.8 %
54
93.4 %
1.1 %
Leasable area renewed (in S.F.)
(Decrease) increase in weighted-average rental rate
34,866
105,188
56,066
25,540
74,180
62,994
53,903
48,057
(0.3) %
(13.3) %
5.3 %
8.3 %
2.8 %
(1.3) %
7.3 %
(4.7) %
Artis’ retail properties are primarily open-air neighbourhood and community strip centres that provide a wide array of necessities such as food and service. The following is a
breakdown of the REIT’s retail property type based on Q4-20 Proportionate Share Property NOI:
Artis' retail portfolio includes 495 tenant leases with a weighted-average term to maturity of 4.6 years. Approximately 60.4% of the REIT's retail gross revenue is derived from
national or government tenants. As indicated below, the largest tenant by gross revenue is Shoppers Drug Mart Inc, which is one of Canada's largest national retail pharmacy
chains providing health and personal care products.
2020 ANNUAL REPORT
14
ARTIS REAL ESTATE INVESTMENT TRUST
GLAAB 51.6%MB 22.1%SK 26.3%Proportionate Share Property NOI (Q4-20)AB 52.4%BC 1.9%MB 21.7%SK 24.0%Enclosed Mall 6.3%Convenience Centre(10,000 - 39,999 SF)10.1%NeighbourhoodCentre (40,000 -99,999 SF) 43.4%Community Centre(100,000 - 400,000 SF)40.2%
The following is a list of Artis’ top 10 retail tenants by gross revenue:
Tenant
Tenant location
% of total retail
gross revenue
Owned share of
GLA (000's of S.F.)
% of total
retail GLA
Weighted-average
remaining lease
term
Top 10 Retail Tenants by Gross Revenue (1)
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Shoppers Drug Mart
Sportchek International Ltd.
Cineplex Entertainment LP
Sobeys
The Brick
Winners
Jysk Linen'n Furniture
Lucky Supermarket
CIBC
PetSmart, Inc.
Total
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
2020 ANNUAL HIGHLIGHTS
PORTFOLIO ACTIVITY
3.9 %
3.4 %
3.2 %
2.4 %
2.1 %
2.1 %
2.1 %
1.6 %
1.5 %
1.5 %
81
105
108
83
62
84
75
51
25
40
3.1 %
4.0 %
4.1 %
3.2 %
2.4 %
3.2 %
2.9 %
1.9 %
0.9 %
1.5 %
23.8 %
714
27.2 %
5.5
2.2
4.9
2.0
4.4
3.4
4.5
16.9
1.7
2.8
4.6
During 2020, Artis completed two new development properties, one densification project and disposed of 13 properties.
Industrial
Office
Retail
Total
Property
count
S.F.
(000's) (1)
Property
count
S.F.
(000's) (1)
Property
count
S.F.
(000's) (1)
Property
count
S.F.
(000's) (1)
Portfolio properties, December 31, 2019
New developments
Dispositions
115
12,366
1
(1)
95
(119)
64
—
(9)
9,758
—
(1,847)
41
1
(3)
2,722
45
(146)
220
24,846
2
(13)
140
(2,112)
Portfolio properties, December 31, 2020
115
12,342
55
7,911
39
2,621
209
22,874
(1) Based on owned share of GLA, and includes properties held in joint venture arrangements.
Dispositions
During 2020, Artis disposed of the following properties:
Property
Centre 15 Building
Calgary Office Portfolio (1)
800 5th Avenue
1165 Kenaston Street
Millwright Building (2)
Concorde Corporate Centre
Delta Shoppers Mall
Shoppers Landmark Centre
Strathcona Shoppers Centre
ASM America Headquarters Building
1110 Pettigrew Avenue
Property
count
Location
1
2
1
1
1
2
1
1
1
1
1
Calgary, AB
Calgary, AB
Calgary, AB
Ottawa, ON
Twin Cities Area, MN
Toronto, ON
Regina, SK
Regina, SK
Phoenix, AZ
Regina, SK
Disposition date
January 21, 2020
January 30, 2020
January 31, 2020
March 31, 2020
August 25, 2020
November 16, 2020
November 25, 2020
December 7, 2020
December 10, 2020
Asset
class
Office
Office
Office
Office
Office
Office
Retail
Retail
Retail
Office
December 15, 2020
Industrial
Owned
share of
GLA
Sale price
76,021 $
14,000
497,635
258,445
180,689
77,814
26,000
22,500
138,781
US 40,960
565,190
114,000
74,669
49,023
21,910
34,280
16,000
7,625
130,282
US 27,000
118,957
15,250
Greater Vancouver Area, BC
November 18, 2020
(1) Disposition includes a parcel of development land.
(2) The REIT held an 80% interest in the Millwright Building in the form of a joint venture arrangement.
During 2020, Artis repaid mortgage debt related to the disposition of the above properties in the aggregate amount of $142,240.
On November 9, 2020, the REIT disposed of 801 Carlson, a parcel of office development land in the Twin Cities Area, Minnesota for a sale price of US$5,500.
At December 31, 2020, the REIT had entered into an unconditional sale agreement for the Victoria Square Retail Portfolio, comprised of two retail properties located in
Regina, Saskatchewan, for a sale price of $45,000, which is expected to close in April 2021.
ARTIS REAL ESTATE INVESTMENT TRUST
15
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
New Developments
During 2020, Artis completed the following new developments:
Property
330 Main
Park 8Ninety IV (1)
Linden Ridge Shopping Centre II (2)
Property
count
Location
1
1
—
Winnipeg, MB
Greater Houston Area, TX
Industrial
Winnipeg, MB
Retail
Asset
class
Retail
Owned
share of
GLA
28,086
95,000
17,071
% Occupied
% Committed (3)
84.1 %
100.0 %
100.0 %
94.2 %
100.0 %
100.0 %
(1) The REIT has a 95% interest in Park 8Ninety IV in the form of a joint venture arrangement. Subsequent to December 31, 2020, the REIT purchased the remaining 5% and now owns 100% of the property.
(2) This is a densification project which added an additional 17,071 square foot building to an existing retail property.
(3) Percentage committed is based on occupancy at December 31, 2020, plus commitments on vacant space.
FINANCING AND EQUITY ACTIVITIES
Senior Unsecured Debentures
On February 7, 2020, the REIT completed the repayment of the outstanding Series B senior unsecured debentures with a face value of $200,000.
On September 18, 2020, Artis issued three-year Series D senior unsecured debentures for gross proceeds of $250,000. These debentures bear interest at a fixed rate of
3.824%. The Series D debentures were sold on a private placement basis in certain provinces in Canada.
Unsecured Revolving Term Credit Facilities
During 2020, Artis repaid a net balance of $464,721 on its revolving credit facilities.
Unsecured Non-Revolving Term Credit Facility
On February 6, 2020, Artis entered into a two-year unsecured non-revolving term credit facility agreement in the amount of $200,000, bearing interest at prime plus 0.60% or
the bankers' acceptance rate plus 1.60%. The REIT drew $200,000 on this credit facility. The proceeds were used for the repayment of the Series B senior unsecured
debentures.
On May 28, 2020, the REIT entered into interest rate swap agreements for the non-revolving term credit facility noted above, in the aggregate amount of $200,000, effectively
fixing the interest rate at 2.22%.
Normal Course Issuer Bid
In 2020, Artis utilized the NCIB to purchase 3,727,716 common units for an aggregate market price of $33,442 and 31,100 Series A, 45,802 Series E and 34,460 Series I
preferred units for an aggregate market price of $1,850.
Mortgage Debt Financing and Repayment Activity
During 2020, the REIT repaid one maturing mortgage in the amount of $19,711 and received upward financing upon renewal of three maturing mortgages, net of financing
costs, in the amount of $56,879.
DISTRIBUTIONS
On November 5, 2020, the REIT announced a 3% increase to common unitholder distributions, from $0.54 per unit annually to $0.5562 per unit annually, effective for the
December 2020 distribution payable on January 15, 2021.
In 2020, Artis declared distributions of $91,074 to unitholders, which included distributions to preferred unitholders in the amount of $17,420.
2020 ANNUAL REPORT
16
ARTIS REAL ESTATE INVESTMENT TRUST
SELECTED FINANCIAL INFORMATION
000's, except per unit amounts
2020
2019
Change
Change
Year ended
December 31,
%
Year ended
December 31,
2018
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Revenue
Net operating income
Net income
Total comprehensive (loss) income
Basic income per common unit
Diluted income per common unit
Distributions per unit:
Common units
Preferred units - Series A
Preferred units - Series C
Preferred units - Series E
Preferred units - Series G
Preferred units - Series I
FFO (1)
FFO per unit (1)
FFO per unit - industrial (1) (2)
FFO per unit - office (1) (2)
FFO per unit - retail (1) (2)
FFO payout ratio (1)
AFFO (1)
AFFO per unit (1)
AFFO payout ratio (1)
$
458,917
$
521,660
$
269,275
21,543
(6,274)
0.03
0.02
309,856
122,737
51,069
0.72
0.72
$
$
0.54
1.42
—
1.37
—
1.50
$
0.54
1.42
—
1.37
0.73
1.50
(62,743)
(40,581)
(101,194)
(57,343)
(0.69)
(0.70)
—
—
—
—
(0.73)
—
(12.0) % $
(13.1) %
(82.4) %
(112.3) %
(95.8) %
(97.2) %
— % $
— %
— %
— %
(100.0) %
— %
512,870
304,323
158,636
274,388
0.89
0.88
0.99
1.42
0.42
1.23
1.25
1.38
$
192,411
$
202,398
$
(9,987)
(4.9) % $
200,139
1.41
0.50
0.65
0.26
1.41
0.42
0.71
0.28
—
0.08
(0.06)
(0.02)
38.3 %
38.3 %
$
139,552
$
150,518
$
(10,966)
1.02
52.9 %
1.05
51.4 %
(0.03)
— %
19.0 %
(8.5) %
(7.1) %
— %
(7.3) % $
(2.9) %
1.5 %
1.30
0.34
0.69
0.27
76.2 %
149,428
0.97
102.1 %
Same Property NOI (decline) growth % (1)
(1.7) %
3.8 %
(5.5) %
1.1 %
Adjusted EBITDA interest coverage ratio (1)
3.38
2.98
0.40
13.4 %
3.11
(1) Represents a non-GAAP measure. Refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
(2) FFO per unit by asset class is calculated based on the Proportionate Share Property NOI for each asset class as a percentage of Artis' total Proportionate Share Property NOI multiplied by total FFO per
unit for the period.
Revenue and net operating income decreased year-over-year, primarily due to the impact of dispositions as the REIT disposed of one industrial, 17 office and 15 retail
properties in 2019 and 2020.
The overall decrease in revenue and net operating income is partially offset by completed new developments and acquisitions. In 2019 and 2020, Artis completed numerous
development and densification projects including Park Lucero IV, Cedar Port I, Park 8Ninety III, 330 Main and Linden Ridge Shopping Centre II. In addition, Artis acquired
Boulder Lakes Business Park II, a 100% leased office property in the Twin Cities Area, Minnesota.
The COVID-19 pandemic continues to impact Artis' financial results. The REIT recorded bad debt expense and rent abatements in the amount of $4,862 in 2020, compared to
$680 in 2019, primarily due to provisions related to the collectability of rents receivable and deferred rents receivable from certain tenants adversely affected by the COVID-19
pandemic. Additionally, overall portfolio occupancy has decreased to 89.9% at December 31, 2020, compared to 91.5% at December 31, 2019.
Artis reported a decline in year-over-year Same Property NOI of 1.7%. Excluding bad debt expense and rent abatements, Same Property NOI decreased 0.4% year-over-year.
Net income and total comprehensive (loss) income were impacted by the fair value change on investment properties (loss of $140,876 in 2020 compared to loss of $94,727 in
2019), and by the change in income from investments in joint ventures ($24,851 in 2020, compared to $36,843 in 2019).
Also impacting net income and total comprehensive (loss) income was expenses related to the proxy matter ($17,423 in 2020 compared to $nil in 2019) and an increase in
strategic initiative expenses ($4,029 in 2020 compared to $1,358 in 2019).
Partially offsetting the above is a decrease in interest expense ($86,106 in 2020, compared to $108,809 in 2019) and a decrease in corporate expenses ($12,205 in 2020
compared to $14,452 in 2019).
Foreign exchange also continues to positively impact Artis' financial results, due to a higher US dollar to Canadian dollar average exchange rate of 1.3412 in 2020, compared
to 1.3268 in 2019.
FFO per unit for the year ended December 31, 2020 was $1.41, unchanged from the year ended December 31, 2019, while AFFO per unit for the year ended December 31,
2020 was $1.02, compared to $1.05 for the year ended December 31, 2019. The REIT adjusted FFO and AFFO for proxy matter and strategic initiative expenses, as
management believes this provides a better representation of recurring FFO and AFFO. FFO per unit and AFFO per unit were also impacted by the units acquired and
cancelled under the NCIB.
The REIT reported conservative FFO and AFFO payout ratios of 38.3% and 52.9%, respectively, for 2020.
ARTIS REAL ESTATE INVESTMENT TRUST
17
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
BALANCE SHEET METRICS
000's, except per unit amounts
NAV per unit (1)
IFRS
Secured mortgages and loans to GBV (1)
Total long-term debt and credit facilities to GBV (1)
Fair value of unencumbered assets
Total assets
Total non-current financial liabilities
Proportionate Share
Total long-term debt and credit facilities to Adjusted EBITDA (1)
Secured mortgages and loans to GBV (1)
Total long-term debt and credit facilities to GBV (1)
Fair value of unencumbered assets
Total assets
Total non-current financial liabilities
December 31,
December 31,
% December 31,
2020
2019
Change
2018
$
15.03
$
15.56
(3.4) % $
15.55
26.2 %
49.3 %
26.3 %
51.3 %
(0.1) %
(2.0) %
29.4 %
49.9 %
$
1,901,073
$
1,926,661
(1.3) % $
1,805,382
4,859,841
1,648,305
5,330,019
2,142,090
(8.8) %
5,717,177
(23.1) %
2,252,874
9.4
27.7 %
50.2 %
8.7
27.9 %
52.3 %
8.0 %
(0.2) %
(2.1) %
9.0
30.6 %
50.6 %
$
1,941,959
$
1,968,369
(1.3) % $
1,847,443
4,987,006
1,698,137
5,460,034
2,236,067
(8.7) %
5,841,846
(24.1) %
2,296,891
(1) Represents a non-GAAP measure. Refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
Artis reported NAV per unit of $15.03 at December 31, 2020, compared to $15.56 at December 31, 2019. The change is primarily due to the year-to-date fair value loss on
investment properties and derivative instruments and distributions to unitholders, partially offset by net operating income and the impact of units purchased under the NCIB.
Refer to the individual sections of this MD&A for additional information and discussion of the REIT's key financial metrics.
2020 ANNUAL REPORT
18
ARTIS REAL ESTATE INVESTMENT TRUST
ANALYSIS OF OPERATING RESULTS
The following provides a reconciliation of the consolidated statements of operations as prepared in accordance with IFRS in the REIT's consolidated financial statements to its
Proportionate Share:
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Three months ended December 31,
2020
2019
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
$
113,010 $
4,490 $
117,500
$
127,180 $
4,798 $
131,978
29,166
18,877
48,043
64,967
(6,654)
(17,423)
(810)
(20,247)
628
17,724
(8,985)
3,105
—
265
32,570
(146)
32,424
(58,784)
(6,119)
684
1,460
2,144
2,346
—
—
—
(935)
12
(17,724)
16,301
—
—
—
—
—
—
29,850
20,337
32,910
19,149
50,187
52,059
67,313
75,121
(6,654)
(17,423)
(810)
(21,182)
640
—
7,316
3,105
—
265
(2,462)
—
(937)
(26,299)
1,745
13,352
(31,863)
4,804
(84)
105
32,570
33,482
(146)
(605)
32,424
32,877
1,377
713
2,090
2,708
—
—
—
(1,106)
2
(13,352)
11,748
—
—
—
—
—
—
(6,119)
6,119
(64,903)
(26,084)
—
(2,696)
(2,696)
2,696
34,287
19,862
54,149
77,829
(2,462)
—
(937)
(27,405)
1,747
—
(20,115)
4,804
(84)
105
33,482
(605)
32,877
(28,780)
—
Revenue
Expenses:
Property operating
Realty taxes
Total operating expenses
Net operating income
Other income (expenses):
Corporate expenses
Proxy matter expenses
Strategic initiative expenses
Interest expense
Interest income
Net income from investments in joint ventures
Fair value (loss) gain on investment properties
Foreign currency translation gain
Transaction costs
Fair value gain on derivative instruments
Income before income taxes
Income tax expense
Net income
Other comprehensive loss:
Unrealized foreign currency translation loss
Unrealized foreign currency translation loss on
joint ventures
Total comprehensive (loss) income
$
(32,479) $
— $
(32,479)
$
4,097 $
— $
4,097
(1) Adjustment to reflect investments in joint ventures on a Proportionate Share basis.
(64,903)
—
(64,903)
(28,780)
—
(28,780)
ARTIS REAL ESTATE INVESTMENT TRUST
19
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Year ended December 31,
2020
2019
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
$
458,917 $
20,785 $
479,702
$
521,660 $
17,958 $
539,618
112,871
76,771
4,457
5,190
117,328
81,961
130,099
81,705
4,938
3,513
135,037
85,218
Revenue
Expenses:
Property operating
Realty taxes
Total operating expenses
189,642
9,647
199,289
211,804
8,451
220,255
Net operating income
269,275
11,138
280,413
309,856
9,507
319,363
Other income (expenses):
Corporate expenses
Proxy matter expenses
Strategic initiative expenses
Interest expense
Interest income
Net income from investments in joint ventures
(12,205)
(17,423)
(4,029)
(86,106)
4,797
24,851
Fair value (loss) gain on investment properties
(140,876)
Foreign currency translation gain
Transaction costs
Fair value loss on derivative instruments and
other transactions
Income before income taxes
Income tax expense
Net income
Other comprehensive loss:
Unrealized foreign currency translation loss
Unrealized foreign currency translation loss on
joint ventures
Unrealized gain from remeasurements of net
pension obligation
530
—
(16,538)
22,276
(733)
21,543
(25,498)
(2,319)
—
(27,817)
—
—
—
(4,561)
17
(24,851)
18,257
—
—
—
—
—
—
(2,319)
2,319
—
—
(12,205)
(17,423)
(4,029)
(90,667)
4,814
—
(122,619)
530
—
(16,538)
(14,452)
—
(1,358)
(108,809)
3,212
36,843
(94,727)
10,668
(301)
(16,379)
22,276
124,553
(733)
(1,816)
21,543
122,737
(27,817)
—
—
(66,214)
(6,125)
671
(27,817)
(71,668)
—
—
—
(4,372)
7
(36,843)
31,701
—
—
—
—
—
—
(6,125)
6,125
—
—
(14,452)
—
(1,358)
(113,181)
3,219
—
(63,026)
10,668
(301)
(16,379)
124,553
(1,816)
122,737
(72,339)
—
671
(71,668)
Total comprehensive (loss) income
$
(6,274) $
— $
(6,274)
$
51,069 $
— $
51,069
(1) Adjustment to reflect investments in joint ventures on a Proportionate Share basis.
2020 ANNUAL REPORT
20
ARTIS REAL ESTATE INVESTMENT TRUST
REVENUE AND PROPERTY NOI
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Three months ended December 31,
2020
2019
IFRS
Adjustment (1)
Total
Proportionate
Share
IFRS
Adjustment (1)
Total
Proportionate
Share
Revenue:
Rental income
$
117,794 $
4,640 $
122,434
$
131,699 $
4,692 $
136,391
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
(6,424)
1,535
105
(168)
18
—
(6,592)
1,553
105
(6,254)
1,579
156
(173)
279
—
(6,427)
1,858
156
113,010
4,490
117,500
127,180
4,798
131,978
Property operating and realty tax expenses
48,043
2,144
50,187
52,059
2,090
54,149
Property NOI
$
64,967 $
2,346 $
67,313
$
75,121 $
2,708 $
77,829
Year ended December 31,
2020
2019
IFRS
Adjustment (1)
Total
Proportionate
Share
IFRS
Adjustment (1)
Total
Proportionate
Share
Revenue:
Rental income
$
478,145 $
20,758 $
498,903
$
537,869 $
17,777 $
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
(24,854)
4,923
703
(986)
973
40
(25,840)
5,896
743
(23,385)
6,077
1,099
(751)
932
—
555,646
(24,136)
7,009
1,099
458,917
20,785
479,702
521,660
17,958
539,618
Property operating and realty tax expenses
189,642
9,647
199,289
211,804
8,451
220,255
Property NOI
$
269,275 $
11,138 $
280,413
$
309,856 $
9,507 $
319,363
(1) Adjustment to reflect investments in joint ventures on a Proportionate Share basis.
Rental income is revenue earned from tenants primarily related to lease agreements. In 2020, rental income was impacted by rent abatements in the amount of $2,169,
compared to $91 in 2019. Rent abatements in 2020 were primarily granted to certain tenants affected by the COVID-19 pandemic.
Tenant inducement costs are amortized over the term of the tenant's lease.
Rent steps and lease termination income (if it is likely the tenant will exercise the lease termination option) are accounted for by straight-lining the incremental increases and
lease termination payments over the entire non-cancelable lease term, including the tenant fixturing period.
Lease termination income relates to payments received from tenants where the REIT and the tenant agreed to terminate a lease prior to the contractual expiry date. Lease
termination income is common in the real estate industry, however, it is unpredictable and period-over-period changes are not indicative of trends.
Property operating expenses include costs related to interior and exterior maintenance, insurance, utilities and property management expenses. Also included in property
operating expenses is bad debt expense of $2,693 (Q4-20 - $462) in 2020 compared to $589 (Q4-19 - $159) in 2019. The bad debt provisions are primarily related to the
collectability of rents receivable and deferred rents receivable from certain tenants affected by the COVID-19 pandemic.
ARTIS REAL ESTATE INVESTMENT TRUST
21
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
SAME PROPERTY NOI ANALYSIS (1)
Same Property NOI includes investment properties that were owned for a full quarterly reporting period in both the current and comparative year and excludes properties
held for (re)development and those under unconditional sale agreements.
Property NOI
Add (deduct) Property NOI from:
Acquisitions
Dispositions and unconditional dispositions
(Re)development properties
Other (2)
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
%
Change
$
67,313 $
77,829
$ 280,413 $ 319,363
(957)
(2,324)
(279)
(874)
(743)
(8,206)
(353)
(993)
(4,137)
(4,026)
(4,869)
(1,237)
(790)
(38,671)
(662)
(2,260)
(4,434)
(10,295)
(14,269)
(42,383)
Straight-line rent adjustments
Tenant inducements amortized to revenue
(1,307)
6,106
(1,412)
5,285
(4,295)
24,311
(5,864)
19,980
Same Property NOI
$
67,678 $
71,407 $
(3,729)
(5.2) % $ 286,160 $ 291,096 $
(4,936)
(1.7) %
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
(2) Primarily includes lease termination income adjustments.
Lease termination income related to significant tenants has been excluded, other than the portion that covers lost revenue due to vacancy, for purposes of the Same Property
NOI calculation.
Same Property NOI by Asset Class
Canada:
Industrial
Office
Retail
Total Canada
U.S.:
Industrial
Office
Total U.S.
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
$
12,069 $
12,266 $
(197)
(1.6) % $
49,012 $
47,656 $
1,356
9,463
11,644
11,469
12,367
(2,006)
(17.5) %
(723)
(5.8) %
43,980
52,526
49,654
55,803
(5,674)
(3,277)
%
Change
2.8 %
(11.4) %
(5.9) %
33,176
36,102
(2,926)
(8.1) %
145,518
153,113
(7,595)
(5.0) %
9,944
16,533
9,492
17,253
452
(720)
4.8 %
(4.2) %
35,589
69,285
34,697
69,310
892
(25)
2.6 %
— %
26,477
26,745
(268)
(1.0) %
104,874
104,007
867
0.8 %
Total in functional currency
Foreign exchange
59,653
8,025
62,847
8,560
(3,194)
(535)
(5.1) %
250,392
(6.3) %
35,768
257,120
33,976
(6,728)
1,792
(2.6) %
5.3 %
Same Property NOI
$
67,678 $
71,407 $
(3,729)
(5.2) % $
286,160 $
291,096 $
(4,936)
(1.7) %
Industrial
Office
Retail
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
$
25,024 $
24,796 $
228
0.9 % $
96,669 $
93,675 $
2,994
31,010
11,644
34,244
12,367
(3,234)
(723)
(9.4) %
136,965
(5.8) %
52,526
141,618
55,803
(4,653)
(3,277)
%
Change
3.2 %
(3.3) %
(5.9) %
Same Property NOI
$
67,678 $
71,407 $
(3,729)
(5.2) % $
286,160 $
291,096 $
(4,936)
(1.7) %
In 2020, Same Property NOI decreased in the office and retail segments due to increased vacancy. The office segment was also impacted by lower parking revenues in
Manitoba.
2020 ANNUAL REPORT
22
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Same Property NOI by Geographical Region
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
(3.6) %
$
49,308
$
51,925
$
(2,617)
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
$
12,345
$
12,800
$
1,494
9,656
6,536
3,145
5,030
2,168
1,664
11,468
6,901
3,269
5,228
2,220
11,513
11,558
383
2,064
5,319
322
1,728
5,689
(455)
(170)
(1,812)
(365)
(124)
(198)
(52)
(45)
61
336
(370)
(10.2) %
(15.8) %
(5.3) %
(3.8) %
(3.8) %
(2.3) %
(0.4) %
18.9 %
19.4 %
(6.5) %
7,353
41,021
29,655
18,181
21,460
8,685
45,746
1,425
5,048
22,510
7,816
45,874
29,179
18,319
21,469
8,673
46,378
1,084
4,341
22,062
%
Change
(5.0) %
(5.9) %
(463)
(4,853)
(10.6) %
476
(138)
(9)
12
(632)
341
707
448
1.6 %
(0.8) %
— %
0.1 %
(1.4) %
31.5 %
16.3 %
2.0 %
Total in functional currency
59,653
62,847
(3,194)
(5.1) %
250,392
257,120
(6,728)
(2.6) %
Foreign exchange
8,025
8,560
(535)
(6.3) %
35,768
33,976
1,792
5.3 %
Same Property NOI
$
67,678
$
71,407
$
(3,729)
(5.2) %
$
286,160
$
291,096
$
(4,936)
(1.7) %
Same Property NOI in Manitoba decreased $2,126 (Q4-20 - $817) in 2020 due to a decline in parking revenues primarily as a result of the ongoing COVID-19 pandemic. Also
related to the impact of the COVID-19 pandemic, and in addition to bad debt expense and rent abatements, all regions with the exception of New York and Texas, were
impacted by increased vacancy.
The COVID-19 pandemic has resulted in bad debt provisions related to the collectability of rents receivable and deferred rents receivable from certain tenants and rent
abatements granted for specific tenants. Same Property NOI excluding bad debt expense and rent abatements decreased 0.4% (Q4-20 - decreased 4.4%) in 2020.
Same Property Occupancy Report
Geographical Region
2020
2019
Asset Class
As at December 31,
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total U.S.
Total
Industrial
Office
Retail
Total
83.8 %
91.4 %
88.4 %
96.7 %
95.4 %
90.0 %
91.7 %
85.7 %
93.4 %
100.0 %
89.3 %
84.2 %
90.9 %
85.4 %
92.0 %
91.8 %
99.9 %
97.5 %
92.7 %
95.6 %
92.9 %
95.7 %
100.0 %
81.6 %
89.5 %
92.7 %
90.5 %
92.7 %
As at December 31,
2020
2019
94.7 %
86.3 %
83.9 %
90.5 %
95.7 %
90.3 %
87.1 %
92.7 %
ARTIS REAL ESTATE INVESTMENT TRUST
23
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
PROPERTY NOI BY ASSET CLASS
Canada:
Industrial
Office
Retail
U.S.:
Industrial
Office
Retail
Total portfolio:
Industrial
Office
Retail
IFRS
IFRS
Proportionate Share
Proportionate Share
Q4-20
Q4-19
Change
YTD-20
YTD-19
Change
Q4-20
Q4-19
Change
YTD-20
YTD-19
Change
$ 10,426 $ 11,033 $
(607) $ 42,222 $ 42,502 $
(280) $ 11,780 $ 12,400 $
(620) $ 47,641 $ 47,943 $
(302)
8,419
12,973
31,818
11,989
21,115
—
14,589
13,711
39,333
12,863
22,665
169
(6,170)
(738)
38,681
52,024
64,198
(25,517)
8,419
14,510
(6,091)
38,681
64,098
(25,417)
57,980
(5,956)
12,973
13,711
(738)
52,024
57,980
(5,956)
(7,515)
132,927
164,680
(31,753)
33,172
40,621
(7,449)
138,346
170,021
(31,675)
(874)
(1,550)
(169)
48,144
45,291
2,853
12,769
13,672
(903)
87,898
95,313
(7,415)
21,327
23,276
(1,949)
51,394
90,367
47,209
4,185
97,561
(7,194)
—
4,261
(4,261)
—
169
(169)
—
4,261
(4,261)
33,104
35,697
(2,593)
136,042
144,865
(8,823)
34,096
37,117
(3,021)
141,761 149,031
(7,270)
22,415
29,534
12,973
64,922
23,896
37,254
13,880
(1,481)
90,366
87,793
2,573
24,549
26,072
(1,523)
99,035
95,152
3,883
(7,720)
126,579 159,511
(32,932)
29,746
37,786
(8,040)
129,048
161,659
(32,611)
(907)
52,024
62,241
(10,217)
12,973
13,880
(907)
52,024
62,241
(10,217)
75,030
(10,108)
268,969
309,545
(40,576)
67,268
77,738
(10,470)
280,107 319,052
(38,945)
REIT
45
91
(46)
306
311
(5)
45
91
(46)
306
311
(5)
Property NOI
$ 64,967 $ 75,121 $ (10,154) $ 269,275 $ 309,856 $
(40,581) $ 67,313 $ 77,829 $ (10,516) $ 280,413 $ 319,363 $
(38,950)
In Q4-20, all segments of the Canadian portfolio and the U.S. office segment decreased primarily due to dispositions in 2019 and 2020 completed in accordance with Artis'
Strategic Initiatives. The U.S. office segment was partially offset by an acquisition in 2019.
The Canadian office segment was impacted by a decline in parking revenues as a result of the ongoing COVID-19 pandemic. Additionally, Proportionate Share Property NOI
in Q4-20 was impacted by changes in bad debt provisions and rent abatements, and increased vacancy.
The U.S. portfolio was also impacted by the effect of foreign exchange.
The information below is based on Proportionate Share Property NOI:
2020 ANNUAL REPORT
24
ARTIS REAL ESTATE INVESTMENT TRUST
Canadian Portfolio (Q4-20)Industrial35.5%Office25.4%Retail39.1%U.S. Portfolio (Q4-20)Industrial37.5%Office62.5%Total Portfolio (Q4-20)Industrial36.5%Office44.2%Retail19.3%Canadian Portfolio (Q4-19)Industrial30.5%Office35.7%Retail33.8%U.S. Portfolio (Q4-19)Industrial36.8%Office62.7%Retail0.5%Total Portfolio (Q4-19)Industrial33.5%Office48.6%Retail17.9%
PROPERTY NOI BY GEOGRAPHICAL REGION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
IFRS
IFRS
Proportionate Share
Proportionate Share
Q4-20
Q4-19
Change
YTD-20
YTD-19
Change
Q4-20
Q4-19
Change
YTD-20
YTD-19
Change
$ 10,710 $ 14,050 $
(3,340) $ 42,556 $ 58,220 $ (15,664) $ 11,556 $ 14,898 $
(3,342) $ 45,947 $ 61,611 $ (15,664)
1,564
1,938
(374)
6,834
8,638
(1,804)
1,693
2,067
(374)
7,349
9,153
(1,804)
8,441 10,165
(1,724)
35,729
41,765
(6,036)
8,441 10,086
(1,645)
35,729
41,665
(5,936)
6,927
8,642
(1,715)
30,331
36,984
(6,653)
6,927
8,642
(1,715)
30,331
36,984
(6,653)
4,176
4,538
(362)
17,477
19,073
(1,596)
4,555
4,928
(373)
18,990
20,608
(1,618)
31,818 39,333
(7,515)
132,927 164,680
(31,753)
33,172 40,621
(7,449)
138,346 170,021
(31,675)
6,581
7,301
2,094
2,272
15,298 16,090
501
510
2,027
2,104
(720)
(178)
(792)
(9)
(77)
28,350
33,041
(4,691)
6,581
7,301
8,863
13,096
(4,233)
2,477
3,081
(720)
(604)
28,350
33,041
(4,691)
11,759
14,918
(3,159)
60,446
63,364
(2,918)
15,273 16,371
(1,098)
61,773
64,559
(2,786)
6,603
7,420
(817)
28,101
28,746
(645)
6,603
7,420
2,020
1,544
476
501
510
8,262
5,074
3,188
2,661
2,434
(9)
227
(817)
2,020
1,544
476
9,758
6,223
3,535
28,101
28,746
(645)
33,104 35,697
(2,593)
136,042 144,865
(8,823)
34,096 37,117
(3,021)
141,761 149,031
(7,270)
Total portfolio
64,922 75,030
(10,108)
268,969 309,545
(40,576)
67,268 77,738
(10,470)
280,107 319,052
(38,945)
REIT
45
91
(46)
306
311
(5)
45
91
(46)
306
311
(5)
Property NOI
$ 64,967 $ 75,121 $ (10,154) $ 269,275 $ 309,856 $ (40,581) $ 67,313 $ 77,829 $ (10,516) $ 280,413 $ 319,363 $ (38,950)
In Q4-20, Proportionate Share Property NOI decreased in Alberta, British Columbia, Ontario, Saskatchewan, Arizona, and Minnesota primarily due to dispositions completed
in accordance with Artis' Strategic Initiatives. The decrease in Minnesota is partially offset by an acquisition in 2019.
The COVID-19 pandemic continues to impact Artis' portfolio. Manitoba was impacted by a decline in parking revenues as a result of the ongoing COVID-19 pandemic.
Additionally, Proportionate Share Property NOI in Q4-20 was impacted by changes in bad debt provisions and rent abatements. All regions except New York and Texas were
impacted by increased vacancy.
The U.S. portfolio was also impacted by the effect of foreign exchange.
The information below is based on Proportionate Share Property NOI:
Canada
U.S.
49.3%
50.7%
Canada
U.S.
52.3%
47.7%
ARTIS REAL ESTATE INVESTMENT TRUST
25
2020 ANNUAL REPORT
Total Portolio (Q4-20)AB 17.2%BC 2.5%MB 12.5%ON 10.3%SK 6.8%AZ 9.8%CO 3.7%MN 22.7%NY 0.7%TX 4.0%WI 9.8%Total Portfolio (Q4-19)AB 19.2%BC 2.7%MB 13.0%ON 11.1%SK 6.3%AZ 9.4%CO 4.0%MN 21.0%NY 0.7%TX 3.1%WI 9.5%
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
CORPORATE EXPENSES
Accounting, legal and consulting
Public company costs
Unit-based compensation
Salaries and benefits
Depreciation of property and equipment
General and administrative
Three months ended
December 31,
2020
2019
Change
1,236
509
3,623
416
397
473
583
254
402
510
301
412
653
255
3,221
(94)
96
61
%
Change
112.0 %
100.4 %
801.2 %
(18.4) %
31.9 %
14.8 %
Year ended
December 31,
2020
2019
Change
3,316
1,367
2,855
1,940
1,422
1,305
3,396
1,545
4,264
2,688
1,130
1,429
(80)
(178)
(1,409)
(748)
292
(124)
%
Change
(2.4) %
(11.5) %
(33.0) %
(27.8) %
25.8 %
(8.7) %
Total corporate expenses
$
6,654 $
2,462 $
4,192
170.3 %
$
12,205 $
14,452 $
(2,247)
(15.5) %
Corporate expenses in 2020 were $12,205 (Q4-20 - $6,654), or 2.7% (Q4-20 - 5.9%) of total revenues compared to $14,452 (Q4-19 - $2,462), or 2.8% (Q4-19 - 1.9%) of total
revenues in 2019.
Unit-based compensation was impacted by fluctuations in Artis' unit price during the period.
PROXY MATTER EXPENSES
On September 30, 2020, the REIT received a unitholder requisition from Sandpiper requesting the REIT call a special meeting of the REIT’s unitholders for the purpose of
reconstituting the Board with new Trustees. On November 30, 2020, the REIT reached an agreement with Sandpiper to withdraw its unitholder meeting request and pending
litigation.
In connection with this proxy matter, the REIT incurred costs of $17,423 (Q4-20 - $17,423) in 2020 compared to $nil (Q4-19 - $nil) in 2019, including legal, advisory and
executive settlement costs.
STRATEGIC INITIATIVE EXPENSES
In 2019, the Board of Trustees launched a formal strategic review process to explore value-maximizing opportunities for the REIT. During the course of the strategic review,
Artis actively disposed non-core investment properties, repurchased units under its NCIB and engaged independent financial and legal advisors to review various strategic
alternatives. The strategic initiative expenses in 2019 and 2020 are primarily fees paid for legal and advisory services.
In 2020, strategic initiative expenses were $4,029 (Q4-20 - $810) compared to $1,358 (Q4-19 - $937) in 2019.
INTEREST EXPENSE
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
%
Change
Mortgages and other loans (1)
Senior unsecured debentures
Credit facilities (1)
Preferred shares (1)
$
8,916 $
12,207 $
(3,291)
$
39,214 $
53,983 $
(14,769)
4,925
4,839
34
4,210
7,683
34
715
(2,844)
—
13,311
26,068
135
17,202
27,604
135
(3,891)
(1,536)
—
18,714
24,134
(5,420)
(22.5) %
78,728
98,924
(20,196)
(20.4) %
Foreign exchange
1,533
2,165
(632)
7,378
9,885
(2,507)
Total interest expense
$
20,247 $
26,299 $
(6,052)
(23.0) %
$
86,106 $
108,809 $
(22,703)
(20.9) %
Mortgages and other loans included in investments in
joint ventures (1)
Foreign exchange included in investments in joint
ventures
784
151
909
197
(125)
(46)
3,689
3,589
872
783
100
89
Total Proportionate Share interest expense
$
21,182 $
27,405 $
(6,223)
(22.7) %
$
90,667 $
113,181 $
(22,514)
(19.9) %
(1) Amounts shown are in Canadian and US dollars.
Year-to-date interest expense on mortgages and other loans primarily decreased approximately $2,418 and US$3,191 due to the repayment of mortgages upon disposition of
investment properties, $2,138 and US$275 due to the repayment of maturing mortgages, $181 and US$4,859 due to decreased monthly payments for mortgages with variable
interest rates, $431 and US$823 due to lower rates upon renewal of variable rate mortgages and new swap agreements, partially offset by US$855 due to new mortgages and
uplifts upon renewal of maturing mortgages. Interest expense on senior unsecured debentures has decreased primarily due to the repayment of the Series B senior
unsecured debentures in Q1-20, partially offset by the issuance of the Series D senior unsecured debentures in Q3-20. Interest expense on credit facilities decreased primarily
due to lower balances drawn on the revolving credit facilities during the year and a decrease to variable interest rates. Financing costs on mortgages and other loans, senior
unsecured debentures and the credit facilities are netted against the related debt and amortized on an effective interest basis over the expected term of the debt.
2020 ANNUAL REPORT
26
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
The REIT's weighted-average effective rate at December 31, 2020, on mortgages and other loans secured by properties, inclusive of properties held in joint venture
arrangements, was 3.24%, compared to 3.98% at December 31, 2019. The weighted-average nominal interest rate on mortgages and other loans secured by properties,
inclusive of properties held in joint venture arrangements, at December 31, 2020, was 3.01%, compared to 3.79% at December 31, 2019.
FAIR VALUE (LOSS) GAIN ON INVESTMENT PROPERTIES
The changes in fair value on investment properties, period-over-period, are recognized as fair value gains and losses in the consolidated statement of operations. Fair values
of the investment properties are determined through either the discounted cash flow method or the overall capitalization method. External valuations are performed for a
selection of properties representing various geographical regions and asset classes across the REIT's portfolio. Fair value changes in individual properties result from changes
in the projected income and cash flow projections of those properties, as well as from changes in capitalization rates and discount rates applied. In 2020, the Proportionate
Share fair value loss on investment properties was $122,619 (Q4-20 - gain of $7,316), compared to a loss of $63,026 (Q4-19 - loss of $20,115) in 2019. The fair value loss in 2020
was primarily due to reflecting an increase in the estimated vacancy allowances and capitalization rates, and decrease in market rents, across the retail and office portfolios
due to the economic impacts of the COVID-19 pandemic, partially offset by higher expected market rents in the industrial portfolio.
Fair Value (Loss) Gain on Investment Properties by Asset Class
Canada:
Industrial
Office
Retail
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total portfolio
IFRS
Proportionate Share
Q4-20
YTD-20
Q4-20
YTD-20
$
55,035
$
67,749
$
55,237 $
(42,950)
(15,725)
(3,640)
2,301
(7,646)
(5,345)
57,336
(50,596)
(15,725)
(79,709)
(117,343)
(129,303)
19,309
(30,882)
(11,573)
87,058
(110,591)
(117,343)
(42,950)
(15,725)
(3,438)
18,125
(7,371)
10,754
73,362
(50,321)
(15,725)
71,609
(79,709)
(117,343)
(125,443)
33,747
(30,923)
2,824
105,356
(110,632)
(117,343)
$
(8,985)
$
(140,876)
$
7,316
$
(122,619)
FOREIGN CURRENCY TRANSLATION GAIN
Artis held certain US dollars denominated monetary assets and liabilities, including cash, deposits and a portion of its revolving term credit facilities. The foreign currency
translation gain is primarily due to remeasurement of these assets and liabilities into Canadian dollars at the exchange rate in effect at the balance sheet date. The REIT
recorded a foreign currency translation gain of $530 (Q4-20 - $3,105) in 2020, compared to $10,668 (Q4-19 - $4,804) in 2019.
FAIR VALUE (LOSS) GAIN ON DERIVATIVE INSTRUMENTS AND OTHER TRANSACTIONS
Artis has entered into a number of interest rate swap contracts to effectively lock the interest rate on a portion of variable rate debt. The REIT recorded an unrealized loss on
the fair value adjustment of the interest rate swaps outstanding of $18,388 (Q4-20 - gain of $2,563) in 2020, compared to an unrealized loss of $11,892 (Q4-19 - gain of $3,537)
in 2019. The REIT anticipates holding the mortgages, non-revolving term credit facilities and related interest rate swap contracts until maturity.
Artis also recorded an unrealized gain of $2,257 (Q4-20 - loss of $2,328) in 2020 on the fair value of outstanding foreign currency contracts, compared to an unrealized loss of
$5,978 (Q4-19 - loss of $3,432) in 2019.
INCOME TAX
The REIT currently qualifies as a mutual fund trust and a real estate investment trust for Canadian income tax purposes. Under current tax legislation, income distributed
annually by the REIT to unitholders is a deduction in the calculation of its taxable income. As the REIT intends to distribute all of its taxable income to its unitholders, the REIT
does not record a provision for current Canadian income taxes.
The REIT's U.S. properties are owned by subsidiaries that are REITs for U.S. income tax purposes. These subsidiaries intend to distribute all of their U.S. taxable income to
Canada and are entitled to deduct such distributions for U.S. income tax purposes. As a result, the REIT does not record a provision for current federal U.S. income taxes on
the taxable income earned by these subsidiaries. These U.S. subsidiaries are subject to certain state taxes and a 30% to 35% withholding tax on distributions to Canada. Any
withholding taxes paid are recorded with the related distributions.
The REIT is subject to federal and state taxation in the U.S. on the taxable income earned by its U.S. management subsidiary.
OTHER COMPREHENSIVE LOSS
Other comprehensive loss includes the unrealized foreign currency translation losses of $27,817 (Q4-20 - losses of $64,903) in 2020, compared to losses of $72,339 (Q4-19 -
losses of $28,780) in 2019. Foreign currency translation gains and losses relate to the REIT's net investments in its U.S. subsidiaries.
ARTIS REAL ESTATE INVESTMENT TRUST
27
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS
Artis calculates FFO and AFFO substantially in accordance with the guidelines set out by REALpac, as issued in February 2019.
Reconciliation of Net Income to FFO and AFFO
000's, except per unit amounts
2020
2019
Change
Three months ended
December 31,
%
Change
Year ended
December 31,
2020
2019
Change
%
Change
Net income
Add (deduct):
Fair value (gain) loss on investment properties (1)
Tenant inducements amortized to revenue (1)
Transaction costs on acquisitions
Proxy matter expenses
Strategic initiative expenses
Foreign currency translation gain
Fair value (gain) loss on derivative instruments and other
transactions
Deferred income tax (recovery) expense
Remeasurement component of unit-based
compensation
Distributions on preferred shares treated as interest
expense
Incremental leasing costs
Preferred unit distributions
FFO
Add (deduct):
$
32,424 $
32,877
$
21,543 $
122,737
(7,316)
6,592
—
17,423
810
(3,105)
(265)
(18)
2,774
45
779
20,115
6,427
84
—
937
(4,804)
(105)
(19)
(531)
44
961
122,619
25,840
—
17,423
4,029
63,026
24,136
301
—
1,358
(530)
(10,668)
16,538
16,379
(43)
(935)
181
3,166
317
873
178
3,697
(4,347)
(4,384)
(17,420)
(19,936)
$
45,796 $
51,602 $
(5,806)
(11.3) %
$
192,411 $
202,398 $
(9,987)
(4.9) %
Amortization of recoverable capital expenditures (1)
Non-recoverable property maintenance reserve (1)
Leasing costs reserve (1)
Straight-line rent adjustments (1)
$
(3,522) $
(3,172)
$
(11,263) $
(10,401)
(1,100)
(7,900)
(1,553)
(1,100)
(7,700)
(1,858)
(4,400)
(31,300)
(5,896)
(3,950)
(30,520)
(7,009)
AFFO
FFO per unit:
Basic
Diluted
AFFO per unit:
Basic
Diluted
$
31,721 $
37,772 $
(6,051)
(16.0) %
$
139,552 $
150,518 $
(10,966)
(7.3) %
$
0.34 $
0.37 $
0.34
0.37
(0.03)
(0.03)
(8.1) %
(8.1) %
$
1.41 $
1.42 $
(0.01)
1.41
1.41
—
(0.7) %
0.0 %
$
0.23 $
0.27 $
0.23
0.27
(0.04)
(0.04)
(14.8) %
$
1.02 $
1.06 $
(14.8) %
1.02
1.05
(0.04)
(0.03)
(3.8) %
(2.9) %
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
The REIT adjusted FFO and AFFO for proxy matter and strategic initiative expenses for an aggregate total of $21,452 (Q4-20 - $18,233) in 2020 compared to $1,358 (Q4-19 -
$937) in 2019. Although the add-back of these expenses to arrive at FFO and AFFO is not in accordance with the guidelines set out by REALpac as issued in February 2019,
management believes it provides a better representation of recurring FFO and AFFO.
FFO and AFFO in 2020 were primarily impacted by dispositions completed in 2019 and 2020 and the ongoing impact of the COVID-19 pandemic, partially offset by
acquisitions and new developments completed in 2019 and 2020, a decrease in year-over-year interest expense, and a higher US dollar to Canadian dollar average exchange
rate in 2020 compared to 2019. Also contributing to the per unit results is the decrease in the weighted-average number of units outstanding, primarily due to units
repurchased under the NCIB.
Actual capital expenditures are by nature variable and unpredictable. Recoverable capital expenditures are building improvement or property maintenance expenditures
recovered from tenants over time. Management has deducted from AFFO the actual amortization of recoverable capital expenditures included in property operating
expenses charged to tenants for the period. Approximately 77.1% (Q4-20 - 74.6%) is recoverable from tenants in 2020, compared to 81.2% (Q4-19 - 81.9%) in 2019. The non-
recoverable property maintenance reserve reflects management's estimate of a normalized expenditure using the 2017, 2018, 2019 and 2020 actual expenditures and the 2021
annual budgeted expenditures. Refer to the capital expenditures disclosure under the Assets section of this MD&A for further discussion of actual expenditures for the
period.
Actual leasing costs include tenant improvements that are not capital in nature, tenant allowances and commissions which are variable in nature. Leasing costs will fluctuate
depending on the square footage of leases rolling over, in-place rates at expiry, tenant retention and local market conditions in a given year. Management calculates the
leasing cost reserve to reflect the amortization of leasing costs over the related lease term.
2020 ANNUAL REPORT
28
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
The following reconciles the weighted-average number of basic common units to diluted common units:
(000's)
Basic units
Add:
Restricted units
Deferred units
Three months ended
December 31,
2020
2019
(000's)
135,401
137,938
356
93
639
472
Basic units
Add:
Restricted units
Deferred units
Year ended
December 31,
2020
2019
136,207
142,435
320
80
535
281
Diluted units
135,850
139,049
Diluted units
136,607
143,251
FFO per Unit by Asset Class
The following table summarizes FFO per unit by asset class, allocated based on Proportionate Share Property NOI.
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Retail
Total portfolio:
Industrial
Office
Retail
Total portfolio
Three months ended
December 31,
Year ended
December 31,
2020
2019
2020
2019
$
0.06 $
0.04
0.07
0.17
0.06
0.11
—
0.17
0.12
0.15
0.07
0.06 $
0.07
0.06
0.19
0.07
0.11
—
0.18
0.13
0.18
0.06
0.24 $
0.19
0.26
0.69
0.26
0.46
—
0.72
0.50
0.65
0.26
$
0.34 $
0.37 $
1.41 $
0.21
0.28
0.26
0.75
0.21
0.43
0.02
0.66
0.42
0.71
0.28
1.41
AFFO per Unit by Asset Class
The following table summarizes AFFO per unit by asset class, allocated based on Proportionate Share Property NOI.
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Retail
Total portfolio:
Industrial
Office
Retail
Total portfolio
Three months ended
December 31,
Year ended
December 31,
2020
2019
2020
2019
$
0.04 $
0.03
0.05
0.12
0.04
0.07
—
0.11
0.08
0.10
0.05
0.04 $
0.05
0.05
0.14
0.05
0.08
—
0.13
0.09
0.13
0.05
0.17 $
0.14
0.19
0.50
0.19
0.33
—
0.52
0.36
0.47
0.19
$
0.23 $
0.27 $
1.02 $
0.16
0.21
0.19
0.56
0.16
0.32
0.01
0.49
0.32
0.53
0.20
1.05
ARTIS REAL ESTATE INVESTMENT TRUST
29
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
PORTFOLIO OCCUPANCY
Occupancy levels impact the REIT's revenues and Property NOI. Occupancy and commitments at December 31, 2020, and the previous four periods, were as follows:
Occupancy Report by Asset Class (1)
Industrial
Office
Retail
Total portfolio
Occupancy Report by Geographical Region (1)
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total U.S.
Q4-20 %
Committed (2)
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
95.5 %
86.7 %
90.7 %
91.9 %
94.1 %
84.0 %
87.9 %
89.9 %
93.8 %
85.2 %
87.9 %
90.0 %
93.5 %
86.8 %
89.7 %
90.6 %
93.7 %
86.4 %
90.8 %
90.7 %
95.8 %
86.2 %
91.1 %
91.5 %
Q4-20%
Committed (2)
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
82.2 %
94.9 %
91.1 %
96.8 %
94.4 %
90.8 %
95.6 %
92.8 %
94.3 %
100.0 %
90.9 %
87.2 %
92.9 %
80.7 %
91.4 %
87.2 %
96.7 %
94.2 %
88.9 %
91.7 %
79.9 %
93.9 %
100.0 %
89.9 %
86.4 %
90.8 %
81.2 %
92.2 %
87.5 %
96.0 %
95.6 %
89.6 %
93.3 %
84.3 %
93.2 %
100.0 %
83.4 %
88.2 %
90.5 %
84.5 %
92.2 %
87.1 %
95.3 %
96.1 %
90.1 %
94.9 %
85.3 %
93.7 %
100.0 %
81.9 %
89.4 %
91.1 %
85.4 %
92.5 %
87.5 %
96.4 %
96.3 %
90.8 %
95.3 %
84.0 %
93.0 %
100.0 %
81.9 %
88.7 %
90.7 %
84.7 %
92.6 %
91.1 %
93.0 %
96.3 %
90.4 %
95.9 %
92.9 %
95.0 %
100.0 %
81.6 %
90.7 %
92.7 %
Total portfolio
91.9 %
89.9 %
90.0 %
90.6 %
90.7 %
91.5 %
(1) Based on properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) Percentage committed is based on occupancy at December 31, 2020, plus commitments on vacant space.
PORTFOLIO LEASING ACTIVITY AND LEASE EXPIRIES
Renewal Summary (1)
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
Q3-19
Q2-19
Q1-19
Leasable area renewed (in S.F.)
248,641
617,239
592,872
338,394
558,544
362,669
353,870
332,258
(Decrease) increase in weighted-average rental rate
(0.5) %
6.0 %
(3.3) %
4.5 %
8.1 %
8.7 %
4.0 %
(1.9) %
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
In 2020, 1,797,146 square feet were renewed at an increase in the weighted-average rental rate of 2.4%, compared to 1,607,341 square feet renewed at an increase in the
weighted-average rental rate of 5.6% in 2019.
The percentage change on renewal activity is calculated by comparing the rental rate in place at the end of the expiring term to the rental rate in place at the commencement
of the new term. In many cases, leases are negotiated or renewed such that there are contractual rent escalations over the course of the new lease term. In these cases, the
average rent over the new term will be higher than the rate at commencement, which is not reflected in the above table results.
2020 ANNUAL REPORT
30
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Lease Expiries by Asset Class (in S.F.) (1)
Current
vacancy
Monthly
tenants (2)
2021
2022
2023
2024
2025 &
later
Total
Industrial - uncommitted
Industrial - committed
548,855
178,527
30,877
1,057,888
1,642,940
1,017,516
1,289,930
5,592,672
11,180,678
—
815,969
80,344
33,564
—
—
1,108,404
Total industrial
727,382
30,877
1,873,857
1,723,284
1,051,080
1,289,930
5,592,672
12,289,082
Office - uncommitted
Office - committed
1,054,469
23,996
210,960
—
814,894
593,716
401,951
691,845
651,886
3,346,693
6,985,734
68,407
9,959
947
40,792
924,781
Total office
1,265,429
23,996
1,408,610
470,358
701,804
652,833
3,387,485
7,910,515
Retail - uncommitted
Retail - committed
243,181
73,004
6,651
—
261,482
116,441
310,593
396,545
307,691
799,765
2,325,908
76,217
9,113
—
20,689
295,464
Total retail
316,185
6,651
377,923
386,810
405,658
307,691
820,454
2,621,372
Total - uncommitted
Total - committed
1,846,505
61,524
2,134,264
2,355,484
2,105,906
2,249,507
9,739,130
20,492,320
462,491
—
1,526,126
224,968
52,636
947
61,481
2,328,649
Total portfolio
2,308,996
61,524
3,660,390
2,580,452
2,158,542
2,250,454
9,800,611
22,820,969
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) Includes holdovers and renewals where term has not been negotiated.
In-Place Rents
In-place rents reflect the weighted-average net annual rental rate per square foot as at December 31, 2020, for the leasable area expiring in the year indicated. In-place rents
do not reflect either the average rate over the term of the lease or the rate in place in the year of expiry.
Market Rents
Market rents are estimates and are shown as a net annual rate per square foot. Artis reviews market rents across the portfolio on an on-going basis. These estimates are
based on management's best estimate for each leasable space and may take into consideration the property manager's revenue budget, recent leasing activity, current
prospects, future commitments or publicly available market information. Rates applied in future expiry years do not allow for the impact of inflation, nor do they attempt to
factor in anticipated higher (or lower) than normal periods of demand or market rent inflation due to specific market conditions. Refer to the Risks section of this MD&A for
further information.
ARTIS REAL ESTATE INVESTMENT TRUST
31
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Market Rents by Asset Class (1)
Canadian Portfolio:
2021
2022
2023
2024
2025 &
later
Industrial:
In-place rents
Market rents
Change
Revenue impact (2)
Office:
In-place rents
Market rents
Change
Revenue impact (2)
Retail:
In-place rents
Market rents
Change
Revenue impact (2)
Total Canadian portfolio:
In-place rents
Market rents
Change
Revenue impact (2)
U.S. Portfolio:
Industrial:
In-place rents
Market rents
Change
Revenue impact (2)
Office:
In-place rents
Market rents
Change
Revenue impact (2)
Total U.S. portfolio:
In-place rents
Market rents
Change
Revenue impact (2)
$
$
$
7.81
9.15
17.2 %
973
$
7.46
9.00
20.6 %
$
1,540
$
18.52
15.38
(17.0) %
$
(2,431)
$
$
$
$
$
$
$
25.47
26.19
2.8 %
269
15.77
15.14
(4.0) %
17.06
18.08
6.0 %
65
21.49
21.59
0.5 %
38
11.62
12.75
9.7 %
$
(1,189)
$
1,643
$
$
$
$
$
$
$
$
8.04
9.13
13.6 %
495
16.89
17.15
1.5 %
75
24.69
23.84
(3.4) %
(348)
16.13
16.33
1.2 %
222
$
$
$
$
$
$
$
$
8.76
9.22
5.3 %
246
21.89
20.92
(4.4) %
(134)
23.81
23.21
(2.5) %
(186)
15.39
15.31
(0.5) %
(74)
Total
9.06
9.97
10.0 %
$
$
10.39
10.96
5.5 %
$
1,333
$
4,587
$
$
$
$
$
17.19
17.45
1.5 %
267
$
17.89
16.94
(5.3) %
$
(2,158)
$
$
$
21.71
21.64
(0.3) %
(58)
14.25
14.61
2.5 %
23.10
22.98
(0.5) %
(285)
14.49
14.71
1.5 %
$
1,542
$
2,144
2021
2022
2023
2024
$
$
$
$
$
$
5.67
5.57
(1.8) %
(112)
20.33
19.78
(2.7) %
(355)
10.89
10.63
(2.4) %
(467)
$
$
$
$
$
$
6.10
5.73
(6.1) %
(265)
17.57
16.78
(4.5) %
(322)
10.23
9.71
(5.1) %
(587)
$
$
$
$
$
$
5.84
5.71
(2.2) %
(77)
20.04
19.77
(1.3) %
(115)
11.70
11.51
(1.6) %
(192)
$
$
$
$
$
$
6.09
6.28
3.1 %
145
16.07
17.66
9.9 %
816
10.11
10.86
7.4 %
961
$
$
$
$
$
$
2025 &
later
6.30
6.26
(0.6) %
(123)
17.31
17.66
2.0 %
824
10.96
11.09
1.2 %
701
$
$
$
$
$
$
Total
6.10
6.03
(1.1) %
(432)
17.89
18.09
1.1 %
848
10.84
10.88
0.4 %
416
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) This impact is based on the difference between the in-place rents and the market rents for the period in Canadian and US dollars. This excludes the impact of any straight-line rent adjustments on revenues.
2020 ANNUAL REPORT
32
ARTIS REAL ESTATE INVESTMENT TRUST
Total Canadian and U.S. Portfolio (1):
Industrial:
In-place rents
Market rents
Change
Revenue impact (2)
Office:
In-place rents
Market rents
Change
Revenue impact (2)
Retail:
In-place rents
Market rents
Change
Revenue impact (2)
Total Canadian and U.S. portfolio:
In-place rents
Market rents
Change
Revenue impact (2)
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
2021
2022
2023
2024
2025 &
later
$
$
$
6.50
6.96
7.1 %
861
$
6.89
7.63
10.7 %
$
1,275
$
19.34
17.36
(10.2) %
$
(2,786)
$
$
$
$
$
$
$
25.47
26.19
2.8 %
269
13.40
12.95
(3.4) %
17.50
16.96
(3.1) %
(257)
21.49
21.59
0.5 %
38
11.01
11.42
3.7 %
$
(1,656)
$
1,056
$
$
$
$
$
$
$
$
6.80
7.20
5.9 %
418
18.77
18.71
(0.3) %
(40)
24.69
23.84
(3.4) %
(348)
14.05
14.07
0.1 %
30
$
$
$
$
$
$
$
$
Total
7.40
7.76
4.9 %
7.18
7.48
4.2 %
391
$
$
8.03
8.25
2.7 %
$
1,210
$
4,155
17.31
18.35
6.0 %
682
$
$
17.28
17.60
1.9 %
17.89
17.69
(1.1) %
$
1,091
$
(1,310)
23.81
23.21
(2.5) %
(186)
12.39
12.79
3.2 %
887
$
$
$
$
$
$
21.71
21.64
(0.3) %
(58)
12.37
12.60
1.9 %
23.10
22.98
(0.5) %
(285)
12.56
12.69
1.0 %
$
2,243
$
2,560
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) This impact is based on the difference between the in-place rents and the market rents for the period in Canadian and US dollars. This excludes the impact of any straight-line rent adjustments on revenues.
Market rents at December 31, 2020, were estimated to be 1.0% above in-place rents across the portfolio, compared to 0.9% above in-place rents at September 30, 2020 and
1.5% above in-place at December 31, 2019. Today's market rents for the 2021 and 2022 lease expiries are estimated to be 3.4% below and 3.7% above in-place rents,
respectively.
Lease Expiries by Geographical Region (in S.F.) (1)
Current
vacancy
Monthly
tenants (2)
2021
2022
2023
2024
2025 &
later
Total
AB - uncommitted
AB - committed
495,084
42,108
2,077
431,509
190,751
315,114
192,170
931,752
2,558,457
—
129,211
33,719
800
—
18,168
224,006
Total Alberta
537,192
2,077
560,720
224,470
315,914
192,170
949,920
2,782,463
BC - uncommitted
BC - committed
17,794
11,970
—
—
17,480
30,983
20,459
35,210
29,127
183,725
—
—
—
—
303,795
42,953
Total British Columbia
29,764
—
48,463
20,459
35,210
29,127
183,725
346,748
MB - uncommitted
MB - committed
335,379
147,141
10,195
345,549
308,505
374,575
376,908
1,374,839
3,125,950
—
410,962
44,940
25,455
—
29,121
657,619
Total Manitoba
482,520
10,195
756,511
353,445
400,030
376,908
1,403,960
3,783,569
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) Includes holdovers and renewals where term has not been negotiated.
ARTIS REAL ESTATE INVESTMENT TRUST
33
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Lease Expiries by Geographical Region (in S.F.) (continued) (1)
Current
vacancy
Monthly
tenants (2)
2021
2022
2023
2024
2025 &
later
Total
ON - uncommitted
ON - committed
90,800
4,706
—
—
79,994
578,122
315,843
327,779
1,155,281
2,547,819
305,954
7,649
3,014
—
—
321,323
Total Ontario
95,506
—
385,948
585,771
318,857
327,779
1,155,281
2,869,142
SK - uncommitted
SK - committed
61,417
2,758
5,310
—
99,959
29,709
258,471
11,058
70,697
4,988
48,011
509,032
1,052,897
—
2,521
51,034
Total Saskatchewan
64,175
5,310
129,668
269,529
75,685
48,011
511,553
1,103,931
AZ - uncommitted
AZ - committed
77,503
66,831
3,562
109,955
141,999
145,760
117,464
939,952
1,536,195
—
139,872
—
—
—
—
206,703
Total Arizona
144,334
3,562
249,827
141,999
145,760
117,464
939,952
1,742,898
CO - uncommitted
CO - committed
72,484
129,131
5,901
—
39,242
73,226
63,260
58,996
26,798
532,140
—
—
—
—
798,821
202,357
Total Colorado
201,615
5,901
112,468
63,260
58,996
26,798
532,140
1,001,178
MN - uncommitted
MN - committed
320,351
28,077
—
—
900,539
350,969
577,065
120,697
600,782
656,644
2,079,657
5,135,038
18,379
947
11,671
530,740
Total Minnesota
348,428
—
1,251,508
697,762
619,161
657,591
2,091,328
5,665,778
NY - uncommitted
NY - committed
Total New York
TX - uncommitted
TX - committed
—
—
—
—
—
—
149,108
15,192
30,877
—
—
—
—
—
—
—
—
83,003
40,207
—
—
—
—
123,210
—
—
83,003
40,207
—
123,210
128,625
—
—
—
36,501
1,269,941
1,615,052
—
—
15,192
Total Texas
164,300
30,877
—
128,625
—
36,501
1,269,941
1,630,244
WI - uncommitted
WI - committed
226,585
14,577
3,602
110,037
88,227
105,926
397,898
762,811
1,695,086
—
55,240
6,905
—
—
—
76,722
Total Wisconsin
241,162
3,602
165,277
95,132
105,926
397,898
762,811
1,771,808
Total - uncommitted
Total - committed
1,846,505
61,524
2,134,264
2,355,484
2,105,906
2,249,507
9,739,130
20,492,320
462,491
—
1,526,126
224,968
52,636
947
61,481
2,328,649
Total portfolio
2,308,996
61,524
3,660,390
2,580,452
2,158,542
2,250,454
9,800,611
22,820,969
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) Includes holdovers and renewals where term has not been negotiated.
2020 ANNUAL REPORT
34
ARTIS REAL ESTATE INVESTMENT TRUST
Market Rents by Geographical Region (1)
Alberta:
In-place rents
Market rents
Change
Revenue impact (2)
British Columbia:
In-place rents
Market rents
Change
Revenue impact (2)
Manitoba:
In-place rents
Market rents
Change
Revenue impact (2)
Ontario:
In-place rents
Market rents
Change
Revenue impact (2)
Saskatchewan:
In-place rents
Market rents
Change
Revenue impact (2)
Arizona:
In-place rents
Market rents
Change
Revenue impact (2)
Colorado:
In-place rents
Market rents
Change
Revenue impact (2)
Minnesota:
In-place rents
Market rents
Change
Revenue impact (2)
New York:
In-place rents
Market rents
Change
Revenue impact (2)
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
2021
2022
2023
2024
$
$
$
$
$
$
$
$
21.88
17.50
(20.0) %
$
(2,457)
$
$
$
$
$
20.21
23.46
16.1 %
158
13.88
13.77
(0.8) %
(86)
7.49
10.45
39.5 %
24.89
24.18
(2.9) %
(161)
23.78
25.46
7.1 %
34
8.75
9.35
6.9 %
212
6.88
9.71
41.1 %
$
1,144
$
1,661
$
$
$
$
$
$
$
$
$
$
23.33
23.73
1.7 %
52
22.53
23.37
3.7 %
211
13.43
13.20
(1.7) %
(26)
7.72
7.22
(6.5) %
(620)
—
—
— %
—
$
$
$
$
$
$
$
$
$
$
13.72
13.34
(2.8) %
(103)
19.10
18.49
(3.2) %
(86)
19.11
18.23
(4.6) %
(56)
7.50
7.03
(6.3) %
(329)
—
—
— %
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
22.56
21.38
(5.2) %
(374)
22.82
29.12
27.6 %
222
11.62
12.10
4.1 %
193
13.30
13.98
5.1 %
218
22.03
21.54
(2.2) %
(37)
22.53
22.05
(2.1) %
(70)
19.76
19.48
(1.4) %
(16)
7.19
7.11
(1.1) %
(48)
15.28
15.00
(1.8) %
(23)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
23.16
22.06
(4.7) %
(209)
29.60
30.83
4.2 %
36
14.90
14.00
(6.0) %
(337)
9.24
10.43
12.9 %
388
21.44
22.45
4.7 %
48
12.67
14.59
15.2 %
226
24.09
23.21
(3.7) %
(24)
6.24
6.16
(1.3) %
(50)
14.79
15.00
1.4 %
8
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2025 &
later
Total
$
20.14
19.50
(3.2) %
21.65
19.95
(7.9) %
(607)
$
(3,808)
$
$
$
$
$
14.98
14.65
(2.2) %
(61)
12.72
13.17
3.5 %
622
10.24
12.03
17.5 %
18.56
19.79
6.6 %
389
12.68
12.86
1.4 %
604
9.38
11.35
21.0 %
2,061
$
5,472
$
$
$
$
$
$
$
16.26
15.34
(5.7) %
(473)
14.25
14.92
4.7 %
627
13.60
13.69
0.7 %
46
11.05
10.84
(1.9) %
17.15
16.65
(2.9) %
(513)
16.62
17.19
3.4 %
908
14.83
14.73
(0.7) %
(76)
8.75
8.48
(3.1) %
(433)
$
(1,480)
—
—
— %
—
$
$
15.12
15.00
(0.8) %
(15)
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) This impact is based on the difference between the in-place rents and the market rents for the period in Canadian and US dollars. This excludes the impact of any straight-line rent adjustments on revenues.
ARTIS REAL ESTATE INVESTMENT TRUST
35
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Market Rents by Geographical Region (continued) (1)
2021
2022
2023
2024
Texas:
In-place rents
Market rents
Change
Revenue impact (2)
Wisconsin:
In-place rents
Market rents
Change
Revenue impact (2)
Total portfolio:
In-place rents
Market rents
Change
Revenue impact (2)
$
$
$
$
$
$
$
$
$
$
—
—
— %
—
15.62
15.43
(1.2) %
(32)
13.40
12.95
(3.4) %
$
5.33
5.28
(0.9) %
(6)
$
17.75
16.60
(6.5) %
(110)
11.01
11.42
3.7 %
$
$
$
$
—
—
— %
—
15.88
15.54
(2.1) %
(35)
14.05
14.07
0.1 %
30
$
$
$
$
$
$
9.04
8.40
(7.1) %
(23)
14.44
16.51
14.3 %
824
12.39
12.79
3.2 %
887
$
(1,656)
$
1,056
2025 &
later
$
5.77
5.52
(4.3) %
(319)
$
Total
5.81
5.57
(4.1) %
(348)
13.48
14.50
7.6 %
780
$
14.39
15.33
6.5 %
$
1,427
$
12.37
12.60
1.9 %
12.56
12.69
1.0 %
$
$
$
$
$
$
2,243
$
2,560
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) This impact is based on the difference between the in-place rents and the market rents for the period in Canadian and US dollars. This excludes the impact of any straight-line rent adjustments on revenues.
LARGEST SEGMENTS BY PROPERTY NOI
Artis' real estate is diversified across five Canadian provinces and six U.S. states, and across the industrial, office and retail asset classes. For the three months ended
December 31, 2020, the five largest segments of the REIT's portfolio (by Proportionate Share Property NOI) were Twin Cities Area office, Twin Cities Area industrial, Madison
office, Greater Toronto Area industrial and Greater Phoenix Area office.
Twin Cities Area Office Segment
The Twin Cities Area office segment represents 12.3% of the Q4-20 Proportionate Share Property NOI and 7.5% of the overall portfolio by GLA. Direct vacancy in the Twin
Cities Area office market, as reported by CBRE, was 18.6% at December 31, 2020, compared to 18.5% at September 30, 2020. At December 31, 2020, the Twin Cities Area
office segment of Artis' portfolio was 90.0% occupied, unchanged from September 30, 2020. In 2021, 238,690 square feet come up for renewal, which represents 1.0% of the
total portfolio GLA; 31.2% was renewed or committed to new leases at December 31, 2020. Of Artis' total Twin Cities Area office GLA, 65.0% expires in 2025 or later.
Twin Cities Area Industrial Segment
The Twin Cities Area industrial segment represents 10.4% of the Q4-20 Proportionate Share Property NOI and 17.3% of the overall portfolio by GLA. Direct vacancy in the
Twin Cities Area industrial market, as reported by CBRE, was 4.7% at December 31, 2020, compared to 4.6% at September 30, 2020. The average asking market lease rate was
$6.52 per square foot at December 31, 2020, compared to $6.55 at September 30, 2020. At December 31, 2020, the Twin Cities Area industrial segment of Artis' portfolio was
95.5% occupied, increased from 94.6% at September 30, 2020. In 2021, 1,102,818 square feet come up for renewal, which represents 4.8% of the total portfolio GLA; 27.3%
was renewed or committed to new leases at December 31, 2020. Of Artis' total Twin Cities Area industrial GLA, 27.6% expires in 2025 or later.
Madison Office Segment
The Madison office segment represents 9.8% of the Q4-20 Proportionate Share Property NOI and 7.7% of the overall portfolio by GLA. At December 31, 2020, the Madison
office segment of Artis' portfolio was 86.4% occupied, compared to 88.2% at September 30, 2020. In 2021, 165,277 square feet come up for renewal, which represents 0.7% of
the total portfolio GLA; 33.4% was renewed or committed to new leases at December 31, 2020. Of Artis' total Madison office GLA, 50.0% expires in 2025 or later.
Greater Toronto Area Industrial Segment
The Greater Toronto Area industrial segment represents 7.1% of the Q4-20 Proportionate Share Property NOI and 11.0% of the overall portfolio by GLA. Overall direct
vacancy in the Greater Toronto Area industrial segment, as reported by CBRE, was 1.0% at December 31, 2020, decreased from 1.2% at September 30, 2020. At December
31, 2020, the Greater Toronto Area industrial segment of Artis' portfolio was 97.6% occupied, compared to 99.5% at September 30, 2020. In 2021, 366,946 square feet comes
up for renewal, which represents 1.6% of the total portfolio GLA; 80.6% was renewed or committed to new leases at December 31, 2020. Of Artis' Greater Toronto Area
industrial GLA, 41.0% expires in 2025 or later.
Greater Phoenix Area Office Segment
The Greater Phoenix Area office segment represents 5.7% of the Q4-20 Proportionate Share Property NOI and 3.6% of the overall portfolio by GLA. Overall direct vacancy in
the Greater Phoenix Area office market, as reported by Colliers, was 13.0% at December 31, 2020 compared to 12.7% at September 30, 2020. At December 31, 2020, the
Greater Phoenix Area office segment of Artis' portfolio was 83.7% occupied, compared to 86.9% at September 30, 2020. In 2021, 183,891 square feet come up for renewal,
which represents 0.8% of the total portfolio GLA; 57.3% was renewed or committed to new leases at December 31, 2020. Of Artis' Greater Phoenix Area Office GLA, 44.4%
expires in 2025 or later.
2020 ANNUAL REPORT
36
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
ANALYSIS OF FINANCIAL POSITION
The following provides a reconciliation of the consolidated balance sheets as prepared in accordance with IFRS in the REIT's consolidated financial statements to its
Proportionate Share.
December 31, 2020
December 31, 2019
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
ASSETS
Non-current assets:
Investment properties
Investment properties under development
Investments in joint ventures
Property and equipment
Notes receivable
Deferred rents receivable
Current assets:
Investment properties held for sale
Inventory properties
Deposits on investment properties
Prepaid expenses and other assets
Notes receivable
Accounts receivable and other receivables
Cash held in trust
Cash
$
4,325,121 $
236,954 $
4,562,075
$
4,618,719 $
306,051 $
4,924,770
132,243
200,306
7,481
20,313
778
14,466
(200,306)
—
—
—
146,709
—
7,481
20,313
778
102,590
186,610
7,786
93,832
—
—
(186,610)
—
—
—
102,590
—
7,786
93,832
—
4,686,242
51,114
4,737,356
5,009,537
119,441
5,128,978
74,483
15,060
1,203
7,307
1,371
17,465
22,007
34,703
173,599
60,819
—
—
172
—
819
—
14,241
76,051
135,302
15,060
1,203
7,479
1,371
18,284
22,007
48,944
221,915
14,632
—
10,533
3,996
21,013
5,938
42,455
249,650
320,482
—
—
—
86
—
1,281
—
9,207
10,574
221,915
14,632
—
10,619
3,996
22,294
5,938
51,662
331,056
Total assets
$
4,859,841 $
127,165 $
4,987,006
$
5,330,019 $
130,015 $
5,460,034
LIABILITIES AND UNITHOLDERS' EQUITY
Non-current liabilities:
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Other long-term liabilities
Current liabilities:
Mortgages and loans payable
Senior unsecured debentures
Security deposits and prepaid rent
Accounts payable and other liabilities
Credit facilities
Total liabilities
$
868,396 $
49,832 $
918,228
$
1,005,196 $
93,977 $
1,099,173
248,999
529,087
1,823
—
—
—
248,999
529,087
1,823
249,372
886,522
1,000
—
—
—
249,372
886,522
1,000
1,648,305
49,832
1,698,137
2,142,090
93,977
2,236,067
405,126
249,920
30,089
97,130
95,374
877,639
2,525,944
60,930
—
2,861
13,542
—
77,333
127,165
466,056
249,920
32,950
110,672
95,374
954,972
2,653,109
396,152
199,959
32,834
88,231
—
717,176
2,859,266
27,598
—
3,483
4,957
—
36,038
130,015
423,750
199,959
36,317
93,188
—
753,214
2,989,281
Unitholders' equity
2,333,897
—
2,333,897
2,470,753
—
2,470,753
Total liabilities and unitholders' equity
$
4,859,841 $
127,165 $
4,987,006
$
5,330,019 $
130,015 $
5,460,034
(1) Adjustment to reflect investments in joint ventures on a Proportionate Share basis.
ARTIS REAL ESTATE INVESTMENT TRUST
37
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
BALANCE SHEET METRICS
NAV per Unit
000's, except unit and per unit amounts
Unitholders' equity
Less value of preferred equity (1)
December 31,
2020
December 31,
2019
Change
$
2,333,897
$
2,470,753 $
(136,856)
(302,746)
(305,530)
2,784
NAV attributable to common unitholders
$
2,031,151
$
2,165,223 $
(134,072)
Total number of dilutive units outstanding:
Common units
Restricted units
Deferred units
134,643,175
137,956,523
404,937
92,908
694,034
472,451
(3,313,348)
(289,097)
(379,543)
135,141,020
139,123,008
(3,981,988)
NAV per unit
$
15.03
$
15.56 $
(0.53)
(1) The value of preferred equity is calculated using the outstanding face value of preferred units at the end of the period.
Unitholders' equity decreased primarily due to distributions made to unitholders, units purchased under the NCIB and foreign exchange losses recorded in other
comprehensive loss, partially offset by net income and the issuance of common units. The total number of dilutive units outstanding has decreased primarily due to units
purchased under the NCIB and the redemption of both restricted and deferred units.
Secured Mortgages and Loans to GBV and Total Long-term Debt and Credit Facilities to GBV Ratios
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
GBV
Secured mortgages and loans
$
4,867,756
$
5,336,529
$
4,994,921
$
5,466,544
1,273,522
1,401,348
1,384,284
1,522,923
Secured mortgages and loans to GBV
26.2 %
26.3 %
27.7 %
27.9 %
Preferred shares liability
Carrying value of debentures
Credit facilities
$
610
$
622
$
610
$
498,919
624,461
449,331
886,522
498,919
624,461
622
449,331
886,522
Total long-term debt and credit facilities
$
2,397,512
$
2,737,823
$
2,508,274
$
2,859,398
Total long-term debt and credit facilities to GBV
49.3 %
51.3 %
50.2 %
52.3 %
Under the terms of the REIT's Declaration of Trust, the total indebtedness of the REIT is limited to 70% of GBV.
Unencumbered Assets to Unsecured Debt Ratios
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
Unencumbered assets
$
1,901,073 $
1,926,661
$
1,941,959 $
1,968,369
Senior unsecured debentures
Unsecured credit facilities
498,919
624,461
449,331
886,522
498,919
624,461
449,331
886,522
Total unsecured debt
$
1,123,380 $
1,335,853
$
1,123,380 $
1,335,853
Unencumbered assets to unsecured debt
1.69
1.44
1.73
1.47
2020 ANNUAL REPORT
38
ARTIS REAL ESTATE INVESTMENT TRUST
ASSETS
Investment Properties, Investment Properties Under Development and Investment Properties Held for Sale
The change in total investment properties is a result of the following:
Balance, December 31, 2019
Additions:
Capital expenditures
Investment properties
Investment properties under development
Capitalized interest (2)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Contributions to investments in joint ventures (3) (4)
Dispositions
Foreign currency translation loss
Fair value (loss) gain
Balance, December 31, 2020
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
$
4,943,224 $
306,051 $
5,249,275
28,931
69,082
2,680
12,466
4,923
20,216
(14,761)
(352,348)
(41,690)
(140,876)
49
22,443
99
2,452
973
4,730
14,761
(53,401)
(4,175)
18,257
28,980
91,525
2,779
14,918
5,896
24,946
—
(405,749)
(45,865)
(122,619)
$
4,531,847 $
312,239 $
4,844,086
(1) Adjustment to reflect investments in joint ventures on a Proportionate Share basis.
(2) During 2020, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 2.59%.
(3) On January 24, 2020, the REIT contributed development land to Park 8Ninety IV, a joint venture arrangement.
(4) On October 20, 2020, the REIT contributed development land to Park 8Ninety V, a joint venture arrangement.
Marwest Construction Ltd.
Marwest Construction Ltd. ("Marwest") is a significant vendor contracted for capital projects and tenant inducements. The REIT's former President and Chief Executive Officer
(retired effective December 31, 2020) is the sole director (not a beneficial shareholder) of a company that has a non-controlling ownership interest in Marwest.
Costs paid and accrued to Marwest include the following:
Capital expenditures
Tenant inducement additions
Year ended
December 31,
2019
65,832
5,775
2020
63,831
$
4,118
67,949
$
71,607
$
$
Capital expenditures paid and accrued to Marwest in 2020 included $54,846 (2019 - $53,140) related to the 300 Main and 330 Main commercial and residential/multi-family
development projects located in Winnipeg, Manitoba. Included in costs paid and accrued to Marwest in 2020 were construction management fees of $2,146 and labour costs
of $4,997 (2019 - $2,765 and $3,457, respectively).
ARTIS REAL ESTATE INVESTMENT TRUST
39
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Capital Expenditures by Type (1)
Building improvements are capital expenditures that increase the long-term value or revenue generating potential of the property. These expenditures include costs to
modernize or upgrade existing properties. Property maintenance costs are capital expenditures to repair or replace components of existing properties such as roofs, HVAC
units and parking lots.
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
%
Change
New and (re)development expenditures
$
23,514 $
15,441 $
8,073
$
91,525 $
126,790 $
(35,265)
Building improvements expenditures:
Recoverable from tenants
Non-recoverable
Property maintenance expenditures:
Recoverable from tenants
Non-recoverable
1,615
4,765
1,688
531
3,434
5,396
(1,819)
(631)
3,741
13,524
8,504
19,329
(4,763)
(5,805)
6,023
803
(4,335)
(272)
6,760
4,955
13,550
4,576
(6,790)
379
Total capital expenditures
$
32,113 $
31,097 $
1,016
3.3 % $
120,505 $
172,749 $
(52,244)
(30.2) %
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
Capital Expenditures by Asset Class (1)
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Retail
Total portfolio:
Industrial
Office
Retail
Residential
Total portfolio
Three months ended
December 31,
%
Year ended
December 31,
%
2020
2019
Change
Change
2020
2019
Change
Change
$
1,311 $
1,826 $
(515)
$
4,142
$
5,920 $
(1,778)
2,627
672
14,210
18,820
5,075
8,218
—
13,293
6,386
10,845
672
14,210
6,836
5,162
10,971
24,795
2,443
3,830
29
6,302
4,269
10,666
5,191
10,971
(4,209)
(4,490)
3,239
(5,975)
2,632
4,388
(29)
6,991
2,117
179
(4,519)
3,239
8,203
9,973
53,159
75,477
25,509
19,519
—
45,028
29,651
27,722
9,973
53,159
15,429
9,952
51,631
82,932
66,983
22,805
29
(7,226)
21
1,528
(7,455)
(41,474)
(3,286)
(29)
89,817
(44,789)
72,903
38,234
9,981
51,631
(43,252)
(10,512)
(8)
1,528
$
32,113 $
31,097 $
1,016
3.3 % $ 120,505
$
172,749 $
(52,244)
(30.2) %
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
In 2020, new and (re)development expenditures included $53,159 for 300 Main, $10,554 for Park 8Ninety IV, $4,929 for Tower Business Center, $4,847 for 330 Main, $3,233 for
Linden Ridge Shopping Centre II, and $2,572 for Park 8Ninety V.
In 2019, new and (re)development expenditures included $51,631 for 300 Main, $25,329 for Park 8Ninety II, $13,752 for Tower Business Center, $13,570 for Cedar Port I and
$2,189 for 330 Main.
2020 ANNUAL REPORT
40
ARTIS REAL ESTATE INVESTMENT TRUST
Leasing Costs by Type (1)
Tenant inducements consist of costs incurred to improve the space that primarily benefit the tenant, as well as allowances paid to tenants. Leasing commissions are fees
primarily paid to brokers.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
%
Change
Investment property leasing costs:
Tenant inducements
Leasing commissions
Investment property (re)development related leasing
costs:
Tenant inducements
Leasing commissions
$
11,821 $
9,606 $
2,215
$
42,835 $
38,412 $
4,423
3,536
3,949
(413)
12,069
15,415
(3,346)
575
936
2,676
2,979
(2,101)
(2,043)
7,951
2,849
10,747
4,964
(2,796)
(2,115)
Total leasing costs
$
16,868 $
19,210 $
(2,342)
(12.2) %
$
65,704 $
69,538 $
(3,834)
(5.5) %
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
Leasing Costs by Asset Class (1)
Three months ended
December 31,
2020
2019
Change
%
Change
Year ended
December 31,
2020
2019
Change
%
Change
Canada:
Industrial
Office
Retail
U.S.:
Industrial
Office
Retail
Total portfolio:
Industrial
Office
Retail
$
1,211 $
1,014 $
197
$
4,521 $
4,362 $
159
2,475
1,229
4,915
2,049
9,904
—
4,458
632
6,104
5,708
7,115
283
11,953
13,106
3,260
12,379
1,229
6,722
11,573
915
(1,983)
597
(1,189)
(3,659)
2,789
(283)
(1,153)
(3,462)
806
314
11,374
4,197
20,092
7,287
38,325
—
45,612
11,808
49,699
4,197
16,975
4,240
25,577
17,493
25,986
482
43,961
21,855
42,961
4,722
(5,601)
(43)
(5,485)
(10,206)
12,339
(482)
1,651
(10,047)
6,738
(525)
Total leasing costs
$
16,868 $
19,210 $
(2,342)
(12.2) %
$
65,704 $
69,538 $
(3,834)
(5.5) %
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
In 2020, tenant inducements related to new and (re)developments included $4,354 for two office tenants in the Twin Cities Area, Minnesota and $1,525 for industrial tenants in
the Greater Houston Area, Texas.
Dispositions:
During 2020, Artis sold one industrial property, seven office properties, three retail properties and one parcel of development land in Canada, and two office properties (one
of which held under a joint venture arrangement) and one parcel of development land in the U.S. Also during 2020, two parcels of development land were contributed to
joint venture arrangements with the co-owners' share recorded as dispositions. The aggregate sale proceeds of the dispositions were $433,477. The sale proceeds, net of
costs of $19,240, note receivables of $13,192 and related debt of $142,240, were $258,805.
Foreign currency translation loss on investment properties:
In 2020, the Proportionate Share foreign currency translation loss on investment properties was $45,865 due to the change in the period end US dollar to Canadian dollar
exchange rate from 1.2988 at December 31, 2019 to 1.2732 at December 31, 2020.
Investment properties held for sale:
At December 31, 2020, the REIT had one office property and two retail properties located in Canada and one office property and one industrial property (held under a joint
venture arrangement) located in the U.S., with a fair value of $135,302, classified as held for sale. These properties were listed for sale with external brokers or under
unconditional sale agreements at December 31, 2020.
Completed new development properties:
In 2020, Artis completed construction of 330 Main, Linden Ridge Shopping Centre II, and Park 8Ninety IV, as discussed in the Portfolio Summary section of this MD&A.
ARTIS REAL ESTATE INVESTMENT TRUST
41
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Fair value (loss) gain on investment properties:
During 2020, the REIT recorded a loss on the Proportionate Share fair value of investment properties of $122,619 (Q4-20 - gain of $7,316), compared to a loss of $63,026
(Q4-19 - loss of $20,115) in 2019 The fair value loss in 2020 was primarily due to reflecting an increase in the estimated vacancy allowances and capitalization rates, and
decrease in market rents, across the retail and office portfolios due to the economic impacts of the COVID-19 pandemic, partially offset by higher expected market rents in
the industrial portfolio.
Artis determines the fair value of investment properties based upon either the discounted cash flow method or the overall capitalization method. Capitalization rates are
estimated using market surveys, available appraisals and market comparables. Under the overall capitalization method, year one income is stabilized and capitalized at a rate
deemed appropriate for each investment property. Individual properties were valued using capitalization rates in the range of 3.75% to 9.25%. Additional information on the
average capitalization rates and ranges used for the portfolio properties, assuming all properties were valued using an overall capitalization method, are set out in the
following table.
Industrial:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canadian industrial portfolio
Arizona
Colorado
Minnesota
Texas
Total U.S. industrial portfolio
December 31, 2020
December 31, 2019
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
7.75 %
4.00 %
7.50 %
5.25 %
7.00 %
7.75 %
6.25 %
5.00 %
7.75 %
7.00 %
7.75 %
5.75 %
3.75 %
6.00 %
4.25 %
6.50 %
3.75 %
5.25 %
4.00 %
5.50 %
5.50 %
4.00 %
6.52 %
3.84 %
6.57 %
4.76 %
6.76 %
5.50 %
5.59 %
4.26 %
6.55 %
5.66 %
5.93 %
7.50 %
4.00 %
7.50 %
5.25 %
7.50 %
7.50 %
6.25 %
5.00 %
7.75 %
7.00 %
7.75 %
5.50 %
3.75 %
6.00 %
3.75 %
6.25 %
3.75 %
5.75 %
4.75 %
5.50 %
5.50 %
4.75 %
6.46 %
3.84 %
6.58 %
4.61 %
6.82 %
5.52 %
6.01 %
4.83 %
6.53 %
5.67 %
6.09 %
Total industrial portfolio
7.75 %
3.75 %
5.68 %
7.75 %
3.75 %
5.76 %
Office:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canadian office portfolio
Arizona
Colorado
Minnesota
New York
Wisconsin
Total U.S. office portfolio
9.00 %
5.50 %
7.75 %
7.00 %
7.50 %
9.00 %
8.00 %
6.50 %
7.50 %
7.75 %
7.75 %
8.00 %
6.50 %
5.00 %
5.00 %
5.50 %
7.50 %
5.00 %
6.00 %
6.00 %
6.25 %
7.75 %
7.00 %
6.00 %
7.87 %
5.12 %
6.06 %
6.09 %
7.50 %
6.18 %
6.68 %
6.09 %
6.78 %
7.75 %
7.55 %
6.91 %
9.00 %
5.50 %
7.75 %
7.00 %
7.00 %
9.00 %
8.00 %
6.50 %
7.75 %
7.75 %
8.00 %
8.00 %
6.50 %
4.75 %
5.00 %
5.50 %
7.00 %
4.75 %
6.00 %
6.00 %
6.00 %
7.75 %
7.00 %
6.00 %
8.38 %
4.94 %
6.12 %
6.47 %
7.00 %
6.58 %
6.67 %
6.08 %
6.92 %
7.75 %
7.57 %
6.96 %
Total office portfolio
9.00 %
5.00 %
6.61 %
9.00 %
4.75 %
6.77 %
Retail:
Alberta
British Columbia
Manitoba
Saskatchewan
Total Canadian retail portfolio
8.75 %
N/A
6.25 %
9.25 %
9.25 %
5.75 %
N/A
5.50 %
6.25 %
5.50 %
6.78 %
N/A
6.11 %
7.37 %
6.73 %
8.75 %
5.25 %
6.25 %
8.25 %
8.75 %
5.50 %
5.25 %
5.50 %
6.00 %
5.25 %
6.64 %
5.25 %
6.13 %
6.85 %
6.53 %
Total retail portfolio
9.25 %
5.50 %
6.73 %
8.75 %
5.25 %
6.53 %
Total:
Canadian portfolio
U.S. portfolio
Total portfolio
9.25 %
8.00 %
3.75 %
4.00 %
6.09 %
6.52 %
9.00 %
8.00 %
3.75 %
4.75 %
6.23 %
6.63 %
9.25 %
3.75 %
6.26 %
9.00 %
3.75 %
6.38 %
2020 ANNUAL REPORT
42
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Inventory Properties
At December 31, 2020, inventory properties included one industrial property. The REIT is undergoing the conversion of this property into commercial condominium units. At
December 31, 2020, commercial condominium units representing 85.8% of the total square footage of the converted complex were under conditional sale agreements.
Subsequent to December 31, 2020, a condominium corporation was registered for the property and the REIT closed on the sales of a number of condominium units.
Notes Receivable
On September 27, 2019, the REIT disposed of 415 Yonge Street and received as partial consideration a note receivable in the amount of $79,000. On September 30, 2020, this
note receivable was repaid in full.
On January 30, 2020, the REIT disposed of TransAlta Place and sold the outstanding note receivable in the amount of $8,372 as part of the disposition.
On January 31, 2020, the REIT disposed of 800 5th Avenue and received as partial consideration a note receivable in the amount of $10,000. The REIT receives monthly
interest-only payments at a rate of 5.00% per annum. The note receivable is secured by the office property and matures in January 2024.
On November 9, 2020, the REIT disposed of 801 Carlson development land and received as partial consideration a note receivable in the amount of US$2,450. The note bears
interest at a rate of 4.00% per annum and interest and principal are due on maturity in November 2024. The note receivable is secured by a portion of the development land.
The balance outstanding on all notes receivable at December 31, 2020 was $21,684, compared to $97,828 at December 31, 2019.
Accounts Receivable and Other Receivables
Due to government-mandated capacity limitations and temporary closures of non-essential businesses as a result of the COVID-19 pandemic, a number of tenants, primarily
retail tenants, have had to limit operations. The REIT granted deferred rents for certain qualifying tenants for the months of April to December 2020 with an agreement to
repay at a specified later date.
Additional information regarding rents receivable, deferred rents receivable and the allowance for doubtful accounts for the portfolio of properties is set out in the following
tables.
Rents Receivable by Asset Class
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total portfolio
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
863 $
972
$
863 $
1,140
1,590
3,593
451
1,616
2,067
1,314
2,756
1,590
3,533
743
5,248
912
1,948
2,860
1,884
5,481
743
1,140
1,590
3,593
487
1,632
2,119
1,350
2,772
1,590
$
5,660 $
8,108
$
5,712 $
972
3,533
743
5,248
1,486
1,959
3,445
2,458
5,492
743
8,693
ARTIS REAL ESTATE INVESTMENT TRUST
43
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Deferred Rents Receivable by Asset Class
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total portfolio
Allowance for Doubtful Accounts by Asset Class
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total portfolio
Cash
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
481 $
1,302
2,887
4,670
30
201
231
511
1,503
2,887
—
—
—
—
—
—
—
—
—
—
$
481 $
1,302
2,887
4,670
84
234
318
565
1,536
2,887
$
4,901 $
—
$
4,988 $
—
—
—
—
—
—
—
—
—
—
—
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
(281) $
(15)
$
(281) $
(263)
(1,092)
(1,636)
(12)
(341)
(353)
(293)
(604)
(1,092)
—
(295)
(310)
—
(96)
(96)
(15)
(96)
(295)
(263)
(1,092)
(1,636)
(12)
(343)
(355)
(293)
(606)
(1,092)
$
(1,989) $
(406)
$
(1,991) $
(15)
—
(295)
(310)
—
(96)
(96)
(15)
(96)
(295)
(406)
At December 31, 2020, the REIT had $34,703 of cash on hand, compared to $42,455 at December 31, 2019. The balance is anticipated to be invested in investment properties
in subsequent periods, used for working capital purposes, for debt repayment or for unit purchases under the NCIB. All of the REIT's cash is held in current accounts.
2020 ANNUAL REPORT
44
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
LIABILITIES
Mortgages and Loans Payable
Artis finances acquisitions and development projects in part through the arrangement or assumption of mortgage financing and consequently, certain of the REIT's
investment properties are pledged as security under mortgages and other loans. The weighted-average term to maturity on all mortgages and loans payable, on a
Proportionate Share basis, at December 31, 2020 was 2.3 years, compared to 2.4 years at December 31, 2019.
At December 31, 2020, Artis had mortgages and loans payable outstanding, as follows:
Canadian Portfolio:
Fixed rate mortgages
Variable rate mortgages:
Hedged
Unhedged
Net above- and below-market mortgage adjustments
Financing costs
U.S. Portfolio:
Fixed rate mortgages
Variable rate mortgages:
Hedged
Unhedged
Net above- and below-market mortgage adjustments
Financing costs
Total Canadian and U.S. Portfolio:
Fixed rate mortgages
Variable rate mortgages:
Hedged
Unhedged
Net above- and below-market mortgage adjustments
Financing costs
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
334,626 $
376,010
$
366,242 $
408,718
91,765
16,136
—
(1,128)
108,927
72,300
(43)
(1,491)
91,765
16,136
—
(1,187)
108,927
72,300
(43)
(1,563)
$
441,399 $
555,703
$
472,956 $
588,339
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
70,987 $
73,855
$
81,889 $
85,269
381,640
380,123
2,423
(3,050)
271,802
500,507
3,213
(3,732)
381,640
449,396
2,423
(4,020)
271,802
578,660
3,213
(4,360)
$
832,123 $
845,645
$
911,328 $
934,584
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
405,613
$
449,865
$
448,131
$
493,987
473,405
396,259
2,423
(4,178)
380,729
572,807
3,170
(5,223)
473,405
465,532
2,423
(5,207)
380,729
650,960
3,170
(5,923)
% of unhedged variable rate mortgage debt of total debt, including credit facilities
and debentures
16.5 %
20.9 %
18.5 %
22.7 %
$
1,273,522
$
1,401,348
$
1,384,284
$
1,522,923
Management believes that holding a percentage of variable rate debt is prudent in managing a portfolio of debt and provides the benefit of lower interest rates, while
keeping the overall risk at a moderate level. All of the REIT's variable rate mortgage debt is term debt and cannot be called on demand. The REIT has the ability to refinance,
or use interest rate swaps, at any given point without incurring penalties.
ARTIS REAL ESTATE INVESTMENT TRUST
45
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
The change in total mortgages and loans payable is a result of the following:
Per
consolidated
financial
statements
Adjustment (1)
Total
Proportionate
Share
Balance, December 31, 2019
$
1,403,401
$
122,275
$
1,525,676
Add (deduct):
Draws on variable rate construction loans
Uplift upon renewal of maturing mortgages
Repayment of variable rate mortgages related to sale of investment properties
Repayment of fixed rate mortgages related to the sale of investment properties
Repayment of swapped mortgage related to the sale of investment property
Repayment of maturing fixed rate mortgage
Principal repayments
Foreign currency translation gain
—
58,031
(30,475)
(68,690)
(11,108)
(19,711)
(37,930)
(18,241)
24,587
—
(31,968)
—
—
—
(1,395)
(1,708)
24,587
58,031
(62,443)
(68,690)
(11,108)
(19,711)
(39,325)
(19,949)
Balance, December 31, 2020
$
1,275,277
$
111,791
$
1,387,068
(1) Adjustment to reflect investments in joint ventures on a Proportionate Share basis.
During 2020, the REIT renewed three maturing fixed rate mortgages in the aggregate amount of $50,874, renewed four maturing variable rate mortgages in the amount of
$81,761 and renewed one previously hedged mortgage at a variable rate in the amount of $48,025.
Additionally, during 2020, Artis entered into interest rate swap agreements for eight mortgages in the aggregate amount of US$139,299, effectively fixing the interest rate at a
weighted-average rate of 2.56%.
Mortgages and Loans Payable by Asset Class
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total portfolio
IFRS
Proportionate Share
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
60,546 $
83,276
$
92,162 $
153,495
228,486
442,527
253,748
579,002
832,750
314,294
732,497
228,486
242,959
231,002
557,237
233,784
612,380
846,164
317,060
855,339
231,002
153,495
228,486
474,143
323,022
589,903
912,925
415,184
743,398
228,486
115,984
242,959
231,002
589,945
285,322
650,409
935,731
401,306
893,368
231,002
$
1,275,277 $
1,403,401
$
1,387,068 $
1,525,676
Senior Unsecured Debentures
At December 31, 2020, Artis had two series of senior unsecured debentures outstanding, as follows:
Issued
Maturity
December 31, 2020
December 31, 2019
Interest rate
Carrying
value
Face
value
Carrying
value
Face
value
Series B
Series C
Series D
February 7, 2018
February 22, 2019
February 7, 2020
February 22, 2021
September 18, 2020
September 18, 2023
3.354 %
3.674 %
3.824 %
—
249,920
248,999
—
250,000
250,000
199,959
249,372
—
200,000
250,000
—
$
498,919 $
500,000
$
449,331 $
450,000
2020 ANNUAL REPORT
46
ARTIS REAL ESTATE INVESTMENT TRUST
At December 31, 2020, the carrying value of the senior unsecured debentures increased $49,588 compared to December 31, 2019. The change is primarily due to the
issuance of the Series D senior unsecured debentures on September 18, 2020, partially offset by the repayment of the Series B senior unsecured debentures on February 7,
2020.
Subsequent to December 31, 2020, the REIT repaid the Series C senior unsecured debentures upon maturity and funded the repayment using funds drawn on the revolving
credit facilities.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Credit Facilities
Revolving Credit Facilities
The REIT has unsecured revolving credit facilities in the aggregate amount of $700,000. The first tranche of the revolving credit facilities in the amount of $400,000 matures on
December 14, 2021. The second tranche of the revolving credit facilities in the amount of $300,000 matures on April 29, 2023. The REIT can draw on the revolving credit
facilities in Canadian or US dollars. Amounts drawn on the revolving credit facilities in Canadian dollars bear interest at the bankers' acceptance rate plus 1.70% or at prime
plus 0.70%. Amounts drawn on the revolving credit facilities in US dollars bear interest at LIBOR plus 1.70% or at the U.S. base rate plus 0.70%. At December 31, 2020, there
was $125,617 drawn on these facilities (December 31, 2019, $588,111).
Non-Revolving Credit Facilities
On February 6, 2020, the REIT entered into a new unsecured non-revolving term credit facility agreement in the amount of $200,000, which matures February 4, 2022.
Amounts drawn on this non-revolving credit facility bear interest at 2.22%. The REIT drew the full balance on the credit facility and used the proceeds for the repayment of the
Series B debentures.
Additionally, the REIT has two unsecured non-revolving credit facilities in the aggregate amount of $300,000. The first non-revolving credit facility of $150,000 matures on July
6, 2022 and the second non-revolving credit facility of $150,000 matures on July 18, 2022. Amounts drawn on the non-revolving credit facilities bear interest at 3.57% and
3.50%, respectively.
At December 31, 2020, there was $500,000 drawn on the non-revolving credit facilities (December 31, 2019, $300,000).
Other Current Liabilities
Included in other current liabilities were accounts payable and other liabilities and security deposits and prepaid rent. Included in accounts payable and other liabilities were
accrued distributions payable to unitholders of $7,485, which were paid subsequent to the end of the year.
UNITHOLDERS' EQUITY
Unitholders' equity decreased overall by $136,856 between December 31, 2019 and December 31, 2020. The decrease was primarily due to distributions made to unitholders
of $99,745 and common units of $48,601 and preferred units of $2,682 purchased through the NCIB, partially offset by the related contributed surplus of $15,991 and other
comprehensive loss of $27,817. The overall decrease was partially offset by net income of $21,543 and the issuance of common units for $4,455.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations represents the primary source of funds for distributions to unitholders and principal repayments on mortgages and loans.
DISTRIBUTIONS
The Trustees determine the level of cash distributions based on the level of cash flow from operations before working capital changes, less actual and planned capital
expenditures. During the period, distributions are based on estimates of full year cash flow and capital spending; thus, distributions may be adjusted as these estimates
change. It is expected that normal seasonal fluctuations in working capital will be funded from cash resources.
Cash flow from operations
Net income
Distributions declared
(Shortfall) excess of cash flow from operations over distributions declared
Excess (shortfall) of net income over distributions declared
Three months ended
Year ended
Year ended
Year ended
December 31,
December 31,
December 31,
December 31,
2020
2020
2019
$
21,465 $
176,333
$
200,120 $
32,424
22,747
(1,282)
9,677
21,543
91,074
85,259
(69,531)
122,737
96,332
103,788
26,405
2018
209,601
158,636
173,408
36,193
(14,772)
Artis' primary objective is to provide tax-efficient monthly cash distributions. The shortfall of cash flow from operations over distributions declared for the three months ended
December 31, 2020, is primarily due to the non-recurring proxy matter expenses in Q4-20. The shortfall of net income over distributions declared during 2020 was primarily
due to the non-cash impact of the fair value loss on investment properties.
CAPITAL RESOURCES
At December 31, 2020, Artis had $34,703 of cash on hand. Management anticipates that the cash on hand may be invested in the REIT's portfolio of investment properties in
subsequent periods, used for working capital purposes, for debt repayment or for unit purchases under the NCIB.
The REIT has two unsecured revolving term credit facilities in the aggregate amount of $700,000, which can be utilized for general corporate and working capital purposes,
short term financing of investment property acquisitions and the issuance of letters of credit. At December 31, 2020, the REIT had $574,383 available on its revolving term
credit facilities. Under the terms of the revolving credit facilities, the REIT must maintain a minimum unencumbered property assets to consolidated unsecured indebtedness
ratio of 1.4. As at December 31, 2020, this covenant limits the total borrowing capacity of the revolving credit facilities to $388,163.
At December 31, 2020, the REIT had 100 unencumbered properties and three unencumbered parcels of development land, inclusive of properties held in joint venture
arrangements, representing a Proportionate Share fair value of $1,941,959.
ARTIS REAL ESTATE INVESTMENT TRUST
47
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Artis is not in default or arrears on any of its obligations, including distributions to unitholders, interest or principal payments on debt at December 31, 2020.
The REIT's mortgage providers have various financial covenants. The REIT monitors these covenants, which are primarily debt service coverage ratios. Mortgages and loans
payable with maturities within 12 months or are payable on demand as a result of a financial covenant breach are classified as current liabilities.
The REIT's management expects to meet all of its short-term obligations and capital commitments with respect to investment properties and new developments in process
through funds generated from operations, from the proceeds of mortgage financing, drawing on unsecured credit facilities, from the issuance of new debentures or units and
from cash on hand.
The financial impact and duration of the COVID-19 pandemic is currently unknown. The REIT is committed to prudently manage capital resources during this unprecedented
and uncertain time. Refer to Risks section of this MD&A for discussion of risks related to the COVID-19 pandemic and how they may impact capital resources.
DEBT METRICS
Adjusted EBITDA Interest Coverage Ratio (1)
Net income
Add (deduct):
Tenant inducements amortized to revenue
Straight-line rent adjustments
Interest expense
Fair value (gain) loss on investment properties
Foreign currency translation gain
Transaction costs
Proxy matter expenses
Strategic initiative expenses
Fair value (gain) loss on derivative instruments and other transactions
Depreciation of property and equipment
Income tax expense
Adjusted EBITDA
Interest expense
Add (deduct):
Amortization of financing costs
Amortization of above- and below-market mortgages, net
Accretion on liability component of debentures
Three months ended
December 31,
Year ended
December 31,
2020
2019
2020
2019
$
32,424 $
32,877
$
21,543 $
122,737
6,592
(1,553)
21,182
(7,316)
(3,105)
—
17,423
810
(265)
397
146
6,427
(1,858)
27,405
20,115
(4,804)
84
—
937
(105)
301
605
25,840
(5,896)
90,667
122,619
(530)
—
17,423
4,029
16,538
1,422
733
24,136
(7,009)
113,181
63,026
(10,668)
301
—
1,358
16,379
1,130
1,816
66,735
81,984
294,388
326,387
21,182
27,405
90,667
113,181
(1,080)
183
—
(1,049)
185
—
(4,225)
752
—
(4,071)
434
51
Adjusted interest expense
$
20,285 $
26,541
$
87,194 $
109,595
Adjusted EBITDA interest coverage ratio
3.29
3.09
3.38
2.98
Debt to Adjusted EBITDA Ratio (1)
Secured mortgages and loans
Preferred shares liability
Carrying value of debentures
Credit facilities
Total long-term debt and credit facilities
Adjusted EBITDA (2)
Total long-term debt and credit facilities to Adjusted EBITDA
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
(2) Adjusted EBITDA, as calculated for the quarter under Adjusted EBITDA Interest Coverage Ratio, has been annualized for purposes of the Debt to Adjusted EBITDA ratio calculation.
December 31,
2020
December 31,
2019
$
1,384,284 $
1,522,923
610
498,919
624,461
622
449,331
886,522
2,508,274
2,859,398
266,940
327,936
9.4
8.7
2020 ANNUAL REPORT
48
ARTIS REAL ESTATE INVESTMENT TRUST
CONTRACTUAL OBLIGATIONS (1)
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Total
Less than
1 year
1 - 3 years
4 - 5 years
After
5 years
Accounts payable and other liabilities
$
110,466
110,466 $
— $
— $
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
1,419
625,617
500,000
1,387,068
206
95,617
250,000
467,276
369
530,000
250,000
654,214
311
—
—
200,422
65,156
—
533
—
—
Total contractual obligations
$
2,624,570 $
923,565 $
1,434,583 $
200,733 $
65,689
The REIT's schedule of mortgage maturities is as follows:
Year ended December 31,
Debt maturities
% of total
principal
Scheduled
principal
repayments on
non-matured debt
Total annual
principal
repayments
Weighted-
average nominal
interest rate on
balance due at
maturity
2021
2022
2023
2024
2025
2026 & later
Total
$
438,689
188,924
427,857
82,864
104,840
51,831
33.9 % $
14.6 %
33.0 %
6.4 %
8.1 %
4.0 %
28,587 $
22,475
14,958
7,778
4,940
13,325
467,276
211,399
442,815
90,642
109,780
65,156
$
1,295,005
100.0 % $
92,063 $
1,387,068
2.63 %
3.38 %
3.22 %
2.30 %
3.47 %
2.57 %
2.98 %
(1) Information is presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
ARTIS REAL ESTATE INVESTMENT TRUST
49
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
SUMMARIZED QUARTERLY INFORMATION
$000's, except per unit amounts
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
Q3-19
Q2-19
Q1-19
Revenue
Net operating income
Net income (loss)
Total comprehensive (loss) income
Basic income (loss) per common unit
Diluted income (loss) per common unit
FFO (1)
FFO per unit (1)
FFO payout ratio (1)
AFFO (1)
AFFO per unit (1)
AFFO payout ratio (1)
Same Property NOI (decline) growth (1) (2)
Adjusted EBITDA interest coverage
ratio (1) (2)
Leasable area renewed (in square feet) (3)
(Decrease) increase in weighted-average
rental rate (3)
$ 113,010
$ 113,328
$ 114,038
$ 118,541
$ 127,180
$ 127,005
$ 133,928
$ 133,547
64,967
32,424
(32,479)
0.21
0.21
68,017
45,699
15,250
0.30
0.30
67,139
69,152
54,750
(111,330)
(3,242)
14,197
0.37
0.36
(0.84)
(0.85)
75,121
32,877
4,097
0.21
0.20
75,724
44,632
80,533
19,872
78,478
25,356
62,238
(10,758)
(4,508)
0.28
0.28
0.10
0.10
0.13
0.13
$ 45,796
$ 50,816
$ 49,358
$ 46,441
$ 51,602
$ 48,603
$ 51,909
$ 50,284
0.34
41.2 %
0.37
37.8 %
0.36
38.9 %
0.33
42.4 %
0.37
37.8 %
0.34
41.2 %
0.36
38.9 %
0.34
41.2 %
$ 31,721
$ 37,671
$ 36,499
$ 33,661
$ 37,772
$ 35,769
$ 39,370
$ 37,607
0.23
60.9 %
0.27
51.9 %
0.27
51.9 %
0.24
58.3 %
0.27
51.9 %
0.25
56.0 %
0.27
51.9 %
0.25
56.0 %
(5.2) %
(1.2) %
(2.0) %
1.5 %
3.3 %
2.0 %
4.6 %
5.1 %
3.29
3.66
3.50
3.11
3.09
2.86
3.00
2.96
248,641
617,239
592,872
338,394
558,544
362,669
353,870
332,258
(0.5) %
6.0 %
(3.3) %
4.5 %
8.1 %
8.7 %
4.0 %
(1.9) %
2020
2020
2020
2020
2019
2019
2019
2019
Dec 31
Sept 30
Jun 30
Mar 31
Dec 31
Sept 30
Jun 30
Mar 31
Number of properties (2)
GLA (000's of square feet) (2)
Occupancy (3)
209
22,874
89.9 %
216
23,796
90.0 %
216
23,842
90.6 %
215
23,817
90.7 %
220
24,841
91.5 %
228
25,034
93.3 %
229
24,892
92.7 %
235
25,100
92.0 %
NAV per Unit (1)
$
15.03
$
15.35
$
15.40
$
15.52
$
15.56
$
15.72
$
15.37
$
15.55
Total long-term debt and credit facilities to Adjusted EBITDA (1) (2)
Secured mortgages and loans to GBV (1)
Total long-term debt and credit facilities to GBV (1)
9.4
26.2 %
49.3 %
9.3
26.6 %
51.0 %
9.5
27.0 %
51.3 %
9.3
26.9 %
51.4 %
8.7
26.3 %
51.3 %
9.3
26.9 %
51.8 %
8.8
28.3 %
51.2 %
9.2
28.8 %
50.9 %
Fair value unencumbered assets
$ 1,901,073 $ 1,929,858 $ 1,919,171 $ 1,845,983 $ 1,926,661 $ 1,877,339 $ 1,829,594 $ 1,867,277
Total assets
$ 4,859,841 $ 5,207,812 $ 5,236,565 $ 5,337,483 $ 5,330,019 $ 5,431,426 $ 5,540,373 $ 5,676,308
Total non-current financial liabilities
1,648,305
1,933,886
1,912,566
2,003,195
2,142,090
2,127,476
2,177,391
2,244,999
(1) Represents a non-GAAP measure. Refer to Notice with Respect to non-GAAP Measures section of this MD&A.
(2) Information presented on a Proportionate Share basis. Please refer to the Notice with Respect to non-GAAP Measures section of this MD&A.
(3) Based on properties included in the Portfolio Summary - Portfolio by Asset Class table.
The quarterly financial results have been impacted by acquisition, disposition and (re)development activity, the impact of foreign exchange, lease termination income,
transaction costs, proxy matter expenses, strategic initiative expenses, and the fair value gains and losses on investment properties and derivative instruments and other
transactions. The quarterly financial results have also been impacted by the ongoing COVID-19 pandemic.
Per unit results are also impacted by units purchased under the NCIB.
RELATED PARTY TRANSACTIONS
During 2020, the REIT paid employment benefits to employees and issued unit-based awards to trustees, officers and employees.
During 2020, the proxy matter expenses included reimbursements of advisory, legal and other out-of-pocket expenses incurred by Sandpiper Asset Management Inc. and
RFA Capital Partners Inc. in the amount of $1,383 and $42, respectively, relating to the settlement agreement between the REIT and Sandpiper. Sandpiper Asset
Management Inc. is a related party of the REIT by virtue of being a company under joint control of a Trustee and RFA Capital Partners Inc. is a related party by virtue of being
a company controlled by another Trustee.
2020 ANNUAL REPORT
50
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
SUBSEQUENT EVENTS
As at December 31, 2020, Artis had $34,703 of cash on hand and $574,383 available on its revolving term credit facilities. Under the terms of the revolving credit facilities, the
REIT must maintain certain financial covenants, which limit the total borrowing capacity of the revolving credit facilities to $388,163 at December 31, 2020.
Subsequent to December 31, 2020, the following transactions took place:
• The Park Lucero East partnership purchased a parcel of development land in the Greater Phoenix Area, Arizona. The purchase price at the REIT's 10% interest was US$970.
• The REIT acquired an additional 5% interest in Park 8Ninety IV, an industrial property located in the Greater Houston Area, Texas, for total consideration of US$1,510. Prior
to the acquisition date, the REIT owned 95% of this investment property and the property was classified as a joint venture.
• The REIT disposed of Tower Business Center, an industrial property located in the Greater Denver Area, Colorado, held in one of its joint venture arrangements. The sale
price of this property at the REIT's interest was US$53,160 and a portion of the proceeds was used to repay the outstanding mortgage financing of US$16,713 at the REIT's
interest.
• A condominium corporation was registered for the industrial property classified as inventory and the REIT closed on the sales of a number of condominium units for an
aggregate sale price of $9,425.
• The REIT entered into an unconditional sale agreement to sell a portion of a retail property located in Fort McMurray, Alberta for $4,600 with expected closing in April
2021.
• The REIT repaid a maturing mortgage for an office property in the amount of $12,978, repaid a maturing mortgage for a retail property in the amount of $5,405, repaid a
maturing mortgage for an industrial portfolio in the amount of US$7,366 and repaid a mortgage for an industrial property held under a joint venture arrangement at the
REIT's interest in the amount of US$7,360.
• The REIT received new mortgage financing on three previously unencumbered retail properties in the amount of $81,000.
• The REIT received new mortgage financing in the amount of $20,000 and repaid the existing mortgage in the amount of $10,944 for a retail property.
• The REIT made an interest payment for the Series C senior unsecured debentures in the amount of $4,593 for the six months ended February 22, 2021 and repaid the
principal balance upon maturity in the amount of $250,000.
• The REIT repaid a net balance of $30,000 and drew a net balance of US$159,500 on its revolving term credit facilities.
• The REIT purchased through the NCIB 1,064,346 common units at a weighted-average price of $10.68, 3,700 Series A preferred units at a weighted-average price of $19.51
and 6,624 Series E preferred units at a weighted-average price of $18.81.
• The REIT declared a monthly cash distribution of $0.04635 per common unit for the months of January and February 2021.
• The REIT declared a quarterly cash distribution of $0.3750 per Series I preferred unit for the three months ended January 31, 2021.
OUTSTANDING UNIT DATA
As of March 2, 2021, the balance of common units outstanding is as follows:
Units outstanding at December 31, 2020
Units issued on redemption of restricted units
Units issued on redemption of deferred units
Units purchased and cancelled through NCIB
Units outstanding at March 2, 2021
As of March 2, 2021, the balance of preferred units outstanding is as follows:
Total
134,643,175
1,929
12,953
(1,064,346)
133,593,711
Series A
Series E
Series I
Total
Preferred units outstanding at December 31, 2020
Preferred units purchased and cancelled through NCIB
3,356,200
3,788,098
4,965,540
12,109,838
(3,700)
(6,624)
—
(10,324)
Preferred units outstanding at March 2, 2021
3,352,500
3,781,474
4,965,540
12,099,514
The balance of restricted units outstanding as of March 2, 2021 is 416,429, none of which have vested.
The balance of deferred units outstanding as of March 2, 2021 is 80,983. All of these deferred units have vested, of which 20,890 are redeemable.
ARTIS REAL ESTATE INVESTMENT TRUST
51
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
RISKS AND UNCERTAINTIES
COVID-19 PANDEMIC
The COVID-19 pandemic has resulted in governments enacting emergency measures, including travel restrictions, physical distancing and the temporary closure of non-
essential businesses. These changes have caused a disruption to markets where the REIT operates in both Canada and the U.S. and an overall global economic slowdown.
Governments are reacting with significant interventions designed to stabilize economic conditions, however, the efficacy of these interventions remains unknown at this time.
As the situation is continually evolving, the duration and impact of the COVID-19 pandemic is unknown. Any estimate of the length and potential severity of the risks
associated with the COVID-19 pandemic is subject to significant uncertainty. The extent to which the COVID-19 pandemic may adversely affect the REIT’s operations,
financial results and capital resources in future periods is also subject to significant uncertainty. The REIT is faced with numerous risks related to the COVID-19 pandemic
which include, but are not limited to the following uncertainties:
•
•
•
•
•
•
•
•
estimates of the amount and timing of future cash flows generated from investment properties in the determination of fair value;
the REIT's ability to satisfy ongoing debt covenants due to changes in the REIT's liquidity and financial condition;
the collection of rents receivable due to economic challenges faced by tenants subject to temporary closures of non-essential businesses, particularly in the retail
segment;
the impact of additional government regulation in response to the COVID-19 pandemic;
delays, costs and availability of resources required to complete capital projects and ongoing developments in process and potential restrictions regarding the
commencement of new development projects;
market volatility and the associated challenges related to the ability to access capital;
the REIT's ability to refinance maturing mortgages; and
fair values of investment properties for disposed properties exceeding the mortgages payable for which the REIT has provided guarantees.
Any of these risks and uncertainties could have a material adverse effect on our operations, financial results and capital resources. Management seeks to mitigate risks
associated with the COVID-19 pandemic in a variety of ways:
•
•
•
•
•
management is working diligently with tenants to ensure the ongoing operation of their businesses and has provided rent deferrals to certain qualifying tenants;
management has implemented a plan to reduce expenses to conserve capital resources, including the delay of certain capital expenditures and is addressing the
potential to defer commencement of new development projects;
to help mitigate the spread of the virus, management has increased cleaning and sanitization at all properties and has implemented a remote work from home
policy for employees, where appropriate to do so;
management is actively monitoring the availability of government relief programs in both Canada and the U.S. that may be applicable to either the REIT or its
tenants; and
management continues to assess recommendations by the public health authorities and continues to closely monitor operations and will take further action, if
necessary, that are in the best interest of employees, tenants and stakeholders.
REAL PROPERTY OWNERSHIP
All real property investments are subject to elements of risk. General economic conditions, local real estate markets, supply and demand for leased premises, competition
from other available premises and various other factors affect such investments. The REIT's properties are located in five Canadian provinces and six U.S. states, with the
largest geographical segments, measured by Proportionate Share Property NOI, located in the province of Alberta and in the state of Minnesota. As a result, our investment
properties are impacted by factors specifically affecting their respective real estate markets. These factors may differ from those affecting the real estate markets in other
regions of Canada and the U.S.
DEVELOPMENTS
Artis is subject to numerous risks related to development projects including development costs exceeding original estimates, construction or other unforeseen timing delays
and development projects not be leased on a timely basis or at anticipated rates upon completion. These risks could impact the REIT’s liquidity, financial position and future
earning potential.
At December 31, 2020, investment properties under development account for 2.9% of Artis' total investment properties (December 31, 2019, 2.1%). At December 31, 2020,
the REIT had one development project in progress, 300 Main.
DEBT FINANCING AND INTEREST RATE FLUCTUATIONS
Artis will be subject to the risks associated with debt financing. There can be no assurance that Artis will be able to refinance its existing indebtedness on terms that are as or
more favourable to Artis as the terms of existing indebtedness. The inability to replace financing of debt on maturity would have an adverse impact on the financial condition
and results of Artis.
Management seeks to mitigate this risk in a variety of ways. First, management considers structuring the timing of the renewal of significant tenant leases on properties in
relation to the time at which mortgage indebtedness on such property becomes due for refinancing. Second, management seeks to secure financing from a variety of lenders
on a property by property basis. Third, mortgage terms are, where practical, structured such that the exposure in any one year to financing risks is balanced.
Artis is also subject to interest rate risk associated with the REIT's credit facilities, mortgages and debentures payable due to the expected requirement to refinance such
debts in the year of maturity. The REIT minimizes the risk by restricting debt to 70% of gross book value and by carefully monitoring the amount of variable rate debt. At
December 31, 2020, 31.8% of the REIT's mortgages and loans payable bear interest at fixed rates, and a further 37.1% of the REIT's mortgages and loans payable bear interest
at variable rates with interest rate swaps in place. At December 31, 2020, the REIT is a party to $1,495,281 of variable rate debt, including credit facilities (December 31, 2019,
$2,041,647). At December 31, 2020, the REIT had entered into interest rate swaps to hedge the interest rate risk associated with $973,405 of variable rate debt, including
credit facilities and debentures, (December 31, 2019, $880,729). The REIT has the ability to place interest rate swaps on top of variable rate debt at any time in order to
effectively fix the interest rate.
At December 31, 2020, the REIT's ratio of secured mortgages and loans to GBV was 26.2%, compared to 26.3% at December 31, 2019. At December 31, 2020, the REIT's ratio
of total long-term debt and credit facilities to GBV was 49.3%, compared to 51.3% at December 31, 2019. Approximately 31.8% of Artis' maturing mortgage debt comes up
for renewal in 2021, and 14.2% in 2022. Management is in discussion with various lenders with respect to the renewal or refinancing of the 2021 mortgage maturities.
2020 ANNUAL REPORT
52
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
FOREIGN CURRENCY
The REIT owns properties located in the U.S., and therefore, the REIT is subject to foreign currency fluctuations that may impact its financial position and results. In order to
mitigate a portion of this risk, the REIT's debt on U.S. properties is held in US dollars to act as a natural hedge.
TENANTS
Credit and Tenant Concentration
Artis is exposed to risks relating to tenants that may be unable to pay their contracted rents. Management mitigates this risk by acquiring and owning properties across
several asset classes and geographical regions. As well, management seeks to acquire properties with strong tenant covenants in place. Artis' portfolio includes 1,579 tenant
leases with a weighted-average term to maturity of 5.3 years. Approximately 50.8% of the REIT's gross revenue is derived from national or government tenants. As indicated
below, the largest tenant by gross revenue is Bell MTS Inc., which is one of Canada's leading national communication companies providing voice services, internet and data
services, and television. The second largest tenant by gross revenue is Graham Group Ltd., which provides construction management, general contracting, design build, and
public-private partnership services to industrial, commercial, and infrastructure sectors.
Tenant
Bell MTS Inc.
Graham Group Ltd.
AT&T
WorleyParsons Canada Services Ltd.
Bell Canada
Prime Therapeutics LLC
TDS Telecommunications Corporation
Catalent Pharma Solutions, LLC
CB Richard Ellis, Inc.
PBP, Inc.
Fairview Health Services
Choice Hotels International Services Corp.
Recipe Unlimited Corporation
Shoppers Drug Mart
3M Canada Company
UCare Minnesota
Silent Aire USA Inc.
Telephone and Data Systems Inc.
Co-Operators Financial Services Ltd.
Soo Line Railroad Company
Total
Tenant
Federal Government
Provincial Government
Civic or Municipal Government
Total
Top 20 Tenants by Gross Revenue (1)
Tenant location
% of total gross
revenue (2)
Owned share
of GLA
(000's of S.F.)
% of total GLA
Weighted-
average
remaining
lease term
Canada
U.S.
U.S.
Canada
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Canada
Canada
Canada
U.S.
U.S.
U.S.
Canada
U.S.
2.5 %
2.2 %
1.8 %
1.7 %
1.6 %
1.6 %
1.3 %
1.2 %
1.1 %
1.1 %
1.0 %
1.0 %
1.0 %
0.9 %
0.8 %
0.8 %
0.7 %
0.7 %
0.7 %
0.7 %
314
243
257
164
115
386
174
233
108
519
179
114
100
96
319
124
289
107
79
92
1.4 %
1.1 %
1.1 %
0.7 %
0.5 %
1.7 %
0.8 %
1.0 %
0.5 %
2.3 %
0.8 %
0.5 %
0.4 %
0.4 %
1.4 %
0.5 %
1.3 %
0.5 %
0.3 %
0.4 %
24.4 %
4,012
17.6 %
Government Tenants by Gross Revenue (1)
4.4
13.6
4.5
0.7
8.8
13.8
4.0
15.6
6.0
10.9
2.7
1.0
8.0
5.5
4.2
12.6
6.2
4.0
2.4
6.7
7.7
% of total
gross revenue (2)
Owned share
of GLA
(000's of S.F.)
% of total GLA
Weighted-
average
remaining
lease term
1.3 %
0.6 %
0.5 %
2.4 %
189
73
90
352
0.8 %
0.3 %
0.4 %
1.5 %
5.2
6.6
12.1
7.3
5.3
Weighted-average term to maturity (entire portfolio)
(1) Based on owned share of GLA of properties included in the Portfolio Summary - Portfolio by Asset Class table.
(2) Total gross revenue is in Canadian and US dollars.
Lease Rollover
The value of investment properties and the stability of cash flows derived from those properties is dependent upon the level of occupancy and lease rates in those properties.
Upon expiry of any lease, there is no assurance that a lease will be renewed on favourable terms, or at all; nor is there any assurance that a tenant can be replaced. A
contraction in the Canadian or U.S. economy would negatively impact demand for space in industrial, office and retail properties, consequently increasing the risk that leases
expiring in the near term will not be renewed.
ARTIS REAL ESTATE INVESTMENT TRUST
53
2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
Details of the portfolio's expiry schedule is as follows:
Expiry Year
AB
BC
MB
SK
ON
AZ
CO
MN
NY
TX
WI
Total
Canada
U.S.
2021
2022
2023
2024
2025
2026
2027 & later
Month-to-month
Vacant
New development/redevelopment
2.5 %
1.0 %
1.4 %
0.8 %
1.0 %
0.6 %
2.6 %
— %
2.3 %
— %
0.2 %
0.1 %
0.2 %
0.1 %
— %
0.1 %
0.7 %
— %
0.1 %
— %
3.3 %
1.5 %
1.7 %
1.7 %
1.5 %
1.6 %
3.0 %
0.1 %
2.1 %
— %
0.6 %
1.2 %
0.3 %
0.2 %
0.3 %
0.2 %
1.7 %
— %
0.3 %
— %
1.7 %
2.6 %
1.4 %
1.4 %
2.7 %
0.8 %
1.6 %
— %
0.4 %
0.2 %
1.1 %
0.6 %
0.6 %
0.5 %
1.2 %
0.6 %
2.5 %
— %
0.6 %
— %
0.5 %
0.3 %
0.2 %
0.1 %
1.3 %
— %
1.1 %
— %
0.9 %
— %
5.5 %
3.0 %
2.8 %
2.9 %
1.3 %
0.7 %
7.1 %
— %
1.5 %
— %
— %
— %
0.3 %
0.2 %
— %
— %
— %
— %
— %
— %
— %
0.6 %
— %
0.2 %
0.2 %
— %
5.2 %
— %
0.9 %
— %
0.7 %
0.4 %
0.5 %
1.7 %
0.4 %
0.9 %
2.0 %
— %
1.1 %
— %
16.1 %
11.3 %
9.4 %
9.8 %
9.9 %
5.5 %
27.5 %
0.1 %
10.2 %
0.2 %
Total
12.2 %
1.5 % 16.5 %
4.8 % 12.8 %
7.7 %
4.4 % 24.8 %
0.5 %
7.1 %
7.7 % 100.0 %
Artis' real estate is diversified across five Canadian provinces and six U.S. states, and across the industrial, office and retail asset classes. By city and asset class, the five largest
segments of the REIT's portfolio (by Q4-20 Proportionate Share Property NOI) are Twin Cities Area office, Twin Cities Area industrial, Madison office, Greater Toronto Area
industrial and Greater Phoenix Area office.
SIFT RULES AND OTHER TAX-RELATED FACTORS
The Income Tax Act (Canada) contains legislation affecting the tax treatment of a specified investment flow-through ("SIFT") trust or partnership ("the SIFT Rules"), which are
applicable to publicly traded income trusts unless the trust satisfies the REIT Exception. The REIT Exception to the SIFT Rules is comprised of a number of technical tests and
the determination as to whether the REIT qualifies for the REIT Exception in any particular taxation year can only be made with certainty at the end of the taxation year.
Management believes that the REIT has met the requirements of the REIT Exception in each taxation year since 2009 and that it has met the REIT Exception throughout the
year ended December 31, 2020 and the year ended December 31, 2019. There can be no assurances, however, that the REIT will continue to be able to satisfy the REIT
Exception in the future such that the REIT will not be subject to the tax imposed by the SIFT Rules.
The Tax Act also contains restrictions relating to the activities and the investments permitted by a mutual fund trust. Closed-end trusts must also comply with a number of
technical tests relating to its investments and income. No assurance can be given that the REIT will be able to continue to comply with these restrictions at all times.
The REIT operates in the United States through U.S. REITs, which are capitalized by the REIT by way of equity, debt in the form of notes owed to the REIT and preferred
shares. If the Internal Revenue Service or a court were to determine that the notes and related interest should be treated differently for tax purposes, this may adversely affect
the REIT's ability to flow income from the U.S. to Canada.
CYBER SECURITY
Cyber security has become an increasingly problematic issue for issuers and businesses in Canada and around the world, including for Artis and the real estate industry. Cyber
attacks against large organizations are increasing in sophistication and are often focused on financial fraud, compromising sensitive data for inappropriate use or disrupting
business operations. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of the organization's information
resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to information systems to disrupt
operations, corrupt data or steal confidential information.
As Artis' reliance on technology has increased, so have the risks posed to its system. Artis' primary risks that could directly result from the occurrence of a cyber incident
include operational interruption, damage to its reputation, damage to its business relationships with its tenants, disclosure of confidential information regarding its tenants,
employees and third parties with who Artis interacts, and may result in negative consequences, including remediation costs, loss of revenue, additional regulatory scrutiny and
litigation. These developments may subject Artis' operations to increased risks, as well as increased costs, and, depending on their magnitude, could have a material adverse
effect on Artis' financial position and results of operations.
The Board and management are responsible for overseeing Artis' cyber security risks. To remain resilient to these risks, Artis has implemented processes, procedures and
controls to help mitigate these risks, including installing firewalls and antivirus programs on its networks, servers and computers, and staff training. However, these measures,
as well as its increased awareness of a risk of a cyber incident, do not provide assurance that its efforts will be effective or that attempted security breaches or disruptions will
not be successful or damaging.
CRITICAL ACCOUNTING ESTIMATES
Artis REIT's management believes that the policies below are those most subject to estimation and judgment by management.
VALUATION OF INVESTMENT PROPERTIES
Investment properties include properties held to earn rental income and properties that are being constructed or developed for future use as investment properties.
Investment properties are measured at fair value with any changes therein recognized in net income or loss for the year. Artis determines the fair value of investment
properties, including those held under joint venture arrangements, based upon either the discounted cash flow method or the overall capitalization method. Under the
discounted cash flow method, expected future cash flows for each investment property were discounted, generally over a term of approximately 10 years, using weighted-
average rates of approximately 7.42% at December 31, 2020 and 7.55% at December 31, 2019. Expected future cash flows for each investment property have been based
upon, but not limited to, rental income from current leases, budgeted and actual expenses, and assumptions about rental income from future leases. Under the overall
capitalization method, year one income was stabilized and capped at weighted-average capitalization rates of approximately 6.30% at December 31, 2020 and 6.41% at
December 31, 2019.
Investment properties under development include initial acquisition costs, other direct costs and borrowing costs during the period of development. The REIT considers
practical completion to have occurred when all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
2020 ANNUAL REPORT
54
ARTIS REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The REIT measures loss allowance for rents receivable at the lifetime expected credit losses. In determining the expected credit losses, the REIT takes into account the
expectations of future defaults and rent abatements based on payment history, tenant communications and economic conditions, as well as the impact of COVID-19 on
tenant's ability to pay. As part of this assessment, the REIT reviews individual tenant risk profiles given the impact on tenant operations of COVID-19 restrictions imposed by
various levels of government.
VALUATION OF DEFERRED TAX ASSETS AND LIABILITIES
The REIT has reviewed the SIFT Rules (see discussion under the Tax Risk section of this MD&A) and has assessed their interpretation and application to the REIT's assets and
revenues. While there are uncertainties in the interpretation and application of the SIFT Rules, the REIT believes it has met the REIT Exception throughout the years ended
December 31, 2019 and 2020.
CHANGES IN ACCOUNTING STANDARDS
Revised Accounting Standard Adopted During the Year
The amendments to the definition of a business in IFRS 3 – Business Combinations help entities determine whether an acquired set of activities and assets is a business or not.
They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to
help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test.
The amendments are applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after January 1, 2020.
The amendments to IAS 1 and IAS 8 align the definition of "material" across the standards and clarify certain aspects of the definition. The new definition states that
information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. The adoption of the amendments to the
definition of material did not have a significant impact on the REIT's consolidated financial statements.
Future Changes in Accounting Standards
In January 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current.
The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period, specify that
classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability, explain that rights are in existence if covenants are
complied with at the end of the reporting period, and introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash,
equity instruments, other assets or services. The amendments are applied retrospectively for annual periods beginning on or after January 1, 2023, with early application
permitted. The REIT does not expect a material impact to its consolidated financial statements from the adoption of these amendments.
In May 2020, the IASB issued amendments to IFRS 3 Business Combinations. The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of
the 1989 Framework. The amendments also add to IFRS 3 a requirement that, for obligations within the scope of IAS 37, an acquirer applies IAS 37 to determine whether at
the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21 Levies, the acquirer applies IFRIC 21 to
determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. Finally, the amendments add an explicit statement
that an acquirer does not recognize contingent assets acquired in a business combination. The amendments are effective for business combinations for which the date of
acquisition is on or after the beginning of the first annual period beginning on or after January 1, 2022. The REIT does not expect a material impact to its consolidated
financial statements from the adoption of these amendments.
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The
amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an
allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after January 1, 2022. The REIT will apply
these amendments to contracts for which it has not yet fulfilled all its obligations on January 1, 2022 when it will first apply the amendments. The REIT does not expect a
material impact to its consolidated financial statements from the adoption of these amendments.
In August 2020, the IASB issued Interest Rate Benchmark Reform - Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 to address issues that might affect
financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. The amendments include a number of reliefs
and additional disclosures. For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in the contractual cash flows is as
a result of IBOR reform and occurs on an economically equivalent basis, the change will be accounted for by updating the effective interest rate with no immediate gain or
loss recognized. The amendments are effective for annual periods beginning on or after January 1, 2021, with earlier application permitted. The REIT is in the process of
assessing the impact of these amendments on its IBOR-based financial instruments.
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued an amendment to IFRS 9. The amendment clarifies the fees that an entity includes
when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only
those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the
amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment.
The amendment is effective for annual reporting periods beginning on or after January 1, 2022, with earlier adoption permitted. The REIT does not expect a material impact
to its consolidated financial statements from the adoption of this amendment.
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2020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
(In thousands of Canadian dollars, unless otherwise noted)
CONTROLS AND PROCEDURES
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The REIT's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS. Management is responsible for establishing and maintaining adequate internal controls over financial reporting.
All control systems have inherent limitations, and evaluation of a control system cannot provide absolute assurance that all control issues have been detected, including risks
of misstatement due to error or fraud. As a growing enterprise, management anticipates that the REIT will be continually evolving and enhancing its systems of controls and
procedures.
The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") evaluated, or caused to be evaluated, the design of the REIT's internal controls over financial
reporting (as defined in NI 52-109). Based on this evaluation, the CEO and CFO have concluded that, as at December 31, 2020, the design of our internal control over
financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance
with IFRS. No changes were made in the REIT's design of internal controls over financial reporting during the year ended December 31, 2020, that have materially affected, or
are reasonably likely to materially affect, the REIT's internal controls over financial reporting.
DISCLOSURE CONTROLS AND PROCEDURES
The REIT's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the REIT is recorded, processed,
summarized and reported within the time periods specified under Canadian securities laws, and include controls and procedures that are designed to ensure that information
is accumulated and communicated to management, including the CEO and CFO, to allow timely decisions regarding required disclosure.
As of December 31, 2020, an evaluation was carried out, under the supervision of and with the participation of management, including the CEO and CFO, of the effectiveness
of the REIT's disclosure controls and procedures (as defined in NI 52-109). Based on the evaluation, the CEO and CFO have concluded that the REIT's disclosure controls and
procedures were effective for the year ended December 31, 2020.
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
Management’s Responsibility for Financial Statements
The management of Artis Real Estate Investment Trust is responsible for the preparation and integrity of the consolidated
financial statements contained in the annual report. These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards and necessarily include some amounts that are based on
management’s best estimate and judgment. Management has determined such amounts on a reasonable basis and considers
that the consolidated financial statements present fairly the financial position of the REIT, the results of its operations and its
cash flows. Management has also prepared financial information presented elsewhere in the annual report and has ensured
that it is consistent with that in the consolidated financial statements. To fulfill its responsibility, management maintains internal
accounting controls and systems and establishes policies and procedures to ensure the reliability of financial information and to
safeguard assets.
The Board of Trustees is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal
control. The Board of Trustees carries out this responsibility principally through its Audit Committee, composed entirely of
outside and unrelated trustees. The Audit Committee meets regularly with management of the REIT and with the independent
auditors. The consolidated financial statements have been reviewed and approved by the Board of Trustees on the
recommendation of its Audit Committee.
The REIT’s independent auditor, Deloitte LLP, has been appointed by the unitholders to audit the consolidated financial
statements and express an opinion thereon.
“Samir Manji” “Jim Green”
Samir Manji Jim Green, CPA, CA
Interim Chief Executive Officer Chief Financial Officer
March 2, 2021 March 2, 2021
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2020 ANNUAL REPORT
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59
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ARTIS REAL ESTATE INVESTMENT TRUST
Consolidated Balance Sheets
ASSETS
Non-current assets:
Investment properties
Investment properties under development
Investments in joint ventures
Property and equipment
Notes receivable
Deferred rents receivable
Current assets:
Investment properties held for sale
Inventory properties
Deposits on investment properties
Prepaid expenses and other assets
Notes receivable
Accounts receivable and other receivables
Cash held in trust
Cash
Total assets
LIABILITIES AND UNITHOLDERS' EQUITY
Non-current liabilities:
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Other long-term liabilities
Current liabilities:
Mortgages and loans payable
Senior unsecured debentures
Security deposits and prepaid rent
Accounts payable and other liabilities
Credit facilities
Total liabilities
Unitholders' equity
Commitments, contingencies and guarantees
Subsequent events
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
December 31,
December 31,
Note
2020
2019
$
4,325,121
$
4,618,719
132,243
200,306
7,481
20,313
778
102,590
186,610
7,786
93,832
—
4,686,242
5,009,537
74,483
15,060
1,203
7,307
1,371
17,465
22,007
34,703
173,599
221,915
14,632
—
10,533
3,996
21,013
5,938
42,455
320,482
$
4,859,841
$
5,330,019
$
868,396
248,999
529,087
1,823
$
1,005,196
249,372
886,522
1,000
1,648,305
2,142,090
405,126
249,920
30,089
97,130
95,374
877,639
396,152
199,959
32,834
88,231
—
717,176
2,525,944
2,859,266
2,333,897
2,470,753
4
4
5
6
7
10
4
8
9
7
10
11
12
13
11
12
14
13
30
34
Total liabilities and unitholders' equity
$
4,859,841
$
5,330,019
See accompanying notes to consolidated financial statements.
ARTIS REAL ESTATE INVESTMENT TRUST
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Consolidated Statements of Operations
Revenue
Expenses:
Property operating
Realty taxes
Total operating expenses
Net operating income
Other income (expenses):
Corporate expenses
Proxy matter expenses
Strategic initiative expenses
Interest expense
Interest income
Net income from investments in joint ventures
Fair value loss on investment properties
Foreign currency translation gain
Transaction costs
Fair value loss on derivative instruments and other transactions
Income before income taxes
Income tax expense
Net income
Other comprehensive loss that may be reclassified to net income in subsequent periods:
Unrealized foreign currency translation loss
Unrealized foreign currency translation loss on investments in joint ventures
Other comprehensive income that will not be reclassified to net income in subsequent periods:
Unrealized gain from remeasurements of net pension obligation
Other comprehensive loss
Total comprehensive (loss) income
Basic income per unit attributable to common unitholders
Diluted income per unit attributable to common unitholders
Weighted-average number of common units outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Year ended
December 31,
Note
2020
2019
18
$
458,917
$
521,660
112,871
76,771
130,099
81,705
189,642
211,804
269,275
309,856
(12,205)
(17,423)
(4,029)
(86,106)
4,797
24,851
(140,876)
530
—
(16,538)
(14,452)
—
(1,358)
(108,809)
3,212
36,843
(94,727)
10,668
(301)
(16,379)
22,276
124,553
(733)
(1,816)
21,543
122,737
(25,498)
(2,319)
(66,214)
(6,125)
—
671
(27,817)
(71,668)
(6,274)
$
51,069
0.03
$
0.02
0.72
0.72
136,206,856
142,434,694
136,606,921
142,434,694
19
20
21, 35
22
5
4
23
24
15
15
15
15
$
$
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Changes in Unitholders' Equity
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Common
units capital
contributions
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Contributed
surplus
Total
common
equity
Total
preferred
equity
Total
Unitholders' equity, December 31, 2018
$
1,959,647 $
143,169 $
246,716 $
11,632 $ 2,361,164 $
376,881 $ 2,738,045
Changes for the year:
Issuance of common units, net of issue costs (note 15)
Redemption of preferred units (note 15)
Units acquired and cancelled through normal course
issuer bid (note 15)
Net income
Other comprehensive loss
Distributions
1,076
—
(161,976)
—
—
—
—
—
—
122,737
—
(96,705)
—
—
—
—
(71,668)
—
—
(2,753)
1,076
(2,753)
—
1,076
(75,710)
(78,463)
24,394
(137,582)
(6,687)
(144,269)
—
—
—
122,737
(71,668)
(96,705)
—
—
—
122,737
(71,668)
(96,705)
Unitholders' equity, December 31, 2019
1,798,747
169,201
175,048
33,273
2,176,269
294,484
2,470,753
Changes for the year:
Issuance of common units, net of issue costs (note 15)
4,455
Units acquired and cancelled through normal course
issuer bid (note 15)
(48,601)
Units acquired through normal course issuer bid, not
cancelled at year end (note 15)
Net income
Other comprehensive loss
Distributions
—
—
—
—
—
—
—
21,543
—
(99,745)
—
—
—
—
(27,817)
—
—
4,455
—
4,455
15,977
(32,624)
(2,617)
(35,241)
14
—
—
—
14
21,543
(27,817)
(99,745)
(65)
—
—
—
(51)
21,543
(27,817)
(99,745)
Unitholders' equity, December 31, 2020
$
1,754,601 $
90,999 $
147,231 $
49,264 $ 2,042,095 $
291,802 $ 2,333,897
See accompanying notes to consolidated financial statements.
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Consolidated Statements of Cash Flows
Cash provided by (used in):
Operating activities:
Net income
Adjustments for:
Net income from investments in joint ventures
Fair value loss on investment properties
Fair value loss on derivative instruments and other transactions
Unrealized foreign currency translation gain
Other items not affecting cash
Changes in non-cash operating items
Investing activities:
Acquisitions of investment properties, net of related debt
Proceeds from dispositions of investment properties, net of costs and related debt
Proceeds from disposition of note receivable
Additions to investment properties
Additions to investment properties under development
Additions to tenant inducements and leasing commissions
Additions to joint ventures
Distributions from joint ventures
Additions to property and equipment
Issuances of notes receivable
Notes receivable principal repayments
Change in deposits on investment properties
Change in cash held in trust
Financing activities:
Repayment of mortgages and loans payable
Advance of mortgages and loans payable, net of financing costs
Issuance of senior unsecured debentures, net of financing costs
Repayment of senior unsecured debentures
Advance of revolving credit facilities
Repayment of revolving credit facilities, including financing costs
Advance of non-revolving credit facilities, net of financing costs
Repayment of lease liabilities
Purchase of common units under normal course issuer bid
Purchase of preferred units under normal course issuer bid
Redemption of preferred units
Distributions paid on common units
Distributions paid on preferred units
Foreign exchange loss on cash held in foreign currency
Decrease in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to consolidated financial statements.
Note
2020
2019
Year ended
December 31,
$
21,543
$
122,737
5
4
23
25
25
3
3
7
5
35
12
12
15
15
15
(24,851)
140,876
16,538
(367)
22,486
108
176,333
—
229,000
8,372
(28,931)
(71,762)
(57,536)
(2,006)
25,603
(19)
(57)
80,818
(1,271)
(16,256)
165,955
(57,640)
56,879
248,916
(200,000)
121,500
(586,221)
199,644
(212)
(33,442)
(1,850)
—
(80,150)
(17,425)
(350,001)
(39)
(7,752)
42,455
$
34,703
$
(36,843)
94,727
16,379
(10,820)
25,880
(11,940)
200,120
(36,349)
247,819
—
(45,766)
(86,639)
(60,553)
(17,087)
3,730
(1,801)
(8,074)
9,650
2,165
4,123
11,218
(98,252)
14,650
248,946
(200,000)
538,229
(415,653)
—
(91)
(138,403)
(5,866)
(78,463)
(77,331)
(20,589)
(232,823)
(2,203)
(23,688)
66,143
42,455
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
Note 1.
Organization
Artis Real Estate Investment Trust (the "REIT") is an unincorporated closed-end real estate investment trust created under, and governed by, the laws of the Province of
Manitoba. The REIT was created pursuant to the Declaration of Trust dated November 8, 2004, as most recently amended and restated on April 15, 2020 (the "Declaration of
Trust"). The purpose of the REIT is to directly, or indirectly, own, manage, lease and (where appropriate) develop primarily industrial, office and retail properties in Canada
and the United States (the "U.S."). The registered office of the REIT is 600 - 220 Portage Avenue, Winnipeg, Manitoba, R3C 0A5.
The Declaration of Trust provides that the REIT may make cash distributions to unitholders of the REIT. The amount distributed annually (currently $0.5562 per common unit,
$1.4155 per Series A Unit, $1.3680 per Series E Unit and $1.50 per Series I Unit) is set by the Board of Trustees.
On November 30, 2020, the REIT reconstituted its Board with five new Trustees upon reaching a settlement agreement with Sandpiper Group to withdraw a unitholder
meeting request received on September 30, 2020. Subsequently, the REIT has suspended the plan to spin-off substantially all of the REIT’s Canadian retail properties as
announced on September 8, 2020.
Note 2.
Significant accounting policies
(a) Statement of compliance:
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB").
(b) Basis of presentation and measurement:
The consolidated financial statements have been prepared on a going concern basis and have been presented in Canadian dollars rounded to the nearest thousand dollars
unless otherwise indicated. The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements unless
otherwise indicated.
The consolidated financial statements have been prepared on the historical cost basis with the exception of investment properties, derivative financial instruments and the
cash-settled unit-based payment liabilities, which are measured at fair value.
(c) Principles of consolidation:
The consolidated financial statements include the accounts of the REIT and entities controlled by the REIT and its subsidiaries (including joint arrangements). Control is
achieved when the REIT has power over the entity, is exposed, or has rights, to variable returns from its involvement with the entity, and has the ability to use its power to
affect those returns. The REIT reassesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of
control.
All intercompany assets and liabilities, equity, revenue, expenses and cash flows relating to transactions between entities within the REIT are eliminated in full on
consolidation.
(d) Translation of foreign currencies:
The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the REIT.
Assets and liabilities of foreign operations are translated at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at the average
exchange rate for the period. Gains or losses on translation are included in other comprehensive income as foreign currency translation gains or losses. When there is a
reduction in the net investment as a result of dilution or sale, or reduction in the equity of the foreign operation as a result of a capital transaction, amounts previously
recognized in accumulated other comprehensive income are reclassified into net income.
For assets, liabilities, revenues and expenses that do not form part of the net investment in foreign operations, foreign currency translation gains or losses are included in net
income. Monetary assets and liabilities are translated at the rate of exchange in effect at the balance sheet date. Non-monetary assets and liabilities are translated at
historical exchange rates. Revenue and expense items are translated at the rate in effect at the date of the transaction.
(e) Financial instruments:
Financial assets are classified, at initial recognition, and subsequently measured, based on three categories: (i) amortized cost, (ii) fair value through other comprehensive
income ("FVOCI"), or (iii) fair value through profit and loss ("FVTPL"). Financial assets are classified and measured on the basis of both the business model in which the assets
are managed and the contractual cash flow characteristics of the asset. With the exception of trade receivables that do not contain a significant financing component, the REIT
initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not
contain a significant financing component are measured at the transaction price. Financial assets are recorded at amortized cost when financial assets are held with the
objective of collecting contractual cash flows and those cash flows represent solely payments of principal and interest ("SPPI") and are not designated as FVTPL. Debt and
equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Financial liabilities are classified
and measured in two categories: (i) amortized cost or (ii) FVTPL.
The REIT classifies and measures its notes receivable, accounts receivable and other receivables, cash held in trust, cash, mortgages and loans payable, senior unsecured
debentures, preferred shares liability, preferred units liabilities, accounts payable and other liabilities and credit facilities at amortized costs. All derivative instruments,
including embedded derivatives, are classified as at FVTPL and are recorded on the consolidated balance sheet at fair value.
Transaction costs that are directly attributable to the acquisition or issuance of financial assets or liabilities, with the exception of those classified as at FVTPL, are accounted
for as part of the respective asset or liability's carrying value at inception and amortized over the expected life of the financial instrument using the effective interest method.
Transaction costs directly attributable to the acquisition or issuance of financial assets or liabilities classified as at FVTPL are recognized immediately in net income.
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Financial assets, other than those classified as at FVTPL, are assessed for impairment at the end of each reporting period using the expected credit loss ("ECL") model. The
ECL model is based on an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money and
reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future
economic conditions. The REIT measures loss allowance for notes receivable, accounts receivable and other receivables at the lifetime expected credit losses. Notes
receivable, accounts receivable and other receivables are written off when there is no realistic prospect of future recovery and all collateral has been realized.
(f) Investment properties:
Investment properties include properties held to earn rental income and properties that are being constructed or developed for future use as investment properties.
Investment properties are measured at fair value with any changes therein recognized in profit or loss for the year.
Investment properties are classified as investment properties under development once construction at the property has commenced. Investment properties under
development include initial acquisition costs and other direct costs during the period of development. Borrowing costs associated with direct expenditures on properties
under development are capitalized from the commencement of the construction until the date of practical completion. The REIT considers practical completion to have
occurred when all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
The REIT occupies a portion of space in several of its investment properties. In the case of mixed use investment property and property held for use in the production of
goods or services, the REIT classifies the property as investment property when only an insignificant portion is owner-occupied. The REIT considers the owner-occupied
portion as insignificant when the property is primarily held to earn rental income.
A property acquisition is accounted for as a business combination using the acquisition method if the assets acquired and liabilities assumed constitute a business, and the
REIT obtains control of the business. The cost of a business combination is measured as the fair value of the assets given up, equity instruments issued and liabilities assumed
at the acquisition date. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the date
of acquisition. The REIT recognizes assets or liabilities, if any, resulting from a contingent consideration arrangement at their acquisition date fair value and such amounts
form part of the cost of the business combination. Changes in the fair value of contingent consideration arrangements that qualify as measurement period adjustments,
adjustments arising from additional information obtained about an acquisition within one year of its date, are adjusted retrospectively. All other changes in fair value are
recognized in profit or loss for the period.
Leasing commissions and straight-line rent receivables are included in the carrying amount of investment properties.
Payments to tenants under lease obligations are included in the carrying amount of investment properties. Payments that are determined to primarily benefit the tenant are
treated as tenant inducements that reduce revenue.
Right-of-use assets, held under leases, that are investment properties are recognized in the REIT's consolidated balance sheet at fair value.
(g) Joint arrangements:
Joint arrangements are arrangements where the parties sharing ownership have joint control. Joint control is the contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The REIT accounts for its joint arrangements as either
joint ventures or joint operations.
A joint venture is an arrangement where the REIT jointly owns an investment property with another party and has rights to the net assets of the arrangement. Joint ventures
are accounted for using the equity method. The investment in the joint venture is initially measured at cost at the date of acquisition and adjusted thereafter for the REIT's
share of changes in its net assets, less distributions received and any identified impairment loss. The REIT's share of the profit or loss from its investments in joint ventures is
recognized in profit or loss for the year.
A joint operation is an arrangement where the REIT jointly owns an investment property with another party and has rights to the assets, and obligations for the liabilities,
relating to the arrangement. The REIT accounts for joint operations by recording its proportionate share of their assets, liabilities, revenues, expenses and cash flows in its
consolidated financial statements.
(h) Inventory properties:
Commercial condominium projects are recorded as inventory properties. Inventory properties are recorded at the lower of cost, including pre-development expenditures and
capitalized borrowing costs, and net realizable value, which the REIT determines using the estimated selling price in the ordinary course of business, less estimated selling
costs and development costs to complete.
Inventory properties are reviewed for impairment at each reporting date. An impairment loss is recognized in net income when the carrying value of the asset exceeds its net
realizable value.
Transfers to inventory properties are based on a change in use evidenced by the commencement of development activities and expenditures, with a view to sell, at which
point an investment property is transferred to inventory properties.
(i) Property and equipment:
Office furniture and fixtures and office equipment and software are carried at cost less accumulated depreciation, and are depreciated on a straight-line basis over their useful
lives which are estimated to be between five to ten years. The estimated useful life, residual values and depreciation method are reviewed at each year end, with the effect of
any changes in estimates accounted for on a prospective basis.
As a lessee of office premises, office equipment and vehicles, the REIT recognizes right-of-use assets and the related lease liabilities at the commencement date of the leases,
except for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The recognized right-of-use assets are depreciated on a straight-line
basis over the lease term. The related lease liabilities are included other payables and liabilities and other long-term liabilities.
(j) Assets held for sale and discontinued operations:
Non-current assets, or disposal groups comprising assets and liabilities, are categorized as held for sale at the point in time when the asset or disposal group is available for
immediate sale, management has committed to a plan to sell and is actively locating a buyer at a sales price that is reasonable in relation to the current fair value of the asset,
and the sale is highly probable and expected to be completed within a one-year period. Investment properties measured under the fair value model and held for sale
continue to be measured by the guidelines of IAS 40 - Investment Property. All other assets held for sale are stated at the lower of their carrying amount and fair value less
selling costs. An asset that is subsequently reclassified as held and in use, with the exception of an investment property measured under the fair value model, is measured at
the lower of its recoverable amount and the carrying amount that would have been recognized had the asset never been classified as held for sale.
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
A disposal group is classified as discontinued operation if it meets the following conditions: (i) it is a component that can be distinguished operationally and financially from
the rest of the REIT’s operations and (ii) it represents either a separate major line of business or geographical area of operations. The results of operations associated with
disposal groups classified as discontinued operations held for sale are reported separately in the consolidated statement of operations.
Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is
classified as a discontinued operation, the comparative statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the
comparative period.
(k) Cash held in trust:
Cash held in trust consists of cash held by financial institutions with restrictions pursuant to mortgage agreements, letters of credit and construction holdbacks. Cash held in
trust may also include cash held in escrow pursuant to purchase and sale agreements in relation to acquisitions and dispositions of investment properties.
(l) Provisions:
A provision is recognized if, as a result of a past event, the REIT has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow
of economic benefits will be required to settle the obligation. The amount recognized as a provision is determined by discounting the expected future cash flows at a rate
that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions are remeasured at each balance sheet date using the
current discount rate. The increase in the provision due to passage of time is recognized as interest expense.
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is considered to exist where the REIT has a contract
under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.
(m) Revenue recognition:
The REIT has retained substantially all of the risks and benefits of ownership of its investment properties and therefore accounts for leases with its tenants as operating leases.
Revenue from investment properties includes all amounts earned from tenants related to lease agreements, including base rent, property operating cost and realty tax
recoveries, lease termination income and other incidental income.
The total amount of base rent in lease agreements is accounted for on a straight-line basis over the term of the respective leases. A straight-line rent receivable, which is
included in the carrying amount of investment properties, is recorded for the difference between the rental revenue recorded and the contractual rent received.
Property operating cost and realty tax recoveries are accrued and recognized as revenue in the period that the recoverable costs are incurred and become chargeable to
tenants.
Tenant inducements are recognized as a reduction to revenue and are amortized on a straight-line basis over the term of the lease.
Revenue from the sale of commercial condominium units will be recognized at the point in time when control over the property has been transferred, which is generally when
possession passes to the purchaser and the purchaser then has the ability to direct the use and obtain substantially all of the benefits of the property. Revenue is measured at
the transaction price agreed to under the sale agreements.
(n) Long-term benefits:
The costs of the REIT's defined benefit pension plans were accrued based on estimates, using actuarial techniques, of the amount of benefits employees earned in return for
their services in the current and prior periods. The present value of the defined benefit liability and current service cost is determined by discounting the estimated benefits
using the projected unit credit method to determine the fair value of the plan assets and total actuarial gains and losses and the proportion thereof which will be recognized.
All pension plans were settled in 2019 and there were no pension plan assets nor liabilities as at December 31, 2020 and 2019.
(o) Unit-based compensation:
The REIT may issue unit-based awards to trustees, officers, employees and consultants. For cash-settled unit-based payment transactions in the form of restricted and
deferred units, a liability is recognized and remeasured to fair value at each reporting date and at the settlement date. Any change in the fair value of the liability is
recognized as compensation expense for the period.
For equity-settled unit-based payment transactions in the form of unit options, the REIT measures compensation expense using the fair value at the grant date, recognized
over the vesting period.
(p) Earnings per unit:
Basic earnings per common unit is computed by dividing net income for the period attributable to common unitholders by the weighted-average number of common units
outstanding during the reporting period. Diluted earnings per unit is calculated based on the weighted-average number of common units outstanding during the period,
plus the effect of dilutive unit equivalents of restricted units and deferred units.
(q) Use of estimates and judgments:
The preparation of the consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are
revised and in any future periods affected.
Impact of the COVID -19 pandemic
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization. The ongoing COVID-19 pandemic has resulted in governments
enacting emergency measures, including travel restrictions, physical distancing, capacity restrictions and temporary closure of non-essential businesses. While governments
have eased COVID-19 restrictions and businesses have started to reopen in mid-2020, there were still restrictive measures in place. In addition, a recent resurgence of
COVID-19 has resulted in the re-imposition of certain restrictions and may lead to more restrictions being implemented again to reduce the spread of COVID-19. These
changes have caused disruptions to businesses where the REIT operates in both Canada and the U.S.
ARTIS REAL ESTATE INVESTMENT TRUST
67
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
As the situation is continually evolving, the duration and impact of the COVID-19 pandemic is unknown. Any estimate of the length and potential severity of the economic
impact associated with the COVID-19 pandemic is subject to significant uncertainty, as is the extent it will affect the REIT’s operations, financial results and capital resources. In
the preparation of these consolidated financial statements, the REIT has incorporated the potential impact of COVID-19 into its estimates and assumptions that affect
the carrying amounts of its assets and liabilities, and the reported amount of its results using the best available information as of December 31, 2020. Actual results could differ
from those estimates. Estimates and assumptions that are most subject to increased uncertainty caused by the COVID-19 pandemic relate to the valuation of investment
properties, the carrying amount of investment in joint ventures and the estimate of any expected credit losses on accounts receivable and notes receivable.
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts reported in the consolidated financial statements are
as follows:
–
–
–
–
–
–
–
Accounting for business combinations - The REIT's accounting policy relating to business combinations is described in note 2 (f). Judgment is applied in determining
whether property acquisitions constitute the purchase of a business or the purchase of assets.
Accounting for tenant inducements - The REIT's accounting policy relating to tenant inducements is described in note 2 (f) and note 2 (m). The REIT makes judgments
with respect to whether tenant inducements provided in connection with a lease enhance the value of the leased property which determines whether such amounts are
treated as capital expenditures or as tenant inducements that reduce revenue.
Capitalized cost of investment properties under development - The REIT's accounting policy relating to investment properties under development is described in note 2
(f). Judgment is applied in identifying the point at which practical completion of the investment property under development occurs.
Classification of leases - The REIT's accounting policy for the classification of its leases as a lessor is described in note 2 (m). The REIT makes judgments in determining
whether certain leases are operating or finance leases. The REIT determined that all of its leases are operating leases.
Classification of property as investment property or owner-occupied property - The REIT's accounting policy for the classification of properties that comprise a portion
that is held to earn rental income and another portion that is held for use in the production or supply of goods or services or for administrative purposes is described in
note 2 (f). Judgment is applied in determining whether the portion of the property held for use in the production or supply of goods or services or for administrative
purposes is insignificant in comparison to the portion held to earn rental income.
Classification of joint arrangements - The REIT's accounting policy relating to joint arrangements is described in note 2 (g) and note 5. Judgment is applied in
determining whether joint arrangements constitute a joint venture or a joint operation.
Disclosure of related party transactions - Judgment is applied in determining if entities with which the REIT had transactions are considered related parties in
accordance with IAS 24 - Related Party Transactions. The REIT disclosed transactions with related parties and key management personnel in notes 27 and 28.
Information about assumptions and estimation uncertainties that are critical to the determination of the amounts reported in the consolidated financial statements are as
follows:
–
–
–
–
Valuation of investment properties - The fair value of investment properties represents an estimate of the price that would be agreed upon between knowledgeable,
willing parties in an arm's length transaction. The critical estimates and assumptions underlying the valuation of investment properties are described in note 4.
Valuation of deferred tax liabilities and assets - The critical estimates and assumptions underlying the valuation of deferred tax liabilities and assets are described in note
24.
Allowance for doubtful accounts - The critical estimates and assumptions underlying the valuation of allowance for doubtful accounts are described in note 32.
Fair value of financial instruments - The fair value of financial instruments is estimated as the amount for which an instrument could be exchanged, or liability settled,
between knowledgeable, willing parties in an arm's length transaction. The estimates and assumptions underlying the fair value of financial instruments are described in
note 33.
(r) New or revised accounting standards adopted during the year:
The amendments to the definition of a business in IFRS 3 – Business Combinations help entities determine whether an acquired set of activities and assets is a business or not.
They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to
help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test.
The amendments are applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after January 1, 2020.
The amendments to IAS 1 and IAS 8 align the definition of "material" across the standards and clarify certain aspects of the definition. The new definition states that
information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. The adoption of the amendments to the
definition of material did not have a significant impact on the REIT's consolidated financial statements.
(s) Future changes in accounting standards:
In January 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current.
The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period, specify that
classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability, explain that rights are in existence if covenants are
complied with at the end of the reporting period, and introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash,
equity instruments, other assets or services. The amendments are applied retrospectively for annual periods beginning on or after January 1, 2023, with early application
permitted. The REIT does not expect a material impact to its consolidated financial statements from the adoption of these amendments.
In May 2020, the IASB issued amendments to IFRS 3 Business Combinations. The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of
the 1989 Framework. The amendments also add to IFRS 3 a requirement that, for obligations within the scope of IAS 37, an acquirer applies IAS 37 to determine whether at
the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21 Levies, the acquirer applies IFRIC 21 to
determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. Finally, the amendments add an explicit statement
that an acquirer does not recognize contingent assets acquired in a business combination. The amendments are effective for business combinations for which the date of
acquisition is on or after the beginning of the first annual period beginning on or after January 1, 2022. The REIT does not expect a material impact to its consolidated
financial statements from the adoption of these amendments.
2020 ANNUAL REPORT
68
ARTIS REAL ESTATE INVESTMENT TRUST
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The
amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an
allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after January 1, 2022. The REIT will apply
these amendments to contracts for which it has not yet fulfilled all its obligations on January 1, 2022 when it will first apply the amendments. The REIT does not expect a
material impact to its consolidated financial statements from the adoption of these amendments.
In August 2020, the IASB issued Interest Rate Benchmark Reform - Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 to address issues that might affect
financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. The amendments include a number of reliefs
and additional disclosures. For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in the contractual cash flows is as
a result of IBOR reform and occurs on an economically equivalent basis, the change will be accounted for by updating the effective interest rate with no immediate gain or
loss recognized. The amendments are effective for annual periods beginning on or after January 1, 2021, with earlier application permitted. The REIT is in the process of
assessing the impact of these amendments on its IBOR-based financial instruments.
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued an amendment to IFRS 9. The amendment clarifies the fees that an entity includes
when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only
those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the
amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment.
The amendment is effective for annual reporting periods beginning on or after January 1, 2022, with earlier adoption permitted. The REIT does not expect a material impact
to its consolidated financial statements from the adoption of this amendment.
Note 3.
Acquisitions and dispositions of investment properties
Acquisitions:
The REIT did not acquire any properties during the year ended December 31, 2020.
The REIT acquired the following property during the year ended December 31, 2019:
Property
Property count
Location
Acquisition date
Asset class
Boulder Lakes Business Park II
1
Twin Cities Area, MN
October 25, 2019
Office
On May 15, 2019, the REIT acquired an additional 15% interest in the Centre 70 Building, an office property located in Calgary, Alberta for total consideration of $3,023. Prior
to the acquisition date, the REIT owned 85% of this investment property as a joint operation and recorded its proportionate share of the assets, liabilities, revenues, expenses
and cash flows in its consolidated financial statements. As a result of this acquisition, the REIT owns 100% of the property and accounts for it on a 100% consolidated basis.
The REIT accounted for this acquisition as a step acquisition and recorded a bargain purchase gain of $1,106.
On May 16, 2019, the REIT acquired an additional 5% interest in Park 8Ninety I, an industrial property located in the Greater Houston Area, Texas for total consideration of
$6,261. Prior to the acquisition date, the REIT owned 95% of this investment property and the property was classified as a joint venture and accounted for using the equity
method. As a result of this acquisition, the REIT owns 100% of the property and accounts for it on a consolidated basis. The REIT accounted for this acquisition as step
acquisition and remeasured its existing 95% interest to fair value at the acquisition date.
On August 8, 2019, the REIT acquired a surface parking lot ancillary to an existing office property in Winnipeg, Manitoba.
On November 1, 2019, the REIT acquired a parcel of industrial development land adjacent to an existing industrial property in the Greater Houston Area, Texas.
These acquisitions have been accounted for using the acquisition method, with the results of operations included in the REIT's accounts from the date of acquisition. The net
assets acquired, excluding the acquisitions of joint ventures, were as follows:
Investment properties (note 4)
Long-term debt, including acquired above- and below-market mortgages, net of financing costs
Other net liabilities
Consideration was comprised of the following:
Cash consideration
Bargain purchase gain
Total consideration
Transaction costs expensed
Year ended
December 31,
2020
2019
$
—
—
—
—
—
—
71,635
(34,109)
(71)
37,455
36,349
1,106
—
$
37,455
—
$
301
$
$
$
ARTIS REAL ESTATE INVESTMENT TRUST
69
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Dispositions:
The REIT disposed of the following properties during the year ended December 31, 2020:
Property
Property count
Location
Disposition date
Asset class
Centre 15 Building
Calgary Office Portfolio (1)
800 5th Avenue
1165 Kenaston Street
Concorde Corporate Centre
Delta Shoppers Mall
Shoppers Landmark Centre
Strathcona Shoppers Centre
ASM America Headquarters Building
1110 Pettigrew Avenue
(1) Disposition includes a parcel of development land.
1
2
1
1
2
1
1
1
1
1
Calgary, AB
Calgary, AB
Calgary, AB
Ottawa, ON
Toronto, ON
January 21, 2020
January 30, 2020
January 31, 2020
March 31, 2020
November 16, 2020
Greater Vancouver Area, BC
November 18, 2020
Regina, SK
Regina, SK
Phoenix, AZ
Regina, SK
November 25, 2020
December 7, 2020
December 10, 2020
December 15, 2020
Industrial
Office
Office
Office
Office
Office
Retail
Retail
Retail
Office
On January 24, 2020, the REIT contributed a parcel of industrial development land located in the Greater Houston Area, Texas to the Park 8Ninety IV joint venture
arrangement. On October 20, 2020, the REIT contributed another parcel of industrial development land located in the Greater Houston Area, Texas to the Park 8Ninety V joint
venture arrangement. The co-owners' share of the parcels of land are recorded as dispositions.
On November 9, 2020, the REIT disposed of a parcel of office development land located in the Twin Cities Area, Minnesota.
The cash proceeds from the sale of the above properties, net of costs and related debt, were $229,000. In conjunction with the sales of 800 5th Avenue and the parcel of
office development land, the REIT also received notes receivable in the amounts of $10,000 and $3,192 (US$2,450), respectively, which are secured by the property or a
portion of the development land sold (note 7). The assets and liabilities associated with the properties were derecognized.
The REIT disposed of the following properties during the year ended December 31, 2019:
Property
Property count
Location
Disposition date
Asset class
169 Inverness Drive West I & II (1)
Reenders Square
Britannia Building
Nanaimo Portfolio
1700 Broadway
GSA Professional Office Building
415 Yonge Street
Estevan Retail Portfolio
495 Richmond Road
Centre 70 Building
Minnesota Retail Portfolio (1)
(1) Dispositions include a parcel of development land.
1
1
1
4
1
1
1
2
1
1
6
Greater Denver Area, CO
April 9, 2019
Winnipeg, MB
Calgary, AB
Nanaimo, BC
May 21, 2019
May 22, 2019
June 17, 2019
Greater Denver Area, CO
June 27, 2019
Greater Phoenix Area, AZ
July 26, 2019
Greater Toronto Area, ON
September 27, 2019
Estevan, SK
Ottawa, ON
Calgary, AB
October 30, 2019
November 27, 2019
December 16, 2019
Twin Cities Area, MN
December 19, 2019
Office
Retail
Office
Office & Retail
Office
Office
Office
Retail
Office
Office
Retail
The cash proceeds from the sale of the above properties, net of costs and related debt, were $247,819. In conjunction with the sale of 415 Yonge Street, the REIT also
received a note receivable in the amount of $79,000, which was secured by the property and repaid in full on September 30, 2020 (note 7). The assets and liabilities associated
with the properties were derecognized.
2020 ANNUAL REPORT
70
ARTIS REAL ESTATE INVESTMENT TRUST
Note 4.
Investment properties, investment properties under development and investment properties held for sale
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Balance, beginning of year
Additions:
Capital expenditures
Capitalized interest (1)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Contribution to investments in joint ventures (2) (3)
Dispositions
Foreign currency translation (loss) gain
Fair value loss
Reclassification of investment properties under development
Reclassification of investment properties held for sale
Year ended
December 31, 2020
Investment
properties
Investment
properties under
development
Investment
properties held for
sale
$
4,618,719
$
102,590
$
221,915
28,388
—
11,724
4,735
18,411
—
(400)
(39,462)
(110,037)
23,660
(230,617)
69,082
2,646
663
—
1,206
(14,761)
(747)
44
(3,265)
(23,660)
(1,555)
543
34
79
188
599
—
(351,201)
(2,272)
(27,574)
—
232,172
Balance, end of year
$
4,325,121
$
132,243
$
74,483
(1) During the year ended December 31, 2020, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 2.59%.
(2) On January 24, 2020, the REIT contributed land under development to Park 8Ninety IV, a joint venture arrangement.
(3) On October 20, 2020, the REIT contributed land under development to Park 8Ninety V, a joint venture arrangement.
Balance, beginning of year
Additions:
Acquisitions (note 3)
Reclassification from investments in joint ventures (1)
Capital expenditures
Capitalized interest (2)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Dispositions
Foreign currency translation loss
Fair value gain (loss)
Reclassification of investment properties under development
Reclassification of investment properties held for sale
Year ended
December 31, 2019
Investment
properties
Investment
properties under
development
Investment
properties held for
sale
$
4,941,825
$
119,604
$
320,465
71,635
66,765
42,116
—
14,415
5,446
16,133
(162,475)
(106,548)
19,400
95,827
(385,820)
—
—
82,994
3,740
1,168
—
2,762
—
(1,964)
2,601
(95,827)
(12,488)
—
—
3,650
—
1,158
631
1,532
(385,289)
(1,812)
(116,728)
—
398,308
Balance, end of year
$
4,618,719
$
102,590
$
221,915
(1) On May 16, 2019, the REIT increased its ownership interest in Park 8Ninety I to 100%. See note 3 for further information.
(2) During the year ended December 31, 2019, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 3.81%.
Marwest Construction Ltd. ("Marwest") is a significant vendor contracted for capital projects and tenant inducements. The REIT's former President and Chief Executive Officer
(retired effective December 31, 2020) is the sole director (not a beneficial shareholder) of a company that has a non-controlling ownership interest in Marwest.
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Costs paid and accrued to Marwest include the following:
Capital expenditures
Tenant inducement additions
Year ended
December 31,
2020
2019
$
$
63,831
$
4,118
65,832
5,775
67,949
$
71,607
For the year ended December 31, 2020, capital expenditures paid and accrued to Marwest included $54,846 (2019, $53,140) relating to the 300 Main and 330 Main commercial
and residential/multi-family development projects located in Winnipeg, Manitoba. Included in the costs paid and accrued to Marwest were construction management fees of
$2,146 and labour costs of $4,997 for the year ended December 31, 2020 (2019, $2,765 and $3,457, respectively).
At December 31, 2020, investment properties under development included capitalized development costs of $130,291 (December 31, 2019, $74,842) relating to the 300 Main
development project. Estimation of the recoverable amount of investment properties under development is subject to uncertainty due to development risks including
development costs exceeding original estimates, construction or other unforeseen timing delays and leasing on a timely basis or at anticipated rates upon completion.
During the year ended December 31, 2020, the REIT reclassified one retail property and one retail densification project from investment properties under development to
investment properties.
The REIT had two office properties and two retail properties classified as investment properties held for sale that were listed with external brokers or under unconditional sale
agreements at December 31, 2020 (December 31, 2019, seven office properties, one retail property and one parcel of development land). The properties held for sale had an
aggregate mortgage payable balance of $16,133 at December 31, 2020 (December 31, 2019, $66,587). This balance is not accounted for as held for sale but is included in
current liabilities as the REIT intends to repay or have the purchaser assume the mortgages upon disposition of the related investment properties.
At December 31, 2020, included in investment properties was $48,854 (December 31, 2019, $47,933) of net straight-line rent receivables arising from the recognition of rental
income on a straight-line basis over the lease term.
Investment properties include right-of-use assets held under a lease with an aggregate fair value of $12,955 at December 31, 2020 (December 31, 2019, $13,997). The lease
payments required under this lease were fully paid at the time of acquisition of the property.
At December 31, 2020, investment properties with a fair value of $2,645,834 (December 31, 2019, $3,031,195) were pledged as security under mortgage agreements.
The REIT obtains external valuations for a selection of properties representing various geographical regions and asset classes across its portfolio. For the year ended
December 31, 2020, properties (including the REIT's ownership interest in properties held in joint venture arrangements) with an appraised value of $916,550 (December 31,
2019, $563,870), were appraised by qualified external valuation professionals. The REIT uses similar assumptions and valuation techniques in its internal valuations as used by
the external valuation professionals. Internal valuations are performed by the REIT's valuations team who report directly to the Chief Financial Officer. The valuations
processes and results are reviewed by management on a quarterly basis.
The REIT determines the fair value of investment properties based upon either the discounted cash flow method or the overall capitalization method. Under the discounted
cash flow method, expected future cash flows are discounted using an appropriate rate based on the risk of the property. Expected future cash flows for each investment
property are based upon, but not limited to, rental income from current leases, budgeted and actual expenses, and assumptions about rental income from future leases. The
REIT uses leasing history, market reports, tenant profiles and building assessments, among other things, in determining the most appropriate assumptions. Discount and
capitalization rates are estimated using market surveys, available appraisals and market comparables. Under the overall capitalization method, year one net income is
stabilized and capitalized at a rate appropriate for each investment property. The stabilized net income incorporates allowances for vacancy, management fees and structural
repair reserves. The resulting capitalized value is further adjusted, where appropriate, for costs to stabilize the net income and non-recoverable capital expenditures. There
were no changes to the REIT's internal valuation methodology during the years ended December 31, 2020 and 2019.
A change in the discount or capitalization rates used could have a material impact on the fair value of the REIT's investment properties. When discount or capitalization rates
compress, the estimated fair values of investment properties increase. When discount or capitalization rates expand, the estimated fair values of investment properties
decrease.
A change in estimated future rental income and expenses could have a material impact on the fair value of the REIT's investment properties. Estimated rental income and
expenses are affected by, but not limited to, changes in rent and expense growth and occupancy rates.
Emergency measures enacted by governments in response to the COVID-19 pandemic, including travel restrictions, physical distancing and the temporary closure of non-
essential businesses, have created significant estimation uncertainty in the determination of the fair value of investment properties as at December 31, 2020. The REIT has
made assumptions with respect to the duration and severity of these emergency measures as well as the duration of the subsequent economic recovery in estimating the
amount and timing of future cash flows generated from investment properties and used in the determination of fair value. As a result of this significant estimation uncertainty
there is a risk that the assumptions used to determine fair values as at December 31, 2020 may change as more information becomes available, resulting in a material
adjustment to the fair value of investment properties in future reporting periods.
Under the fair value hierarchy, the fair value of the REIT's investment properties is considered a Level 3, as described in note 33.
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
The REIT has used the following rates and investment horizons in estimating the fair value of investment properties:
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Canada:
Discount rate
Terminal capitalization rate
Capitalization rate
Investment horizon (years)
U.S.:
Discount rate
Terminal capitalization rate
Capitalization rate
Investment horizon (years)
Total portfolio:
Discount rate
Terminal capitalization rate
Capitalization rate
Investment horizon (years)
December 31, 2020
December 31, 2019
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
9.75 %
9.00 %
9.25 %
12.0
9.50 %
8.50 %
8.00 %
11.0
9.75 %
9.00 %
9.25 %
12.0
5.00 %
3.75 %
3.75 %
10.0
6.25 %
5.25 %
5.00 %
10.0
5.00 %
3.75 %
3.75 %
10.0
7.16 %
6.19 %
6.09 %
10.5
7.79 %
6.78 %
6.63 %
10.3
7.42 %
6.43 %
6.30 %
10.4
9.50 %
9.00 %
9.00 %
11.0
9.00 %
8.00 %
8.00 %
12.0
9.50 %
9.00 %
9.00 %
12.0
5.00 %
3.75 %
3.75 %
10.0
6.25 %
5.25 %
5.00 %
10.0
5.00 %
3.75 %
3.75 %
10.0
7.38 %
6.34 %
6.23 %
10.3
7.86 %
6.86 %
6.73 %
10.4
7.55 %
6.53 %
6.41 %
10.3
The above information represents the REIT's entire portfolio of investment properties, excluding properties held in the REIT's investments in joint ventures.
The following sensitivity table outlines the impact of a 0.25% change in the weighted-average capitalization rate on investment properties at December 31, 2020:
Canada
U.S.
Note 5.
Joint arrangements
The REIT has interests in the following joint arrangements:
Property
Park 8Ninety II
Park 8Ninety IV
Park 8Ninety V
Corridor Park
Millwright Building
Tower Business Center
Graham Portfolio
The Point at Inverness
Cliveden Building
Kincaid Building
Change to fair value if capitalization rate increased
by 0.25%
Change to fair value if capitalization rate decreased
by 0.25%
$
$
(96,236)
(74,679)
(170,915)
$
$
105,109
80,699
185,808
Principal purpose
Type of arrangement
2020
2019
Ownership interest
December 31,
December 31,
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Joint operation
Joint operation
95 %
95 %
95 %
90 %
— %
80 %
75 %
50 %
50 %
50 %
95 %
95 %
— %
90 %
80 %
80 %
75 %
50 %
50 %
50 %
The REIT has assessed the above investment properties as joint arrangements as decisions about the relevant activities require unanimous consent of the parties sharing
control. The REIT has determined the type of arrangement based upon the ownership structure of each individual investment property.
ARTIS REAL ESTATE INVESTMENT TRUST
73
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
During the year ended December 31, 2020, the REIT entered into a new joint venture arrangement, Park 8Ninety V, an industrial development project in the Greater Houston
Area, Texas.
During the year ended December 31, 2020, the REIT contributed $2,006 to Park 8Ninety IV, Park 8Ninety V, Corridor Park, Millwright Building and Tower Business Center joint
venture arrangements. In addition, the REIT contributed land under development of $2,529 and $12,232 to the Park 8Ninety IV and Park 8Ninety V joint venture
arrangements, respectively.
On August 25, 2020, the Millwright Building joint venture disposed of its investment property and the REIT's share of the proceeds, net of costs and related debt, was $21,415.
The REIT is contingently liable for the obligations of certain joint arrangements. As at December 31, 2020, the co-owners' share of mortgage liabilities was $34,299 (December
31, 2019, $40,816). Management believes that the assets available from its joint arrangements are sufficient for the purpose of satisfying such obligations.
Summarized financial information of the REIT's share in its joint venture arrangements is as follows:
Non-current assets:
Investment properties
Investment properties under development
Current assets:
Investment property held for sale
Prepaid expenses and other assets
Accounts receivable and other receivables
Cash
Total assets
Non-current liabilities:
Mortgages and loans payable
Current liabilities:
Mortgages and loans payable
Security deposits and prepaid rent
Accounts payable and other liabilities
Total liabilities
Investments in joint ventures
Revenue
Expenses:
Property operating
Realty taxes
Total operating expenses
Net operating income
Other income (expenses):
Interest expense
Interest income
Fair value gain on investment properties
December 31,
December 31,
2020
2019
$
236,954
$
306,051
14,466
60,819
172
819
14,241
—
—
86
1,281
9,207
327,471
316,625
49,832
60,930
2,861
13,542
93,977
27,598
3,483
4,957
127,165
130,015
$
200,306
$
186,610
Year ended
December 31,
2019
2020
$
20,785
$
17,958
4,457
5,190
9,647
11,138
(4,561)
17
18,257
4,938
3,513
8,451
9,507
(4,372)
7
31,701
Net income from investments in joint ventures
$
24,851
$
36,843
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
Note 6.
Property and equipment
Office furniture and fixtures
Office equipment and software
Right-of-use leased assets
Accumulated depreciation
Note 7.
Notes receivable
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
December 31,
December 31,
2020
$
12,242
$
1,428
1,726
(7,915)
2019
12,262
1,423
611
(6,510)
$
7,481
$
7,786
December 31,
December 31,
2020
2019
Note receivable, maturing in July 2022, bearing interest at 5.05% per annum, interest-only monthly payment until
maturity, secured by an office property. (1)
$
—
$
79,000
Note receivable, maturing in January 2024, bearing interest at 5.00% per annum, interest-only monthly payment until
maturity, secured by an office property.
Note receivable from tenant maturing in May 2023, bearing interest at 5.89% per annum, repayable in varying
blended monthly installments. (2)
Note receivable from tenant, maturing in November 2031, bearing interest at 8.50% per annum, repayable in blended
monthly installments of $64 (US$50)
Note receivable, maturing in November 2024, bearing interest at 4.00% per annum, accrued interest and principal due
on maturity, secured by a parcel of land.
Other notes receivable
Current portion
Non-current portion
(1) This note receivable was repaid on September 30, 2020.
(2) The outstanding balance of this note receivable in the amount of $8,372 was sold as part of the Calgary Office Portfolio disposition. See note 3 for further information.
Note 8.
Inventory properties
The changes to the REIT's inventory properties were as follows:
Balance, beginning of year
Capital expenditures
Capitalized interest (1)
Balance, end of year
10,000
—
5,450
3,137
3,097
—
8,554
5,856
—
4,418
21,684
97,828
1,371
3,996
$
20,313
$
93,832
December 31,
December 31,
2020
14,632
$
285
143
2019
11,227
3,268
137
15,060
$
14,632
$
$
(1) During the year ended December 31, 2020, interest was capitalized at a weighted-average effective interest rate of 2.62% (2019, 3.80%).
Inventory properties include an industrial property in the process of conversion into commercial condominium units. Inventory properties earned net operating income of
$296 for the year ended December 31, 2020 (2019, $284).
ARTIS REAL ESTATE INVESTMENT TRUST
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 9.
Prepaid expenses and other assets
Prepaid insurance
Prepaid realty taxes
Prepaid acquisition, disposition and development costs
Derivative instruments (note 33)
Other prepaid expenses
Note 10.
Accounts receivable and other receivables
Rents receivable
Deferred rents receivable
Allowance for doubtful accounts
Accrued recovery income
Other receivables
Non-current portion of deferred rents receivable (net of related allowance for doubtful accounts of $152)
December 31,
December 31,
2020
$
3,948
$
993
749
—
1,617
2019
3,499
1,029
1,176
1,303
3,526
$
7,307
$
10,533
$
December 31,
December 31,
$
2020
5,660
4,901
(1,989)
3,344
6,327
18,243
778
2019
8,108
—
(406)
5,352
7,959
21,013
—
Current portion
$
17,465
$
21,013
As a result of the COVID-19 pandemic and the related emergency measures enacted by governments, a number of tenants have had to limit operations or close their
businesses temporarily, with the retail tenants most significantly impacted. The deferred rents receivable represent rents deferred for certain qualifying tenants with
repayment terms ending on or before December 31, 2022.
Refer to note 32 for further discussion on credit risk and allowance for doubtful accounts.
Note 11.
Mortgages and loans payable
Mortgages and loans payable
Net above- and below-market mortgage adjustments
Financing costs
Current portion
Non-current portion
December 31,
December 31,
2020
2019
$
1,275,277
$
1,403,401
2,423
(4,178)
3,170
(5,223)
1,273,522
1,401,348
405,126
396,152
$
868,396
$
1,005,196
Certain of the REIT's investment properties have been pledged as security under mortgages and other security agreements. As at December 31, 2020, 31.8% of the REIT's
mortgages and loans payable bear interest at fixed rates (December 31, 2019, 32.1%), and a further 37.1% of the REIT's mortgages and loans payable bear interest at variable
rates with interest rate swaps in place (December 31, 2019, 27.1%). The weighted-average effective rate on all mortgages and loans payable was 3.23% and the weighted-
average nominal rate was 3.03% at December 31, 2020 (December 31, 2019, 3.94% and 3.77%, respectively). Maturity dates range from January 1, 2021 to June 1, 2031.
The REIT's mortgage providers have various financial covenants. The REIT monitors these covenants, which are primarily debt service coverage ratios. Mortgages and loans
payable with maturities within 12 months or are payable on demand as a result of a financial covenant breach are classified as current liabilities.
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CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 12.
Senior unsecured debentures
On February 22, 2019, the REIT issued 3.674% Series C senior unsecured debentures for gross proceeds of $250,000. Interest is payable semi-annually on February 22 and
August 22 in each year. These debentures are not redeemable by the REIT prior to maturity and rank equally with all other indebtedness of the REIT.
The REIT repaid the outstanding face value of the 3.753% Series A senior unsecured debentures in the amount of $200,000 upon maturity on March 27, 2019 and repaid the
outstanding face value of the Series B senior unsecured debentures in the amount of $200,000 upon maturity on February 7, 2020.
On September 18, 2020, the REIT issued 3.824% Series D senior unsecured debentures for gross proceeds of $250,000. Interest is payable semi-annually on September 18
and March 18 in each year. These debentures are redeemable, at the option of the REIT, at a price equal to the greater of (i) the Canada Yield Price (as defined in the
supplemental indenture) and (ii) par. The debentures rank equally with all other indebtedness of the REIT.
Interest expense on the senior unsecured debentures is determined by applying the effective interest rate to the outstanding liability balance. The difference between actual
cash interest payments and interest expense is an accretion to the liability.
Particulars of the REIT's outstanding senior unsecured debentures are as follows:
Senior unsecured debenture issue
Issue date
Maturity date
Applicable interest rate
Series C
Series D
February 22, 2019
February 22, 2021
September 18, 2020
September 18, 2023
3.674 %
3.824 %
Series C
Series D
December 31, 2020
December 31, 2019
Face value
Unamortized
financing
costs
Carrying
value
Current
portion
Non-current
portion
$
250,000
$
(80)
$
249,920
$
249,920
$
250,000
(1,001)
248,999
—
—
248,999
$
500,000
$
(1,081)
$
498,919
$
249,920
$
248,999
450,000
(669)
449,331
199,959
249,372
During the year ended December 31, 2020, financing cost amortization of $672 (2019, accretion to the liability of $51 and financing cost amortization of $901) were recorded.
In accordance with the Series C and Series D senior unsecured debenture supplemental indentures, the REIT must maintain a consolidated EBITDA to consolidated interest
expense ratio of not less than 1.65, consolidated indebtedness to aggregate assets of not more than 65% and minimum adjusted unitholders' equity of $300,000. As at
December 31, 2020 and 2019, the REIT was in compliance with these requirements.
Note 13.
Credit facilities
The REIT has unsecured revolving term credit facilities in the aggregate amount of $700,000, which can be utilized for general corporate and working capital purposes, short-
term financing of investment property acquisitions and the issuance of letters of credit. The REIT can draw on the facilities in Canadian or US dollars.
On February 6, 2020, the REIT entered into a two-year unsecured non-revolving term credit facility agreement in the amount of $200,000. In 2017, the REIT entered into two
five-year unsecured non-revolving term credit facility agreements in the aggregate amount of $300,000. All non-revolving credit facilities can be utilized for general corporate
and working capital purposes, property acquisitions and development financing.
ARTIS REAL ESTATE INVESTMENT TRUST
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
The REIT's unsecured credit facilities are summarized as follows:
December 31, 2020
December 31, 2019
Borrowing
capacity
Amounts
drawn
Available to
be drawn (1)
Amounts
drawn
Available to
be drawn (1)
Applicable
interest rates (2)
Revolving facilities maturing December 14, 2021 $
400,000
$
95,617
$
304,383
$
341,117
$
58,883
Revolving facility maturing April 29, 2023
300,000
Non-revolving facility maturing February 4, 2022
200,000
Non-revolving facility maturing July 6, 2022
Non-revolving facility maturing July 18, 2022
150,000
150,000
Financing costs
30,000
200,000
150,000
150,000
(1,156)
270,000
246,994
53,006
—
—
—
—
150,000
150,000
(1,589)
—
—
—
Total credit facilities
$
1,200,000
$
624,461
$
574,383
$
886,522
$
111,889
Current portion
95,374
—
Non-current portion
$
529,087
$
886,522
BA rate plus 1.70% or
prime plus 0.70% or
LIBOR plus 1.70% or
U.S. base rate plus 0.70%
BA rate plus 1.70% or
prime plus 0.70% or
LIBOR plus 1.70% or
U.S. base rate plus 0.70%
2.22%
3.57 %
3.50 %
(1) Under the terms of the revolving credit facilities, the REIT must maintain a minimum unencumbered property assets to consolidated unsecured indebtedness ratio of 1.4. As at December 31, 2020, this covenant limits the total borrowing capacity of the revolving
credit facilities to $388,163 (December 31, 2019, $656,650).
(2) The REIT has entered into interest rate swaps on the non-revolving credit facilities.
For purposes of the credit facilities, the REIT must maintain a consolidated indebtedness to consolidated gross book value ratio of not more than 65%, a consolidated secured
indebtedness to consolidated gross book value ratio of not more than 50%, a minimum consolidated EBITDA to debt service ratio of 1.4, a minimum unitholders' equity of not
less than the sum of $1,700,000 and 75% of net proceeds received in connection with any equity offerings made after the date of the credit facilities agreement, a minimum
unencumbered property assets value to consolidated unsecured indebtedness ratio of 1.4, and a minimum consolidated EBITDA to consolidated interest expense ratio of
1.65. As at December 31, 2020 and 2019, the REIT was in compliance with these requirements.
Note 14.
Accounts payable and other liabilities
Accounts payable and accrued liabilities
$
December 31,
December 31,
$
2020
35,407
7,485
10,132
11,563
5,458
22,792
2,958
1,335
2019
39,018
7,458
8,694
11,136
2,939
8,187
9,205
1,594
$
97,130
$
88,231
Distributions payable
Accrued interest
Accrued realty taxes
Tenant installments payable
Derivative instruments (note 33)
Cash-settled unit-based payments liability
Other payables and liabilities
Note 15.
Unitholders' equity
(a) Common units:
(i) Authorized:
In accordance with the Declaration of Trust, the REIT may issue an unlimited number of common units, with each unit representing an equal undivided interest in any
distributions from the REIT, and in the net assets in the event of termination or wind-up of the REIT. All units are of the same class with equal rights and restrictions.
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
(ii) Issued and outstanding:
Balance at December 31, 2018
Restricted units redeemed
Deferred units redeemed
Units acquired and cancelled through normal course issuer bid
Balance at December 31, 2019
Restricted units redeemed
Deferred units redeemed
Units acquired and cancelled through normal course issuer bid
Balance at December 31, 2020
(b) Preferred units:
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Number of
units
Amount
150,282,829
$
1,959,647
51,981
39,546
606
470
(12,417,833)
(161,976)
137,956,523
1,798,747
229,675
184,693
(3,727,716)
2,454
2,001
(48,601)
134,643,175
$
1,754,601
In accordance with the Declaration of Trust, the REIT may issue an unlimited number of preferred units. Particulars of the REIT's outstanding preferred units are as follows:
Series A
Series E
Series G
Series I
Total
Number of units outstanding at December 31, 2018
3,445,400
3,996,200
3,196,200
5,000,000
15,637,800
Units acquired and cancelled through normal course issuer bid
(58,100)
(162,300)
(57,700)
Preferred units redeemed
—
—
(3,138,500)
—
—
(278,100)
(3,138,500)
Number of units outstanding at December 31, 2019
Units acquired and cancelled through normal course issuer bid
Units acquired through normal course issuer bid, not cancelled at year end
3,387,300
3,833,900
(29,600)
(1,500)
(44,578)
(1,224)
Number of units outstanding at December 31, 2020
3,356,200
3,788,098
—
—
—
—
5,000,000
12,221,200
(34,460)
(108,638)
—
(2,724)
4,965,540
12,109,838
The carrying value of the REIT's outstanding preferred units are as follows:
Annual distribution rate
Distribution rate reset date
Series A
5.662%
Series E
5.472%
September
30, 2022
September
30, 2023
Series G
5.000%
—
Series I
6.000%
April 30,
2023
Total
Carrying value at December 31, 2018
$
82,034
$
96,445
$
77,098
$
121,304
$
376,881
Units acquired and cancelled through normal course issuer bid
Preferred units redeemed
Carrying value at December 31, 2019
Units acquired and cancelled through normal course issuer bid
Units acquired through normal course issuer bid, not cancelled at year end
Carrying value at December 31, 2020
Face value at December 31, 2020
Face value at December 31, 2019
(i) Series A:
(1,383)
—
80,651
(705)
(35)
79,911
83,905
84,683
$
$
(3,916)
—
92,529
(1,076)
(30)
91,423
94,702
95,847
$
$
$
$
(1,388)
(75,710)
—
—
(6,687)
(75,710)
—
—
—
—
—
—
121,304
294,484
(836)
—
$
$
$
$
120,468
124,139
125,000
(2,617)
(65)
291,802
302,746
305,530
On August 2 and 10, 2012, the REIT issued a total of 3,450,000 Cumulative Rate Reset Preferred Trust Units, Series A (the "Series A Units") for aggregate gross proceeds
of $86,250. The Series A Units paid a cumulative distribution yield of 5.25% per annum, payable quarterly, as and when declared by the Board of Trustees of the REIT,
for the initial period ended September 30, 2017. The distribution rate was reset on September 30, 2017 at 5.662% and will be reset on September 30, 2022 and every
five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 4.06%.
ARTIS REAL ESTATE INVESTMENT TRUST
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
The REIT may redeem the Series A Units on September 30, 2022 and on September 30 every five years thereafter. The holders of Series A Units have the right to
reclassify their Series A Units to Preferred Units, Series B (the "Series B Units"), subject to certain conditions, on September 30, 2022 and on September 30 every five
years thereafter. The Series B Units pay floating rate cumulative preferential distributions on a quarterly basis, at the discretion of the Board of Trustees. The holders of
Series B Units have the right to reclassify their Series B Units to Series A Units on September 30, 2027 and on September 30 every five years thereafter.
(ii) Series E:
On March 21, 2013, the REIT issued 4,000,000 Cumulative Rate Reset Preferred Trust Units, Series E (the "Series E Units") for aggregate gross proceeds of $100,000. The
Series E Units paid a cumulative distribution yield of 4.75% per annum, payable quarterly, as and when declared by the Board of Trustees of the REIT, for the initial
period ended September 30, 2018. The distribution rate was reset on September 30, 2018 at 5.472% and will be reset on September 30, 2023 and every five years
thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 3.30%.
The REIT may redeem the Series E Units on September 30, 2023 and on September 30 every five years thereafter. The holders of Series E Units have the right to
reclassify their Series E Units to Preferred Units, Series F (the "Series F Units"), subject to certain conditions, on September 30, 2023 and on September 30 every five
years thereafter. The Series F Units pay floating rate cumulative preferential distributions on a quarterly basis, at the discretion of the Board of Trustees. The holders of
Series F Units have the right to reclassify their Series F Units to Series E Units on September 30, 2028 and on September 30 every five years thereafter.
(iii) Series G:
On July 29, 2013, the REIT issued 3,200,000 Cumulative Rate Reset Preferred Trust Units, Series G (the "Series G Units") for aggregate gross proceeds of $80,000. This
included 200,000 Series G Units issued pursuant to the partial exercise of the Underwriters' option. The Series G Units paid a cumulative distribution yield of 5.00% per
annum, payable quarterly, as and when declared by the Board of Trustees of the REIT, for the initial period ended July 31, 2019. On July 31, 2019, the REIT redeemed all
3,138,500 outstanding Series G Units with an aggregate face value of $78,463.
(iv) Series I:
On January 31, 2018, under the August 8, 2016 short form base shelf prospectus, the REIT issued 5,000,000 Cumulative Minimum Rate Reset Preferred Trust Units, Series
I (the "Series I Units") for aggregate gross proceeds of $125,000. The Series I Units pay a cumulative distribution yield of 6.00% per annum, payable quarterly, as and
when declared by the Board of Trustees of the REIT, for the initial five-year period ending April 30, 2023. The distribution rate will be reset on April 30, 2023 and every
five years thereafter at a rate equal to the greater of (i) the sum of the then five-year Government of Canada bond yield and 3.93% and (ii) 6.00%.
The REIT may redeem the Series I Units on April 30, 2023 and on April 30 every five years thereafter. The holders of Series I Units have the right to reclassify their Series I
Units to Preferred Units, Series J (the "Series J Units"), subject to certain conditions, on April 30, 2023 and on April 30 every five years thereafter. The Series J Units pay
floating rate cumulative preferential distributions on a quarterly basis, at the discretion of the Board of Trustees. The holders of Series J Units have the right to reclassify
their Series J Units to Series I Units on April 30, 2028 and on April 30 every five years thereafter.
The Series A Units, Series E Units and Series I Units rank equally with each other and with the outstanding Series B Units, Series F Units and Series J Units into which they may
be reclassified, and rank in priority to the trust units.
(c) Normal course issuer bid:
On December 15, 2020, the REIT announced that the Toronto Stock Exchange ("TSX") approved the renewal of its normal course issuer bid ("NCIB"). Under the renewed bid,
the REIT has the ability to purchase for cancellation up to a maximum of 10% of the REIT's public float of common units and preferred units as at December 7, 2020 as follows:
Common units
Preferred unit series:
Series A
Series E
Series I
Public float
10% of public
float
101,603,961
10,160,396
3,361,200
3,797,730
4,865,540
336,120
379,773
486,554
Purchases will be made at market prices through the facilities of the TSX and/or alternative Canadian trading systems and all common units and preferred units acquired by
the REIT under this bid will be cancelled. This bid will remain in effect until the earlier of December 16, 2021, or the date on which the REIT has purchased the maximum
number of units permitted under the bid. During the year ended December 31, 2020, the REIT acquired 3,727,716 common units at market prices aggregating $33,442,
resulting in contributed surplus of $15,159, which was the excess of stated capital over redemption proceeds. During the year ended December 31, 2020, the REIT also
acquired 31,100, 45,802 and 34,460 Series A, E and I Units, respectively, at market prices aggregating $1,850, resulting in contributed surplus of $832, which was the excess of
stated capital over redemption proceeds.
During the year ended December 31, 2019, the REIT acquired 12,417,833 common units at market prices aggregating $138,403, resulting in contributed surplus of $23,573,
which was the excess of stated capital over redemption proceeds. During the year ended December 31, 2019, the REIT also acquired 58,100, 162,300 and 57,700 Series A, E
and G Units, respectively, at market prices aggregating $5,866, resulting in contributed surplus of $821, which was the excess of stated capital over redemption proceeds.
2020 ANNUAL REPORT
80
ARTIS REAL ESTATE INVESTMENT TRUST
(d) Weighted-average common units:
Net income
Adjustment for distributions to preferred unitholders (note 17)
Net income attributable to common unitholders
Adjustment for restricted units
Adjustment for deferred units
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Year ended
December 31,
2020
2019
$
21,543
$
(17,420)
4,123
(374)
(346)
122,737
(19,936)
102,801
—
—
Diluted net income attributable to common unitholders
$
3,403
$
102,801
The weighted-average number of common units outstanding was as follows:
Basic common units
Effect of dilutive securities:
Restricted units
Deferred units
Diluted common units
Net income per unit attributable to common unitholders:
Basic
Diluted
136,206,856
142,434,694
320,049
80,016
—
—
136,606,921
142,434,694
$
0.03
$
0.02
0.72
0.72
The computation of diluted net income per unit attributable to common unitholders includes restricted units and deferred units when these instruments are dilutive. For the
year ended December 31, 2020, there were no anti-dilutive units. For the year ended December 31, 2019, restricted units and deferred units were anti-dilutive, for an
aggregate total of 535,557 units and 280,942 units, respectively.
Note 16.
Equity incentive plan
Under the REIT's equity incentive plan, there may be grants of unit options, restricted units, deferred units and installment units, which are subject to certain restrictions.
Under this incentive plan, the total number of units reserved for issuance may not exceed 8,500,000 units, of which a maximum of 4,000,000 units are reserved for the issuance
of unit options.
(a) Restricted units:
Unit-based compensation expense related to restricted units outstanding under the equity incentive plan for the year ended December 31, 2020 amounted to $4,579 (2019,
$2,981), including $2,123 related to accelerated vesting of restricted units as part of the executive settlement in connection with the proxy matter (note 20). Restricted units
vest on and after the third anniversary of the date of grant. The restricted units accrue additional restricted units during the vesting period, and are credited when the
restricted units are redeemed. Each restricted unit is valued at the closing price of the REIT's common units on the balance sheet date.
The REIT's restricted units outstanding are as follows:
Balance, beginning of year
Granted
Accrued
Redeemed
Expired
Balance, end of year
Restricted units vested at end of year
Year ended
December 31,
2019
Units
546,573
287,195
26,356
(145,129)
(20,961)
2020
Units
694,034
262,303
43,877
(582,764)
(12,513)
404,937
694,034
14,291
19,130
ARTIS REAL ESTATE INVESTMENT TRUST
81
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
(b) Deferred units:
Unit-based compensation expense related to deferred units outstanding under the equity incentive plan for the year ended December 31, 2020 amounted to $399 (2019,
$1,282). Deferred units can only be granted to trustees of the REIT and vest immediately. Deferred units are redeemable within a specified time frame after a trustee ceases
to be a trustee. The deferred units accrue additional deferred units after the grant date. Each deferred unit is valued at the closing price of the REIT's common units on the
balance sheet date.
The REIT's deferred units outstanding are as follows:
Balance, beginning of year
Granted
Accrued
Redeemed
Balance, end of year
Deferred units vested at end of year
(c) Unit options:
Year ended
December 31,
2019
Units
92,673
409,128
12,594
(41,944)
2020
Units
472,451
60,914
28,050
(468,507)
92,908
472,451
92,908
472,451
At December 31, 2020 and 2019, no unit options had been granted under the REIT's equity incentive plan.
(d) Installment units:
At December 31, 2020 and 2019, no installment units had been granted under the REIT's equity incentive plan.
Note 17.
Distributions to unitholders
Total distributions declared to unitholders were as follows:
Year ended
December 31, 2020
Year ended
December 31, 2019
Total
distributions
Distributions
per unit
Total
distributions
Distributions
per unit
$
73,654
$
4,763
5,200
—
7,457
0.54
1.42
1.37
—
1.50
$
76,396
$
4,806
5,329
2,301
7,500
0.54
1.42
1.37
0.73
1.50
Common unitholders
Preferred unitholders - Series A
Preferred unitholders - Series E
Preferred unitholders - Series G
Preferred unitholders - Series I
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
Note 18.
Revenue
The REIT's revenue is made up of the following significant categories:
Base rent
Operating cost and realty tax recoveries
Parking and other revenue
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Year ended
December 31,
2020
2019
$
294,851
$
170,553
12,741
(24,854)
4,923
703
322,554
194,579
20,736
(23,385)
6,077
1,099
$
458,917
$
521,660
Refer to note 29 for a disaggregation of revenue by reportable geographical region.
The REIT leases industrial, office and retail properties to tenants under operating leases.
Minimum rental commitments on non-cancellable tenant operating leases (including leases held in the REIT's investments in joint ventures) over their remaining terms were as
follows:
Not later than one year
One to two years
Two to three years
Three to four years
Four to five years
Later than five years
Note 19.
Corporate expenses
Accounting, legal and consulting
Public company costs
Unit-based compensation
Salaries and benefits
Depreciation of property and equipment
General and administrative
Note 20.
Proxy matter expenses
December 31,
December 31,
2020
2019
$
293,096
$
260,653
233,099
196,447
159,376
635,042
315,977
286,806
243,841
209,760
170,768
670,120
$
1,777,713
$
1,897,272
Year ended
December 31,
2019
3,396
1,545
4,264
2,688
1,130
1,429
2020
3,316
1,367
2,855
1,940
1,422
1,305
$
12,205
$
14,452
On September 30, 2020, the REIT received a unitholder requisition requesting the REIT call a special meeting of the REIT’s unitholders for the purpose of reconstituting the
Board with five new Trustees. On November 30, 2020, the REIT reached an agreement with Sandpiper Group to withdraw its unitholder meeting request and pending
litigation. In connection with this proxy matter, the REIT incurred $17,423 of expenses including legal, advisory and executive settlement costs (notes 16, 27 and 28).
ARTIS REAL ESTATE INVESTMENT TRUST
83
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 21.
Strategic initiative expenses
In 2019, the Board of Trustees launched a formal strategic review process to explore value-maximizing opportunities for the REIT. During the course of the strategic review,
the REIT actively disposed of non-core investment properties, repurchased units under its NCIB and engaged independent financial and legal advisors to review various
strategic alternatives. The strategic initiative expenses include legal and advisory costs in the amounts of $4,029 and $1,358 in 2020 and 2019, respectively.
Note 22.
Interest expense
Interest on mortgages and loans payable
Interest on senior unsecured debentures
Interest on credit facilities
Net amortization of above- and below-market mortgages fair value adjustments
Amortization of financing costs
Accretion on liability component of debentures
Note 23.
Fair value loss on derivative instruments and other transactions
The REIT recorded (losses) gains on the following:
Interest rate swaps
Foreign currency contracts
Other derivatives
Bargain purchase gain (1)
Year ended
December 31,
2020
2019
$
45,492
$
12,639
24,983
(752)
3,744
—
62,445
16,352
26,640
(434)
3,857
(51)
$
86,106
$
108,809
Year ended
December 31,
2020
2019
$
(18,388)
$
2,257
(407)
—
(11,892)
(5,978)
385
1,106
$
(16,538)
$
(16,379)
(1) The REIT realized a bargain purchase gain related to the step acquisition of the Centre 70 Building during the year ended December 31, 2019. See note 3 for further information.
Note 24.
Income taxes
(a) Canadian taxes:
The REIT currently qualifies as a mutual fund trust and a real estate investment trust ("REIT") for Canadian income tax purposes. Under current tax legislation, income
distributed annually by the REIT to unitholders is a deduction in the calculation of its taxable income. As the REIT intends to distribute all of its taxable income to its
unitholders, the REIT does not record a provision for current Canadian income taxes.
The Income Tax Act (Canada) contains legislations affecting the tax treatment of a specified investment flow-through ("SIFT") trust or partnership (the "SIFT Rules"). A SIFT
includes a publicly-listed or traded partnership or trust, such as an income trust.
Under the SIFT Rules, certain distributions from a SIFT are not deductible in computing a SIFT's taxable income, and a SIFT is subject to tax on such distributions at a rate that
is substantially equivalent to the general tax rate applicable to a Canadian corporation. However, distributions paid by a SIFT as returns of capital should generally not be
subject to tax.
The SIFT Rules do not apply to a REIT that meets prescribed conditions relating to the nature of its assets and revenue (the "REIT Conditions"). The REIT has reviewed the
SIFT Rules and has assessed their interpretation and application to the REIT's assets and revenues. While there are uncertainties in the interpretation and application of the
SIFT Rules, the REIT believes that it has met the REIT Conditions throughout the years ended December 31, 2020 and 2019. As a result, the REIT does not recognize any
deferred income tax assets or liabilities for Canadian income tax purposes.
(b) U.S. taxes:
The REIT's U.S. properties are owned by subsidiaries that are REITs for U.S. income tax purposes. These subsidiaries intend to distribute all of their U.S. taxable income to
Canada and are entitled to deduct such distributions for U.S. income tax purposes. As a result, the REIT does not record a provision for current federal U.S. income taxes on
the taxable income earned by these subsidiaries. These U.S. subsidiaries are subject to certain state taxes and a 30% to 35% withholding tax on distributions to Canada. Any
withholding taxes paid are recorded with the related distributions.
The REIT is subject to federal and state taxation in the U.S. on the taxable income earned by its U.S. management subsidiary.
2020 ANNUAL REPORT
84
ARTIS REAL ESTATE INVESTMENT TRUST
Note 25.
Supplemental cash flow information
(a) Other items not affecting cash:
Tenant inducements amortized to revenue
Straight-line rent adjustments
Depreciation of property and equipment
Unit-based compensation
Other long-term employee benefits
Amortization of above- and below-market mortgages, net
Amortization of financing costs included in interest expense
Accretion on liability component of debentures
(b) Changes in non-cash operating items:
Inventory properties
Prepaid expenses and other assets
Accounts receivable and other receivables
Security deposits and prepaid rent
Accounts payable and other liabilities
(c) Other supplemental cash flow information:
Interest paid
Interest received
Income taxes paid
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Year ended
December 31,
2020
2019
$
24,854
$
(4,923)
1,422
(1,859)
—
(752)
3,744
—
23,385
(6,077)
1,130
3,182
888
(434)
3,857
(51)
$
22,486
$
25,880
Year ended
December 31,
2020
2019
$
(428)
$
1,633
2,597
(2,367)
(1,327)
(3,405)
(1,497)
(1,335)
(2,225)
(3,478)
$
108
$
(11,940)
Year ended
December 31,
2020
2019
$
87,189
$
114,500
4,811
1,216
3,220
995
ARTIS REAL ESTATE INVESTMENT TRUST
85
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 26.
Subsidiaries
Subsidiaries of the REIT, including joint arrangements and excluding bare trustees, are outlined as follows:
Name of entity
Artis General Partner Ltd.
AX L.P.
Artis Property Management General Partner Ltd.
AX Property Management L.P.
Winnipeg Square Leaseco, Inc.
AR GL General Partner Ltd.
AR GL Limited Partnership
Artis US Holdings, Inc.
Artis US Holdings II GP, Inc.
Artis US Holdings II, LLC
Artis US Holdings II L.P.
Artis US Holdings III GP, Inc.
Artis US Holdings III, LLC
Artis US Holdings III L.P.
AX US Management, Inc.
Park 8Ninety Phase II, LP
Park 8Ninety Phase IV, LP
Park 8Ninety Phase V, LP
Artis/Core Park West Land, Ltd.
Tower Business Center L.P.
Artis/Ryan Millwright, LP
ARTIS HRA Inverness Point GP, LLC
ARTIS HRA Inverness Point, LP
Note 27.
Related Party Transactions
Ownership interest
December 31,
December 31,
2020
100 %
100 %
100 %
100 %
100 %
75 %
75 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
95 %
95 %
95 %
90 %
80 %
80 %
50 %
50 %
2019
100 %
100 %
100 %
100 %
100 %
75 %
75 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
95 %
95 %
— %
90 %
80 %
80 %
50 %
50 %
Country
Canada
Canada
Canada
Canada
Canada
Canada
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
In addition to the remuneration to Trustees and key management personnel disclosed in note 28, the REIT had the following related party transactions.
For the year ended December 31, 2020, the proxy matter expenses (note 20) included reimbursements of advisory, legal and other out-of-pocket expenses incurred by
Sandpiper Asset Management Inc. and RFA Capital Partners Inc. of $1,383 and $42, respectively, relating to the settlement agreement between the REIT and Sandpiper
Group. Sandpiper Asset Management Inc. is a related party of the REIT by virtue of being a company under joint control of a Trustee and RFA Capital Partners Inc. is a related
party of the REIT by virtue of being a company controlled by another Trustee.
2020 ANNUAL REPORT
86
ARTIS REAL ESTATE INVESTMENT TRUST
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 28.
Key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the REIT, directly or indirectly.
The remuneration of Trustees and key management personnel was as follows:
Retirement settlements
Short-term benefits
Post-employment benefits
Other long-term benefits
Unit-based compensation
(a) Retirement settlements:
$
Year ended
December 31,
2019
—
8,128
1,199
379
3,060
$
2020
12,719
9,775
—
—
1,961
$
24,455
$
12,766
In connection with the resolution of the proxy matter (see note 20), the President & Chief Executive Officer retired effective December 31, 2020 and the Chief Financial Officer
will be retiring effective at the conclusion of the 2021 annual meeting of the Unitholders. As a result of the retirements, the REIT recorded executive settlement expenses of
$12,719 in 2020, which are included in proxy matter expenses. These expenses included reimbursement of legal fees in the aggregate amount of $69.
(b) Short-term benefits:
Short-term employee benefits include salaries, bonuses and other short-term benefits.
(c) Post-employment benefits and other long-term benefits:
The REIT had defined benefit plans providing pension benefits and obligations for future retirement payments to certain key management personnel. During the year ended
December 31, 2019, the REIT settled the defined benefit plans and the obligations for retirement payments.
(d) Unit-based compensation:
Refer to note 16 for more information on the REIT's equity incentive plan.
ARTIS REAL ESTATE INVESTMENT TRUST
87
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 29.
Segmented information
The REIT owns and operates properties located in Canada and the U.S. These properties are managed and reported internally by country. Segmented information includes
the REIT's joint ventures as presented using the proportionate share method. REIT income (expenses), including interest relating to senior unsecured debentures and credit
facilities and fair value gain (loss) on derivative instruments and other transactions, have not been allocated to the segments.
Revenue
Expenses:
Property operating
Realty taxes
Canada
U.S.
REIT
Year ended December 31, 2020
Joint
ventures
adjustment
Total
$
243,370 $
236,026 $
306 $
(20,785) $
458,917
65,276
39,748
52,052
42,213
105,024
94,265
—
—
—
(4,457)
(5,190)
112,871
76,771
(9,647)
189,642
Net operating income
138,346
141,761
306
(11,138)
269,275
Other income (expenses):
Corporate expenses
Proxy matter expenses
Strategic initiative expenses
Interest expense
Interest income
Net income from investments in joint ventures
Fair value (loss) gain on investment properties
Foreign currency translation gain
Fair value loss on derivative instruments and other transactions
—
—
—
—
—
—
(18,638)
(32,438)
164
—
(125,443)
—
—
974
—
2,824
—
—
(12,205)
(17,423)
(4,029)
(39,591)
3,676
—
—
530
(16,538)
(Loss) income before income taxes
(5,571)
113,121
(85,274)
—
—
—
4,561
(17)
24,851
(18,257)
—
—
—
—
(12,205)
(17,423)
(4,029)
(86,106)
4,797
24,851
(140,876)
530
(16,538)
22,276
(733)
Income tax expense
Net (loss) income
—
(733)
—
$
(5,571) $
112,388 $
(85,274) $
— $
21,543
Additions to investment properties, investment properties under development and
investment properties held for sale
Additions to tenant inducements
Additions to leasing commissions
$
75,477 $
45,028 $
— $
(22,492) $
17,479
2,613
33,307
12,305
—
—
(5,716)
(2,452)
98,013
45,070
12,466
Canada
U.S.
REIT
December 31, 2020
Joint
ventures
adjustment
Total
Total assets
Total liabilities
$
2,638,216 $
2,317,975 $
30,815 $
(127,165) $
4,859,841
521,907
962,922
1,168,280
(127,165)
2,525,944
2020 ANNUAL REPORT
88
ARTIS REAL ESTATE INVESTMENT TRUST
Revenue
Expenses:
Property operating
Realty taxes
Net operating income
Other income (expenses):
Corporate expenses
Strategic initiative expenses
Interest expense
Interest income
Net income from investments in joint ventures
Fair value gain (loss) on investment properties
Foreign currency translation gain
Transaction costs
Fair value gain (loss) on derivative instruments and other transactions
Income tax expense
Net income (loss)
Acquisitions of investment properties
Additions to investment properties, investment properties under development and
investment properties held for sale
Additions to tenant inducements
Additions to leasing commissions
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Year ended December 31, 2019
Canada
U.S.
REIT
Joint
ventures
adjustment
Total
$
289,050 $
250,257 $
311 $
(17,958) $
521,660
74,587
44,442
60,450
40,776
119,029
101,226
—
—
—
(4,938)
(3,513)
130,099
81,705
(8,451)
211,804
170,021
149,031
311
(9,507)
309,856
—
—
—
—
(24,782)
(43,500)
747
—
4,811
—
(120)
1,106
526
—
(67,837)
—
(181)
—
(14,452)
(1,358)
(44,899)
1,946
—
—
10,668
—
(17,485)
—
(1,816)
—
—
—
(14,452)
(1,358)
4,372
(108,809)
(7)
36,843
(31,701)
—
—
—
—
—
3,212
36,843
(94,727)
10,668
(301)
(16,379)
124,553
(1,816)
$
$
151,783 $
36,223 $
(65,269) $
— $
122,737
7,929 $
63,706 $
— $
— $
71,635
82,932
19,267
6,310
89,817
29,892
14,069
—
—
—
(43,989)
128,760
(5,347)
(3,638)
43,812
16,741
December 31, 2019
Canada
U.S.
REIT
Joint
ventures
adjustment
Total
Income (loss) before income taxes
151,783
38,039
(65,269)
Total assets
Total liabilities
$
2,987,331 $
2,360,066 $
112,637 $
(130,015) $
5,330,019
640,100
979,670
1,369,511
(130,015)
2,859,266
ARTIS REAL ESTATE INVESTMENT TRUST
89
2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 30.
Commitments, contingencies and guarantees
(a) Unconditional sale agreements:
The REIT has an unconditional sale agreement for two retail properties located in Regina, Saskatchewan for a sale price of $45,000 with expected closing in April 2021.
(b) Letters of credit:
As at December 31, 2020, the REIT had issued letters of credit in the amount of $3,574 (December 31, 2019, $3,574).
(c) Contingencies:
The REIT performs an assessment of legal and tax proceedings and claims which have occurred or could occur as a result of ongoing operations of the trust. Based on the
information available, the outcomes of these contingent liabilities are uncertain and do not satisfy the requirements to be recognized in the consolidated financial statements
as liabilities.
(d) Guarantees:
At December 31, 2020, the REIT has guaranteed certain debt assumed by purchasers in connection with the dispositions of three properties (December 31, 2019, three
properties). These guarantees will remain until the debt is modified, refinanced or extinguished. Credit risk arises in the event that the purchasers default on repayment of
their debt since it is guaranteed by the REIT. This credit risk is mitigated as the REIT has recourse under these guarantees in the event of default by the purchasers, in which
case the REIT would have a claim against the underlying properties. The estimated amount of debt subject to the guarantees at December 31, 2020 was $53,811
(December 31, 2019, $56,025), with an estimated weighted-average remaining term of 2.1 years (December 31, 2019, 3.1 years). No liabilities in excess of the fair values of the
guarantees have been recognized in the consolidated financial statements as the estimated fair values of the borrowers' interests in the underlying properties are greater than
the mortgages payable for which the REIT provided the guarantees.
Note 31.
Capital management
The REIT's objectives when managing capital are to safeguard the ability to continue as a going concern and to generate sufficient returns to provide unitholders with stable
cash distributions. The REIT defines capital as mortgages and loans payable, senior unsecured debentures, credit facilities and unitholders' equity.
The REIT's Declaration of Trust permits the REIT to incur indebtedness, provided that after giving effect to incurring or assuming any indebtedness (as defined in the
Declaration of Trust), the amount of such indebtedness of the REIT is not more than 70% of the gross book value of the REIT's total assets. Gross book value as defined in the
Declaration of Trust includes the consolidated book value of the assets of the REIT, plus the amount of accumulated depreciation and amortization recorded in the books and
records of the REIT, plus the amount of any deferred tax liability arising out of any indirect acquisitions, calculated in accordance with generally accepted accounting
principles. As at December 31, 2020, the ratio of such indebtedness to gross book value was 49.3% (December 31, 2019, 51.3%), which complies with the requirement in the
Declaration of Trust and is consistent with the REIT's objectives.
The total managed capital for the REIT is summarized below:
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Total debt
Unitholders' equity
Note 32.
Risk management
December 31,
December 31,
Note
2020
2019
11
12
13
$
1,273,522
$
1,401,348
498,919
624,461
2,396,902
2,333,897
449,331
886,522
2,737,201
2,470,753
$
4,730,799
$
5,207,954
In the normal course of business, the REIT is exposed to a number of risks arising from its financial instruments. The most significant of these risks, and the actions taken to
manage them, are as follows:
(a) Market risk:
(i) Interest rate risk:
The REIT is exposed to interest rate risk on its borrowings. The Declaration of Trust restricts the REIT's indebtedness to 70% of the gross book value of the REIT's total
assets. The REIT also monitors the amount of variable rate debt. The majority of REIT's debt financing is in fixed rate terms or variables rates with interest rate swaps in
place. In addition, management considers the weighted-average term to maturity of long-term debt relative to the remaining average lease terms. At December 31,
2020, the REIT had variable rate debt, including credit facilities and debentures, of $1,495,281 (December 31, 2019, $2,041,647). At December 31, 2020, the REIT had
entered into interest rate swaps to hedge the interest rate risk associated with $973,405 of variable rate debt, including swaps on credit facilities and debentures
(December 31, 2019, $880,729).
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The following table outlines the impact on interest expense of a 100 basis point increase or decrease in interest rates on the REIT's variable rate debt and fixed rate debt
maturing within one year:
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Variable rate debt
Fixed rate debt due within one year
(ii) Foreign currency risk:
Impact on interest expense
$
$
5,219
4,126
9,345
The REIT owns properties located in the U.S., and therefore, the REIT is subject to foreign currency fluctuations that may impact its financial position and results. In
order to mitigate this risk, the REIT's debt on U.S. properties is held in US dollars to act as a natural hedge.
A $0.10 weakening in the US dollar against the calculated average Canadian dollar exchange rate of 1.3375 for the year ended December 31, 2020, and the year-end
exchange rate of 1.2732 at December 31, 2020, would have increased net income by approximately $5,780 for the year ended December 31, 2020. A $0.10 weakening
in the US dollar against the Canadian dollar would have increased other comprehensive loss by approximately $104,485 for the year ended December 31, 2020.
Conversely, a $0.10 strengthening in the US dollar against the Canadian dollar would have had an equal but opposite effect. This analysis assumes that all variables, in
particular interest rates, remain constant.
(iii) Other price risk:
The REIT periodically enters into derivative transactions in regards to non-financial items, primarily natural gas and electrical contracts, to manage the price risk arising
from fluctuations in these commodities.
(b) Credit risk:
The REIT's maximum exposure to credit risk is equivalent to the carrying value of each class of financial asset as separately presented in cash, cash held in trust, accounts
receivable and other receivables, deposits on investment properties and notes receivable.
The REIT is exposed to credit risk as an owner of real estate in that tenants may become unable to pay the contracted rents. Management mitigates this risk by carrying out
appropriate credit checks and related due diligence on the significant tenants. The REIT's properties are diversified across the industrial, office and retail asset classes, and
geographically diversified with properties owned across five Canadian provinces and six U.S. states.
The REIT measures loss allowance for rents receivable at the lifetime expected credit losses. In determining the expected credit losses, the REIT takes into account the
expectations of future defaults and rent abatements based on payment history, tenant communications and economic conditions, as well as the impact of COVID-19 on
tenant's ability to pay. As part of this assessment, the REIT reviews individual tenant risk profiles given the impact on tenant operations of COVID-19 restrictions imposed by
various levels of government. The government-imposed restrictions have the largest impact on the retail tenants. In an effort to support tenants adversely impacted by the
pandemic, certain qualifying tenants were given the option to defer a portion of their rent, with an agreement to repay the deferred amount at a specified later date.
Included in property operating expenses are expected credit losses of $2,693 during the year ended December 31, 2020 (2019, $589).
The aging of accounts receivable is summarized as follows:
Past due 0 - 30 days
Past due 31 - 90 days
Past due more than 91 days
$
December 31,
December 31,
$
2020
2,074
596
2,990
5,660
2019
5,110
935
2,063
8,108
Allowance for doubtful accounts
(1,444)
(406)
$
4,216
$
7,702
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
The repayment terms of the deferred receivables are as follows:
Not later than one year
One to two years
Allowance for doubtful accounts
The changes to the REIT's allowance for doubtful accounts were as follows:
Balance, beginning of year
Additional provisions recorded
Reversal of previous provisions
Amounts written-off
Foreign currency translation loss
Balance, end of year
December 31,
December 31,
$
$
2020
3,971
930
4,901
(545)
$
4,356
$
2019
—
—
—
—
—
$
December 31,
December 31,
$
2020
406
2,860
(167)
(1,081)
(29)
2019
471
744
(155)
(640)
(14)
$
1,989
$
406
The REIT is also exposed to credit risk as a holder of notes receivable. Management mitigates this risk by carrying out credit checks and related due diligence on the
borrowers and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. In addition, management monitors ongoing
repayments and evaluates market conditions that may affect debtors' ability to repay.
(c) Liquidity risk:
Liquidity risk is the risk that the REIT will not be able to meet its financial obligations as they come due. The REIT manages liquidity risk by maintaining adequate cash and by
having appropriate credit facilities available. In addition, the REIT continuously monitors and reviews both actual and forecasted cash flows.
The following are the estimated maturities of the REIT's financial liabilities at December 31, 2020 including accounts payable and other liabilities, lease liabilities, credit
facilities, senior unsecured debentures and mortgages and loans payable. All debentures are disclosed at their face value.
Total
Less than
1 year
1 - 3 years
4 - 5 years
After 5
years
Accounts payable and other liabilities
$
96,924
$
96,924
$
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
1,419
625,617
500,000
1,275,277
206
95,617
250,000
405,949
$
—
369
530,000
250,000
631,849
$
—
311
—
—
—
533
—
—
172,323
65,156
$
2,499,237
$
848,696
$
1,412,218
$
172,634
$
65,689
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ARTIS REAL ESTATE INVESTMENT TRUST
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 33.
Fair value measurements
The REIT uses a three-level hierarchy that reflects the significance of the inputs used in making fair value measurements of its financial instruments and its investment
properties. Level 1 of the fair value hierarchy uses quoted market prices in active markets for identical assets or liabilities to determine the fair value of assets and liabilities.
Level 2 includes valuations using inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 valuations are based on
inputs for the asset or liability that are not based on observable market data.
There were no transfers of assets or liabilities between hierarchy levels during the years ended December 31, 2020 and 2019.
Assets:
Investment properties
Investment properties under development
Notes receivable
Investment properties held for sale
Derivative instruments
Liabilities:
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Derivative instruments
December 31, 2020
December 31, 2019
Fair value
hierarchy
Carrying
value
Fair value
Carrying
value
Fair value
Level 3
Level 3
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
$
4,325,121
$
4,325,121
$
4,618,719
$
4,618,719
132,243
21,684
74,483
—
132,243
22,269
74,483
—
102,590
97,828
221,915
1,303
102,590
98,485
221,915
1,303
4,553,531
4,554,116
5,042,355
5,043,012
1,273,522
1,278,649
1,401,348
1,412,899
498,919
624,461
22,792
507,251
625,617
22,792
449,331
886,522
8,187
453,086
888,111
8,187
2,419,694
2,434,309
2,745,388
2,762,283
$
2,133,837
$
2,119,807
$
2,296,967
$
2,280,729
The fair value of the REIT's accounts receivable and other receivables, cash held in trust, cash and accounts payable and other liabilities approximate their carrying amounts
due to the relatively short periods to maturity of these financial instruments.
The fair values of notes receivable, derivative instruments, mortgages and loans payable, senior unsecured debentures and credit facilities have been determined by
discounting the cash flows of these financial instruments using period end market rates for instruments of similar terms and credit risks.
Derivative instruments primarily consist of interest rate and foreign currency swaps. The REIT entered into interest rate swaps on a number of mortgages and the non-
revolving credit facilities. The swaps are not designated in a hedge relationship.
ARTIS REAL ESTATE INVESTMENT TRUST
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2020 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except unit and per unit amounts)
Note 34.
Subsequent events
The following events occurred subsequent to December 31, 2020:
•
•
•
•
•
•
•
•
•
•
•
•
•
The Park Lucero East partnership purchased a parcel of development land in the Greater Phoenix Area, Arizona. The purchase price at the REIT's 10% interest was
$1,234 (US$970).
The REIT acquired an additional 5% interest in Park 8Ninety IV, an industrial property located in the Greater Houston Area, Texas, for total consideration of $1,921
(US$1,510). Prior to the acquisition date, the REIT owned 95% of this investment property and the property was classified as a joint venture.
The REIT disposed of Tower Business Center, an industrial property located in the Greater Denver Area, Colorado, held in one of its joint venture arrangements. The
sale price of this property at the REIT's interest was $67,508 (US$53,160) and a portion of the proceeds was used to repay the outstanding mortgage financing of $21,224
(US$16,713) at the REIT's interest.
A condominium corporation was registered for the industrial property classified as inventory (see note 8) and the REIT closed on the sales of a number of condominium
units for an aggregate sale price of $9,425.
The REIT entered into an unconditional sale agreement to sell a portion of a retail property located in Fort McMurray, Alberta for $4,600 with
expected closing in April 2021.
The REIT repaid a maturing mortgage for an office property in the amount of $12,978, repaid a maturing mortgage for a retail property in the amount of $5,405, repaid a
maturing mortgage for an industrial portfolio in the amount of $9,354 (US$7,366) and repaid a mortgage for an industrial property held under a joint venture
arrangement at the REIT's interest in the amount of $9,365 (US$7,360).
The REIT received new mortgage financing on three previously unencumbered retail properties in the amount of $81,000.
The REIT received new mortgage financing in the amount of $20,000 and repaid the existing mortgage in the amount of $10,944 for a retail property.
The REIT made an interest payment for the Series C senior unsecured debentures in the amount of $4,593 for the six months ended February 22, 2021 and repaid the
principal balance upon maturity in the amount of $250,000.
The REIT repaid a net balance of $30,000 and drew a net balance $202,551 (US$159,500) on its revolving term credit facilities.
The REIT purchased through the NCIB 1,064,346 common units at a weighted-average price of $10.68, 3,700 Series A Units at a weighted-average price of $19.51 and
6,624 Series E Units at a weighted-average price of $18.81.
The REIT declared a monthly cash distribution of $0.04635 per common unit for the months of January and February 2021.
The REIT declared a quarterly cash distribution of $0.3750 per Series I Unit for the three months ended January 31, 2021.
Note 35.
Comparative figures
Certain comparative figures in the consolidated statements of operations, consolidated statements of cash flows and note 29 segmented reporting for the year ended
December 31, 2019 have been reclassified to conform with the financial statement presentation adopted for the year ended December 31, 2020. Strategic initiative expenses
were previously included in corporate expenses for the year ended December 31, 2019 and are now presented as a separate line item on the consolidated statements of
operations and segmented reporting. This reclassification is intended to provide additional details on the REIT's results of operations. Distributions from joint ventures were
previously presented as cash flows from operating activities and are now presented as cash flows from investing activities on the consolidated statements of cash flows. This
reclassification is intended to better reflect the nature of the cash flows.
Note 36.
Approval of financial statements
These consolidated financial statements were approved by the Board of Trustees and authorized for issue on March 2, 2021.
2020 ANNUAL REPORT
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ARTIS REAL ESTATE INVESTMENT TRUST
Corporate information
Investor Relations
E-mail: investorinquiries@artisreit.com
Phone: (+1) 800-941-4751
Transfer Agent
AST Trust Company (canada)
Phone: (+1) 416-682-3860 or (+1) 800-387-0825
Fax: (+1) 888-249-6189
astfinancial.com/ca-en
Auditors
Deloitte LLP
Indenture Trustee
BNY Trust Company of Canada
Phone: (+1) 905-933-8558 or (+1) 800-254-2826
Fax: (+1) 416-360-1711
www.bnymellon.com
Legal Counsel
Norton Rose Fulbright
Toronto Stock Exchange Listings
Trust Units
AX.UN
Trust units also trade in the U.S. on the OTCQX
Best Market under the symbol ARESF.
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AX.PR.A Series A
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