2021
TSX: AX.UN
ANNUAL REPORT
2021 ANNUAL REPORT
TABLE OF CONTENTS
LETTER TO UNITHOLDERS _______________________________________________________________ 1
ARTIS AT A GLANCE ____________________________________________________________________ 9
Vision & Strategy ___________________________________________________________________ 12
PORTFOLIO & operational performance ____________________________________________15
current Developments _____________________________________________________________18
BALANCE SHEET & financial performance ___________________________________________19
CAPITAL ALLOCATION __________________________________________________________________ 21
ENVIRONMENTAL, SOCIAL & GOVERNANCE _____________________________________________ 22
Board Of Trustees _________________________________________________________________ 25
executive management ____________________________________________________________ 25
OUTLOOK ___________________________________________________________________________ 26
management’s discussion & analysis _____________________________________________ 28
consolidated financial statements _______________________________________________ 84
park lucero i
GREATER PHOENIX AREA, AZ
TABLE OF CONTENTS
DISCLAIMER AND FORWARD-LOOKING STATEMENTS
All figures are presented in Canadian dollars unless otherwise noted. The information
and the section entitled “Risk Factors” in the REIT’s Annual Information Form dated
in this Annual Report should be read in conjunction with the REIT’s audited annual
March 3, 2022, for additional information regarding risks and uncertainties.
consolidated financial statements and management’s discussion and analysis for the
years ended December 31, 2021, 2020 and 2019. These documents are available on
Notice with Respect to Non-GAAP & Supplementary Financial Measures Disclosure
SEDAR at www.sedar.com or on Artis’ website at www.artisreit.com.
In addition to reported IFRS measures, certain non-GAAP and supplementary financial
Certain statements contained in this Annual Report are “forward-looking statements”
measures are commonly used by Canadian real estate investment trusts as an
within the meaning of applicable securities laws. Forward-looking statements reflect
indicator of financial performance. “GAAP” means the generally accepted accounting
management’s expectations regarding the future growth, results of operations,
principles described by the CPA Canada Handbook - Accounting, which are applicable
performance, prospects and opportunities of Artis. Without limiting the foregoing,
as at the date on which any calculation using GAAP is to be made. Artis applies IFRS,
the words “expects”, “anticipates”, “intends”, “estimates”, “projects”, and similar
which is the section of GAAP applicable to publicly accountable enterprises.
expressions are intended to identify forward-looking statements. Readers are
cautioned not to place undue reliance on forward-looking statements.
Non-GAAP measures and ratios include Same Property Net Operating Income (“Same
Property NOI”), Funds From Operations (“FFO”), Adjusted Funds from Operations
All statements other than statements of historical fact contained or incorporated by
(“AFFO”), FFO per Unit, AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio, Net Asset
reference herein may be deemed to be forward-looking statements including, without
Value (“NAV”), NAV per Unit, Gross Book Value (“GBV”), Total Debt to GBV, Adjusted
limitation, statements regarding the timing and amount of distributions and the future
Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”),
financial position, business strategy, potential acquisitions and dispositions, plans and
Adjusted EBITDA Interest Coverage Ratio and Total Debt to Adjusted EBITDA.
objectives of Artis.
Management believes that these measures are helpful to investors because they are
Such forward-looking statements reflect management’s current beliefs and are based
widely recognized measures of Artis’ performance and provide a relevant basis for
on information currently available to management. Artis cannot assure investors that
comparison among real estate entities. These non-GAAP and supplementary financial
actual results will be consistent with any forward-looking statements and, other than
measures are not defined under IFRS and are not intended to represent financial
as required by applicable law, Artis assumes no obligation to update or revise such
performance, financial position or cash flows for the period, nor should any of these
forward-looking statements to reflect actual events or new circumstances. All forward-
measures be viewed as an alternative to net income, cash flow from operations or
looking statements contained in this Annual Report are qualified by this cautionary
other measures of financial performance calculated in accordance with IFRS. Refer
statement.Forward-looking statements may involve significant risks and uncertainties.
to the section entitled “Notice With Respect to Non-GAAP & Supplementary Financial
A number of factors could cause actual results to differ materially from the results
Measures Disclosure” in Artis’ 2021 Annual Management’s Discussion and Analysis
expressed or implied in forward-looking statements. Refer to section entitled “Risks
for further information.
and Uncertainties” in the REIT’s 2021 Annual Management’s Discussion and Analysis
ARTIS REAL ESTATE INVESTMENT TRUST
2021 ANNUAL REPORT
At the same time, we recognize our units continue to trade
expertise for the benefit of Artis’ owners. This dynamic was
at a significant discount to our NAV. Our goal is to narrow
instrumental in our first significant investment in a public
and ultimately close this gap.
entity, Cominar, that began last summer. This culminated in
The principle of intrinsic value, the determination of value
to establish a consortium that was the successful bidder
Artis (and Sandpiper) joining hands with two other partners
based on the measure of what an asset or collection of
assets is truly worth rather than their trading market price,
is crucial to understanding value investing. This principle
is contrary to the efficient market hypothesis, which states
that markets are efficient and that stocks always trade
at their fair value. Warren Buffett, the most famous value
investor in modern times, demonstrated that the efficient
market hypothesis is not realistic. He once said: “In the
short run, the market is a voting machine. In the long run,
it’s a weighing machine.” Applying this philosophy, our
value-investing strategy will focus on making NAV per unit
“heavier” (in other words, more valuable!) over time. That
is our focus, plain and simple – to build the value of our
company through disciplined and thoughtful value investing,
using principles that other value investors have proven out
and that we believe can be applied in our business and
industry. When we do so successfully, we will grow our NAV
per unit on a sustainable basis.
Our Business Transformation Plan announced last March
highlighted the idea of investing in other companies or
REITs as part of a broader and more diverse investment
strategy. Many were surprised when we announced this
plan. When we invest in other companies or REITs, we are
buying a piece of that business ‐ or, put a different way, a
piece of the real estate portfolio owned by that company
or REIT. We would do so because we believe the intrinsic
value of that business or portfolio is higher than the market
is giving it credit for and, relative to other investment or
capital allocation opportunities, we believe the investment
will produce a better return on our capital in the long run.
For the purposes of identifying and underwriting public
securities investment opportunities, we have established
“In this letter,
I will provide
further clarity
and context
that will enable
our owners to
understand what
we are doing and,
more importantly,
why we are
doing it. This is
something I plan
to continue doing
annually.”
a formal relationship with Sandpiper Group (“Sandpiper”),
to acquire and privatize Cominar. I will elaborate on this
a company owned by my family. We have disclosed this
further, but suffice it to say, if not for this unique relationship
relationship and will continue to provide transparency to our
that Artis and Sandpiper had established, the opportunity
owners, something that is very important to me. The team
to capitalize on the Cominar acquisition would not have
at Sandpiper has developed this subject matter expertise
materialized.
and in establishing this relationship between Artis and
Sandpiper, the objective is very simple – to harness that
Our plan for Artis also includes strengthening our balance
LETTER TO UNITHOLDERS
Samir Manji
President &
Chief Executive Officer
This will be the first time I am writing to our valued
We closed 2021 with a NAV per unit of $17.37, representing
unitholders since March 10, 2021, when we announced our
an increase of $2.34 or 16% over the 2020 year‐end NAV per
Business Transformation Plan, which set out our new vision
unit of $15.03. Multiple factors contributed to this growth,
and strategy for Artis. Since that time, we have been busy
including the monetization of certain assets above their
at work, focusing on executing in the early days of our plan
International Financial Reporting Standards (“IFRS”) values,
to build significant value for our owners. We have received
the increase in overall value of our portfolio of properties and
a diverse range of comments and questions related to our
the repurchasing of units through our normal course issuer
new vision and strategy. In this letter, I will provide further
bid. When we include the regular monthly distributions that
clarity and context that will enable our owners to understand
we paid to unitholders in 2021 (totalling $0.5927 per unit
what we are doing and, more importantly, why we are doing
for the year), the total increase relative to our 2020 year‐end
it. This is something I plan to continue doing annually.
NAV was $2.93, which translates to a total return of 20%.
This calculation does not include the special cash (and
Our March 2021 announcement highlighted our focus
non‐cash) $0.32 per unit distribution that was declared, as
on growing our net asset value (“NAV”) per unit and
this is not a normal, recurring distribution - rather, it was
distributions through value investing. There are three pillars
directly related to potential taxes unitholders may have to
to this strategy: 1) strengthening the balance sheet through
pay because of asset sales Artis completed last year. While
accretive dispositions, disciplined unit buybacks and debt
I am very pleased with the overall return we achieved, we
reduction; 2) driving organic growth through development of
cannot promise or guarantee that we will be able to repeat
our assets; and 3) investing in mispriced, misunderstood, or
this every year. What we will commit to is to do our best to
mismanaged assets or companies, including REITs. In each
make sound investment and capital allocation decisions so
aspect of this strategy, we have exceeded expectations
that, in the long term, we put ourselves in the best position
over the past 12 months.
possible to deliver strong returns to our owners.
1
LETTER TO UNITHOLDERS
LETTER TO UNITHOLDERS
2
ARTIS REAL ESTATE INVESTMENT TRUST
2021 ANNUAL REPORT
sheet, which we achieved in 2021. This was driven by the
joining Canderel and another partner to buy Cominar. Given
Trustees sought to have Artis take the full amount of the junior preferred
sale of our GTA industrial portfolio for a price well above the
the extensive underwriting Sandpiper had already done
units and Sandpiper was agreeable to that arrangement. Interestingly, after
IFRS (or estimated) value at that time. This was a product
and shared with Artis’ Investment Committee and Board,
the announcement last October, we received a number of inbound calls from
of a carefully choreographed auction process that included
we were able to engage in the discussions swiftly and
other investors who asked if they could participate in the $100 million junior
8401 GREENWAY
MADISON, WI
a significant number of buyers prepared to bid a price that
with confidence. When Jonathan told me the other partner
preferred unit investment. Of course, we said no – this will be for the sole and
exceeded our expectations. In achieving this sale at a price
was FrontFour Capital, it made the decision to engage
full benefit of Artis’ owners. The ultimate outcome of this investment remains
over $700 million, we were able to reduce our debt and
even easier, as I had worked with one of the principals at
to be seen; however, focusing again on the principle of intrinsic value, we
increase our liquidity which, by the end of the year, stood at
FrontFour previously and knew that their team was smart
know that Cominar had previously disclosed an IFRS value of over $15.00 per
$724.9 million. Liquidity represents the amount of capital
and trustworthy – just like the team at Canderel.
unit. In simple terms, IFRS value represents an estimate of fair market value.
we have to invest in or allocate to new investments or
We agree with this assessment and expect that our investment provides for
existing properties. Our goal is to always have a reasonable
Canderel and FrontFour were setting up a
limited
significant upside and profit for Artis’ unitholders.
level of liquidity. This allows us to have flexibility at all times
partnership to acquire Cominar. In this type of structure,
to weather unexpected headwinds while also putting us in
a limited partner is an investor that provides the equity
Normal Course Issuer Bid (“NCIB”)
a position to capitalize on situations when significant value
for the investment but is not a day-to-day manager of the
A normal course issuer bid, also known as an NCIB, can be a very powerful
opportunities become available.
business. The general partner, on the other hand, oversees
tool to enhance value for owners. In simple terms, by reducing the number
the business and is active in the daily operations of the
of units outstanding it allows each owner to own more of the company (or
Year in Review
company. While Canderel and FrontFour had other equity
in our case, REIT) without having to invest any additional money. An NCIB
As
I noted above, effective capital allocation
is a
investors interested in joining (or already committed to)
can also enhance NAV, or intrinsic value per unit, as buying back units for a
foundational component of our new vision and strategy.
the opportunity, we successfully negotiated for Artis
price lower than the in‐place existing NAV results in fewer units outstanding
The monetization of select assets in a measured, patient
and Sandpiper to not only invest as limited partners for
and, therefore, increases the NAV on the remaining units. During the term
and opportunistic manner has been, and will continue to be,
a significant portion of the overall equity, but also to
of our NCIB that expired on December 16, 2021, we purchased 10,160,396
essential to providing us with the resources to meaningfully
participate alongside Canderel and FrontFour as general
common units at a weighted‐average price of $11.26, representing the
reduce debt and to execute on our value‐investing strategies.
partners, with Artis and Sandpiper together receiving a
maximum number of units allowable under the applicable term. The NCIB
During the year, we sold 41 assets for an aggregate sale
one-third share of the general partnership and four of nine
was renewed on December 17, 2021, and during the remainder of the year,
price of $858.6 million. These dispositions included the
board seats. This means that Artis and Sandpiper will also
we acquired an additional 1,018,968 common units at a weighted average
previously mentioned sale of our GTA industrial portfolio,
share one-third of any and all profits and fees realized by
price of $11.61, well below the year‐end NAV per unit of $17.37. We will not
which was a milestone transaction for Artis. We also exited
the general partners. Artis and Sandpiper will share all
hesitate to continue using the NCIB whenever our units trade at a significant
the Calgary office market with the sale of our remaining
general partner profits and fees equally and will each have
discount to our NAV. This is both a prudent capital allocation decision and
Calgary office properties. The proceeds from divestitures
two representatives on the board.
one that comes with low risk to our owners, as we are buying our own units
provided us with the financial flexibility to make significant
at a substantial discount.
progress in the execution of our strategy.
Together as a consortium, we acquired Cominar for $11.75
per unit – a price we believe is significantly below the
Development Projects
Below I have summarized a few of our notable 2021
intrinsic value of the underlying assets acquired. We are
Creating value for Artis’ unitholders through development projects has been a
investments and capital allocation initiatives.
expecting to generate very strong returns on the capital we
sound strategy to date ‐ especially when it comes to industrial developments.
have committed to this investment. In discussions with the
We are approaching the completion of our fifth and final phase of Park 8Ninety
Privatization of Cominar
Artis Investment Committee and Board, it was agreed that
in Houston, Texas. This final phase, which we own 95% of, will comprise
On October 25, 2021, we announced our participation in an
Artis and Sandpiper together would commit approximately
approximately 675,000 square feet of additional industrial space to add to
investor group formed to acquire Cominar. This transaction
49% of the equity in the consortium, with Artis taking two-
our existing 1,120,414 square feet in the first four phases. We are also making
is reflective of the type of opportunity we hope to allocate
thirds of this and Sandpiper taking the remaining one-
excellent progress on Park Lucero East, an industrial development project in
capital to in the future. In 2020, Cominar’s board announced
third. Ultimately, Artis contributed $112 million to acquire
Phoenix, Arizona, that we have both a 10% ownership interest in and also a
that it was undertaking a strategic review. We believed
common equity units, which represented approximately
lucrative development management contract that will reward us for the value
the units of Cominar were trading for much less than their
33% of the total common equity units in the newly formed
creation we anticipate achieving on completion. In 2021, we acquired two
intrinsic value, so by early summer, with the GTA industrial
entity, and was also successful in securing an additional
parcels of industrial development land in Minneapolis, Minnesota, and began
portfolio sale under our belt, we began acquiring Cominar
$100 million investment in the overall capital structure of the
construction on the first of two phases. This project, Blaine 35, is expected
units. In late July, my friend Jonathan Wener, the founder of
consortium in the form of junior preferred units that will pay
to total 317,400 square feet upon completion. With all of our industrial
Canderel, called me and asked if we would be interested in
a very attractive rate of 18% per annum. Artis’ independent
developments, we are anticipating achieving significant value creation, as we
“Effective
capital
allocation is a
foundational
component of
our new vision
and strategy.”
3
LETTER TO UNITHOLDERS
LETTER TO UNITHOLDERS
4
ARTIS REAL ESTATE INVESTMENT TRUST
are building these projects at a cost well below what we
Dream Office Real Estate Investment Trust (“Dream”) which
Focus on Key Performance Indicators
work with our operations team to seek out new ways to be
believe they will be worth once completed. Finally, on the
culminated in an announcement subsequent to the end of
Our plan for 2022 includes monetizing over $500 million
more energy efficient across our portfolio, while reviewing
development front, we have made significant progress on
the year that we, together with our joint actors, now have
of assets in several Canadian and U.S. markets. We will
opportunities to achieve or improve LEED certification for
the development of 300 Main, a 40‐storey commercial and
a 10% ownership position in Dream. We will continue to
use disposition proceeds to pay down debt further and
our properties. We are creating a tenant portal that will
residential development project in Winnipeg, Manitoba, with
seek out similar, unique opportunities that capitalize on
to reallocate some of the capital into initiatives that we
enhance tenant engagement, including an avenue to have
pre-leasing of the first 20 floors of residential apartments
mispricing and valuation inefficiencies that exist in the
believe will achieve the highest possible return, ultimately
tenants participate in our ESG initiatives and best practices.
under way.
public real estate markets.
contributing to our most important objective, growing NAV
We have an excellent team with a strong work ethic at
Purchases of Equity Securities
Core Long‐Term Real Estate Holdings
to capitalize on opportunities that surface unexpectedly or
a culture that promotes diversity, equity and inclusion.
As noted earlier, an integral component of our Business
While we sold a number of properties last year and, as detailed
other avenues we identify to move our strategy forward.
We will continue to support our employees in their career
per unit. Our improved liquidity position will also enable us
Artis. We are committed to maintaining and strengthening
Transformation Plan is to focus on value investing by
later in this letter, will sell additional properties in 2022, we
identifying real estate opportunities that are mispriced,
will continue to own, for the long term, a core portfolio of
Drive Organic Growth
misunderstood or mismanaged. This includes investing
assets in key markets that we wish to remain invested in.
Our management team will continue to look for ways to
in public securities where there can sometimes be a
These core properties are expected to: (i) generate strong
improve operating efficiencies across our existing portfolio
significant disconnect between the value the market
income and cash flow for Artis and its owners, (ii) produce
of assets, while pushing up lease rates and occupancy.
gives a company or REIT and the true underlying net asset
healthy rental rate growth and corresponding bottom line
These efforts will maximize net operating income (“NOI”),
value per share/unit that the company/REIT is worth.
performance, and (iii) continue to perform well. As a result,
which drives funds from operations (“FFO”) and adjusted
In the current environment where there continues to be
from a capital allocation standpoint, we remain committed
funds from operations (“AFFO”) growth and ultimately leads
inflationary pressure (I.e., values are going up) in the private
to maintaining a meaningful allocation of our capital to
to value appreciation and growth in NAV per unit.
real estate transaction environment, I believe that one of
direct, income producing real estate that we own.
the best ways for Artis to invest some of its capital is in
public companies or REITs. There are some companies or
Balance Sheet and Liquidity
We have a robust pipeline of industrial development
projects under way that we expect will be worth much more
REITs that have excellent properties in strong markets that
As noted earlier, one of our key long‐term objectives is
upon completion than what it cost us to build. In 2022,
we would love to own directly and an indirect investment
to have lower leverage, meaning that the total amount of
several of these projects which we highlighted earlier will
in their public shares or units is a different way for us to
money we have borrowed as a percentage of our overall
achieve substantial completion, including Blaine 35 Phase I
achieve an ownership interest. The best part is that we
assets should be lower than it has been historically. At
in Minneapolis, Park 8Ninety Phase V in Houston and Park
get to do so at a discount to what it would ultimately cost
times in the past, our leverage has been over 50% of the
Lucero East in Phoenix. We are well on our way to fully
us to buy these properties directly – and sometimes this
value of our assets. Our goal was to reduce this leverage
leasing these assets prior to delivery to the market and
discount can be significant. Generally speaking, we will not
and we were successful in doing so during 2021. By the
we will continue to focus our efforts on maximizing value
disclose the name of a company or REIT as we are buying
end of the year, our debt to gross book value (the estimated
through lease‐up. Similarly, 2022 will be a milestone year
the shares/units in the market. Some have suggested that
value of our assets) was 42.9%, compared to 49.3% at the
for 300 Main in Winnipeg, with Earls restaurant opening on
we are not being transparent; however, they know all too
start of the year. While this ratio may fluctuate due to timing
the main floor and delivery of the first 20 of 40 floors of
well that it is not in our interest to tell other people what
of dispositions, we would like to keep our overall borrowing
rental apartment units to the market. These developments
we are doing until we have completed acquiring our desired
below approximately 45% and, if possible, reduce it even
result in the creation of new NOI for our portfolio and will
ownership position, unless we are required to disclose
further to below 40%.
earlier for regulatory compliance. Sometimes disclosing
this information will lead to the price of that company/REIT
The Road Ahead
ultimately increase cashflow, FFO and AFFO. The difference
between development cost and market value for each of
these projects creates NAV per unit growth and instant
“We have an
excellent team
with a strong
work ethic at
Artis. We are
committed to
maintaining and
strengthening
a culture that
promotes
diversity, equity
and inclusion.”
going up, which would mean that it costs Artis’ owners
We expect 2022 to be another busy year as we continue
value creation for our unitholders. As we move forward,
more to make additional investment. As we move forward
to execute on our vision and strategy. Several aspects of
we will continue to explore opportunities to add additional
objectives, while creating an environment that fosters
and begin disclosing these names, we will also use this
that strategy are already in motion and, over the balance of
projects to our development pipeline.
community involvement and social awareness.
annual letter as an opportunity to provide more thoughts,
2022, we will continue to carve our path to becoming a best‐
commentary and updates on the different investments we
in‐class organization by focusing our efforts on allocating
Environmental, Social and Governance (“ESG”)
Capital Market Investments
own.
capital to the highest and best return opportunities that
In 2022, our newly formed ESG Committee, with the oversight
Our participation in the privatization of Cominar was the
During 2021, we also began accumulating a position in
initiatives. We will actively monitor energy consumption and
of being a value investor in the public real estate space. Our
maximize value for our owners.
of the Board, will continue to push forward on new ESG
first major capital allocation exercise as part of our strategy
5
LETTER TO UNITHOLDERS
LETTER TO UNITHOLDERS
6
2021 ANNUAL REPORT ARTIS REAL ESTATE INVESTMENT TRUST
2021 ANNUAL REPORT
canadian pacific plaza
MINNEAPOLIS, MN
“We have an
ambitious plan
and vision, but
also have high
conviction and
optimism about
what we are
going to do.”
investment in Dream Office represents another important
of Chief Operating Officer and Jaclyn Koenig, who was
step in our capital markets activities and is already paying
previously Senior Vice-President Accounting, became Chief
dividends.
Financial Officer. Kim and Jackie have been instrumental in
shaping and influencing our accomplishments in 2021. They
The heavy lifting in 2021 planted seeds for growth in
work hard, are very smart and have an unwavering loyalty to
2022. As we move through the next year and focus on the
the organization. I admire their unique styles, perspectives
execution of our strategy, our unitholders will see these
and incredible work ethic. I would like to acknowledge them
efforts continue to bear fruit. Our improved liquidity will
for their leadership and commitment to Artis, our owners
allow us to be nimble and capitalize on new opportunities,
and our team.
while we continue to enhance our existing portfolio
and execute on our capital market investment strategy,
The global pandemic that began in 2020 has meant that,
ultimately leading to meaningful long‐term growth of NAV
for the past two years, Artis has not had the opportunity
per unit and improved value for unitholders.
to hold an in‐person annual general meeting. That is going
to change this year, as things have started to reopen and
Some Final Thoughts and Our Annual General Meeting
the environment is evolving such that in‐person AGMs are
I know they say time flies when you’re having fun, but it is
possible again. Artis will hold its AGM on Thursday, June 9,
hard to believe just how fast time has flown by over these
2022, in Toronto, Ontario. We hope that you will join us and
past 15 months! Yes, we are having fun as we continue to
look forward to meeting our fellow owners in person for the
harness the incredible opportunity that our owners have
first time since most of the Board took office and I had the
entrusted us with ‐ to transform Artis into something unique
privilege of becoming your President and CEO. For those
and compelling that does not exist in the Canadian public
who are not able to make it in person, you will be able to
real estate market. I remember that when we announced
attend virtually so you do not miss out.
our new vision and strategy last March, many were very
excited while others were disappointed because they were
We were able to accomplish all of the above, as well as
hoping for a different plan. We chose the road less travelled
the many other achievements, in 2021 thanks to the hard
because of our confidence and conviction that we could
work of our team at Artis under the guidance of our Board
build something unique and valuable for our owners. We
of Trustees. As I said at the outset, we have been busy at
are grateful for and encouraged by those who chose to
work! I hope this letter explains what we have been up to
remain as owners and also welcome our new, more recent
and why. We still have a lot of work ahead of us and, as I
owners of Artis. It has been just over a year and we have
like to say to members of our Board and our team, we are
come a long way during that time. As I said earlier, we are
only getting started!
just getting started! We have an exciting journey ahead
and I, alongside our Trustees and executives, am looking
Let me close by sharing how exciting this past year has been
forward to engaging with as many of our owners as possible
for Artis and how optimistic we are about the year and years
in the weeks and months ahead. This is something we are
ahead. We have an ambitious plan and vision, but also have
committed to doing – staying in touch and engaged with
high conviction and optimism about what we are going to
our owners. You have entrusted us with your capital and we
do. As always, we thank you for your support, confidence
will work hard and do our best to invest and manage that
and trust and look forward to the journey ahead together.
capital on your behalf so as to achieve strong returns and
NAV growth for you.
This past year also saw significant change in the senior
leadership at Artis. This included two exciting promotions
within the organization. Kim Riley, formerly an Executive
Samir A. Manji
Vice-President, assumed the newly established position
President & Chief Executive Officer
7
LETTER TO UNITHOLDERS
8
ARTIS REAL ESTATE INVESTMENT TRUST
2021 ANNUAL REPORT
300 MAIN
WINNIPEG, MB
ARTIS AT A GLANCE
Artis Real Estate Investment Trust is one of the largest
Artis’ common units also trade in the United States on the
diversified commercial real estate investment trusts in
OTCQX Best Market (“OTCQX”) under the symbol ARESF.
Canada and is an unincorporated closed-end real estate
investment trust created under, and governed by, the laws
Artis owns a portfolio of industrial, office and retail
of the Province of Manitoba. Artis’ common units trade on
properties in Canada and the United States. At December
the Toronto Stock Exchange under the symbol AX.UN and
31, 2021, the REIT’s portfolio comprised 156 commercial
the REIT’s preferred units trade under the symbols AX.PR.A,
properties totalling approximately 17.9 million square feet
AX.PR.E and AX.PR.I.
of gross leasable area.
Highlights
Annual
Distribution
$0.60 Per Common Unit
Number of
Properties
156
Gross Leasable Area
17.9
Million Sq Ft
Net Operating
income by
country
45.2%
Canada
54.8%
U.S.
gross
leasable area
by country
38.9% 61.1%
Canada
U.S.
nav per unit
$17.37
Total debt to GBV
Total assets
42.9%
$4.6
Billion
revenue
$419.5
Million
affo per unit
$0.96
affo payout ratio
61.5%
9
ARTIS AT A GLANCE
ARTIS AT A GLANCE
10
ARTIS REAL ESTATE INVESTMENT TRUST
MAX AT KIERLAND
SCOTTSDALE, AZ
Vision & Strategy
On March 10, 2021, the REIT announced a new vision: to
of assets through future joint arrangements;
become a best-in-class real estate asset management and
• Optimizing the value of existing properties through
investment platform focused on growing NAV per unit and
operational efficiencies; and
distributions for its investors through value investing in real
• Focusing on operating in a cost-efficient manner
estate.
across the organization.
In connection with this announcement, the REIT unveiled a
4. Institutionalizing the new platform
detailed strategy (the “Business Transformation Plan”) to
• Establishing an entrepreneurial culture that supports
achieve its vision and to create Canada’s pre-eminent asset
and promotes the execution of Artis’ long-term vision
management and investment platform, focused on value
and strategy;
investing in real estate. The Business Transformation Plan
• Continuously raising the bar for financial reporting
includes the following key elements:
and other disclosures;
1. Strengthening the balance sheet to provide significant
governance strategy;
liquidity and flexibility
• Enhancing the investor relations and communications
• Unlocking value by monetizing a portion of Artis’
program; and
institutional-grade industrial portfolio;
• Rebranding – new name, new image, new future.
• Developing a robust environmental, social and
• Maximizing value of Artis’ office and retail assets
by improving operating performance and pursuing
a measured, opportunistic and patient strategy for
divestitures;
• Maintaining strong
liquidity
to capitalize on
opportunities; and
• Maintaining low leverage and debt metrics within the
investment grade credit rating parameters defined
by DBRS Morningstar.
2. Focusing on value investing by identifying real estate
opportunities that are mispriced, misunderstood or
mismanaged
•
Identifying investments that are undervalued with
potential to produce above average risk-adjusted
returns over the medium-to-long term;
• Evaluating opportunistic investments that can be
fixed or turned around;
• Acting as a catalyst to influence positive change;
and
• Capitalizing on mispricing in the public markets.
3. Driving organic growth
•
Improving the income profile of assets to the highest
potential;
• Developing a recurring fee stream for management
“A best-in-class
real estate asset
management and
investment platform
focused on growing
NAV per unit and
distributions for its
investors through
value investing in real
estate.”
11
VISION & STRATEGY
12
2021 ANNUAL REPORT ARTIS REAL ESTATE INVESTMENT TRUST
2021 ANNUAL REPORT
PARK 8NINETY
HOUSTON, TX
As part of the Business Transformation Plan, Artis
positions as described above, the REIT will focus on
confirmed it will become agnostic as to how it owns real
improving its balance sheet while deploying some of the
estate and will embrace opportunism and the inefficiencies
proceeds into new real estate investments including core
that the public markets provide, leveraging and capitalizing
cash-flowing hard assets, undervalued publicly traded real
on opportunities that exist today or will surface in the future.
estate securities and value-add real estate acquisitions or
Artis will also seek to deploy capital into liquid, strategic
developments.
investments
in portfolio companies (i.e. undervalued
With respect to public real estate entities, Artis will seek
public real estate entities) as well as high-conviction hard
to acquire meaningful and influential ownership positions
assets. The REIT will seek to drive performance both in
in undervalued entities. The REIT’s near-term focus will
its hard assets and portfolio companies through active
be on publicly listed Canadian real estate entities. Artis
management to generate ample operating cashflow for
will unlock value
in
its portfolio companies through
distributions while continually recycling excess capital over
active management, which may include pursuing board
the long term. Additionally, Artis confirmed its intention to
representation and engaging constructively with boards
reduce its leverage and take an owner-centric approach to
and management teams of its portfolio companies to
capital allocation that will build investor confidence and
effectuate
long-term value creation. Artis may serve
brand equity through execution and performance.
as a catalyst for privatizations, merger and acquisition
opportunities, strategic transformations, and operational
As a first step to the above, Artis began unlocking some
and governance improvements for its portfolio companies,
of the trapped value in some of its hard real estate assets
with a focus on maximizing value for the owners of Artis.
through the monetization of certain industrial assets. Over
the short-to-medium term, the REIT will evaluate the sale of
The goal of the Business Transformation Plan is to
a portion of its office and retail assets in an opportunistic
generate meaningful long-term growth in NAV per unit
and disciplined manner, with the goal of maximizing value
and distributions by monetizing assets, strengthening the
on a tax-efficient basis. As with the sale of the industrial
balance sheet and scaling-up through value investing. Artis
assets, this could take many forms.
will concentrate its ownership in the highest and best return
opportunities in an effort to maximize long-term value for
As Artis continues to divest partial or entire ownership
unitholders.
2021 unit price performance
12.5
12
11.5
11
10.5
$
e
c
i
r
p
g
n
d
a
r
T
i
“The goal of
the Business
Transformation
Plan is to generate
meaningful long-term
growth in NAV per unit
and distributions by
monetizing assets,
strengthening the
balance sheet and
scaling-up through
value investing.“
10
2021-01-01
2021-02-01
2021-03-01
2021-04-01
2021-05-01
2021-06-01
2021-07-01
2021-08-01
2021-09-01
2021-10-01
2021-11-01
2021-12-01
2021-12-31
13
VISION & STRATEGY
AX.UN PRICE
50-DAY SIMPLE MOVING AVERAGE
14
we
ARTIS REAL ESTATE INVESTMENT TRUST
PORTFOLIO & operational performance
On December 31, 2021, Artis’ portfolio comprised 156 properties totalling 17.9
million square feet of gross leasable area. The REIT’s portfolio includes industrial,
office and retail properties located across five provinces and six states in Canada
and the United States (“U.S.”). At December 31, 2021, Canadian assets account for
38.9% of the portfolio by gross leasable area, while 61.1% of the portfolio by gross
leasable area is located in the U.S. By asset class, Artis’ industrial portfolio accounts
for 48.8% of the REIT’s gross leasable area, while office assets represent 39.2% and
retail assets represent 12.0%.
Artis also has partial ownership in 10 investment properties comprising approximately
1.5 million square feet of gross leasable area under joint venture arrangements.
These properties are located in British Columbia, Alberta, Saskatchewan, Texas and
Colorado, across the industrial and office asset classes. At December 31, 2021,
based on gross leasable area, 61.4% of these properties are located in Canada and
38.6% are located in the U.S.
In 2021, Artis’ portfolio continued to demonstrate resiliency, maintaining a healthy
occupancy level above 90% (including commitments) throughout the year. Across
Artis’ six offices located in Winnipeg, Calgary, Edmonton, Phoenix, Madison and
Minneapolis, approximately 2.6 million square feet of lease transactions (including
new leases and renewals) were completed during the year. The weighted-average
increase in rental rates achieved on renewals that commenced during the year was
4.1%. Looking ahead to 2022, a manageable 13.2% of Artis’ gross leasable area
expires, 34.5% of which was renewed or committed to new leases at the end of 2021.
Artis’ property managers continue to foster relationships with tenants, working to
ensure that their space is aligned with their business strategy and overall needs, and
to promote tenant retention.
lease expiries (by gross leasable area)
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2022
2023
2024
2025
2026+
Industrial
Office
Retail
Total
2021 ANNUAL REPORT
alberta
32 properties
1.9 million sq. ft.
british columbia
3 properties
0.3 million sq. ft.
saskatchewan
6 properties
0.6 million sq. ft.
Arizona
11 properties
1.7 million sq. ft.
Colorado
3 properties
0.6 million sq. ft.
Manitoba
42 properties
3.7 million sq. ft.
wisconsin
16 properties
1.8 million sq. ft.
Ontario
5 properties
0.4 million sq. ft.
NEW YORK
1 property
0.1 million sq. ft.
TEXAS
4 properties
1.1 million sq. ft.
minnesota
33 properties
5.7 million sq. ft.
PORTFOLIO BY GROSS LEASABLE AREA
Wisconsin
9.8%
texas
6.1%
New York
0.7%
Minnesota
31.6%
Colorado
3.2%
Alberta
10.8%
British Columbia
1.8%
Office
39.2%
Manitoba
20.9%
Ontario
2.3%
saskatchewan
3.1%
Arizona
9.7%
RETAIL
12.0%
Industrial
48.8%
15
PORTFOLIO & OPERATIONAL PERFORMANCE
PORTFOLIO & OPERATIONAL PERFORMANCE
16
ARTIS REAL ESTATE INVESTMENT TRUST
2021 ANNUAL REPORT
Artis has 1,229 tenant leases in its portfolio with a weighted-
as well as a development management contract that will
average term to maturity of 5.1 years. The properties have
reward Artis for the value creation achieved on completion.
a diverse tenant base, with the top 10 tenants representing
In 2021, Artis also acquired two parcels of industrial
17.8% of the REIT’s total gross revenue and a weighted-
development land in the Twin Cities Area, Minnesota, and
average term to maturity of 8.5 years.
began construction on the first of two phases. This project,
current Developments
%of Total
gross revenue
%weighted-average
lease term in years
top ten tenants
Tenant
1. Government
2. at&t
3. bell canada
4. Bell Mts
5. prime therapeutics, LLC
6. tds telecommunications corporation
7. catalent pharma solutions, llc
8. cb richard ellis, inc
9. recipe unlimited corporation
10. pbp, inc
2.8%
2.2%
2.1%
2.0%
2.0%
1.5%
1.5%
1.3%
1.2%
1.2%
Blaine 35, is expected to total 317,400 square feet upon
completion. Lastly, in 2021 Artis made substantial progress
on the development of 300 Main, a 40‐storey commercial
and residential development project in Winnipeg, Manitoba.
A national restaurant tenant will be opening on the ground
floor of this building in March 2022, and pre-leasing of the
first 20 floors of residential apartments is under way.
8.2
1.2
7.8
5.0
On March 10, 2021, Artis announced a new vision and
12.8
6.1
14.6
5.0
7.0
9.9
strategy – to build a best-in-class asset management and
investment platform focused on growing net asset value per
unit and distributions for investors through value investing
in real estate. As part of this new vision and strategy, Artis
will classify certain assets as core long-term real estate
holdings while identifying opportunities within the portfolio
to unlock value through the monetization of other assets.
The objective of asset sales is to optimize the portfolio
to align with the strategy while providing the resources
Rent collections have remained strong since the beginning
to meaningfully reduce debt and the flexibility to execute
of the pandemic and the fourth quarter was no exception.
Artis’ value-investing strategies. Core long-term real estate
Artis collected 98.2% of rent charges (both excluding and
holdings are expected to: (i) generate strong income and
including deferred rent charges) for the three months ended
cash flow for Artis and its owners, (ii) produce healthy rental
December 31, 2021. While governments cautiously reduce
rate growth and corresponding bottom line performance,
or eliminate restrictions in many of Artis’ markets, the REIT’s
and (iii) continue to perform well. With respect to capital
property management team continues to work diligently to
allocation, Artis is committed to maintaining a meaningful
maintain a clean and safe environment at all properties
allocation of its capital to direct ownership of income-
and support its tenants during this time of unprecedented
producing real estate.
challenges.
In connection with the Business Transformation Plan,
Artis continues to create value for unitholders through
Artis sold 41 properties and a portion of a retail property
development projects, which present a compelling
totalling 3,659,055 square feet of gross leasable area for
opportunity to build new generation real estate at building
an aggregate sale price of $858.6 million in 2021. These
costs that are well below the REIT’s estimated fair value upon
dispositions included the sale of Artis’ GTA Industrial
completion. At the end of 2021, Artis was near completion
Portfolio, which was a milestone transaction for the
of the fifth and final phase of Park 8Ninety in Houston,
REIT, and the sale of all of Artis’ remaining Calgary office
Texas. This final phase, of which Artis owns 95%, will add
properties. These sales provided Artis with the financial
approximately 675,000 square feet of additional industrial
flexibility to make significant progress in executing its
space to a complex that will total 1,795,414 square feet
strategy while reaffirming the significant demand for
upon completion. Artis is also making excellent progress
all classes of real estate across Artis’ existing markets,
on Park Lucero East, an industrial development project in
despite an environment of economic uncertainty due to the
Phoenix, Arizona, that the REIT has a 10% ownership in
pandemic.
PARK LUCERO EAST
GREATER PHOENIX AREA, AZ
Blaine 35
is a
two-phase
industrial
development project located in the Twin Cities
Area, Minnesota, with prominent interstate
frontage at the intersection of I-35W and 85th
Ave N. Blaine 35 will comprise three buildings
expected to total approximately 317,400
square feet upon completion.
BLAINE 35
TWIN CITIES AREA, MN
300 MAIN
WINNIPEG, MB
Park 8Ninety
is a multi-phase
industrial
development project on a 127 acre parcel of
land in Houston, Texas. The first four phases of
Park 8Ninety are complete and total 1,120,414
square feet of leasable area. The fifth phase is
under constriction and expected to comprise
three buildings totalling 675,000 square feet
upon completion. Artis has a 95% ownership
interest in Park 8Ninety II and V in the form of
joint venture arrangements.
PARK 8NINETY V
HOUSTON, TX
Park Lucero East is a state-of-the-art industrial
development project located in the Greater
Phoenix Area, Arizona, adjacent to Park
Lucero, a multi-phase industrial complex that
is owned by Artis. This project is expected to
comprise three Class A industrial buildings
totalling approximately 561,000 square feet
of leasable area. Artis has a 10% interest in
Park Lucero East in the form of an investment
in an associate.
300 Main is a 580,000 square foot commercial
and
residential/multi-family development
project in the heart of downtown Winnipeg,
Manitoba. 300 Main is connected to 330 Main,
a state-of-the-art multi-tenant retail property
constructed in 2020. 300 Main will be a best-
in-class amenity-rich apartment building with
main floor commercial space.
17
PORTFOLIO & OPERATIONAL PERFORMANCE
CURRENT DEVELOPMENTS
18
ARTIS REAL ESTATE INVESTMENT TRUST
BALANCE SHEET & financial performance
2021 ANNUAL REPORT
A critical component of Artis’ Business Transformation
year. This remarkable increase can be largely attributed to
Debentures as BBB (low) and Preferred Units as Pfd-3
Stable Trends. This rating is highly respected in the real
Plan is the strengthening of the REIT’s balance sheet to
the fair value gain on investment properties, net operating
(low) Under Review with Negative Implications following
estate industry, where only select real estate investment
provide significant liquidity and flexibility to capitalize
income and the impact of units purchased under the NCIB,
which, on February 4, 2022, DBRS removed the ratings of
trusts and real estate operating companies have been
on opportunities that algin with the Artis’ value-investing
partially offset by distributions to unitholders during the
Artis from Under Review with Negative Implications and
awarded an investment grade credit rating.
strategy. The REIT has committed to reducing and
year.
maintaining low leverage and debt metrics within the
investment grade credit rating parameters defined by DBRS
With respect to distributions,
in March 2021, Artis
Morningstar. In 2021, Artis sold 41 properties and a portion
announced an increase in common unit distribution to
of a property for an aggregate sale price of $858.6 million.
$0.60 per unit annually from $0.5562 per unit annually. In
These dispositions include the GTA Industrial Portfolio
December 2021, Artis declared a special distribution of
and the remaining five office properties located in Calgary,
$2.39 per common unit, with $0.32 per unit payable in cash
Alberta, both significant milestones in the implementation
and $2.07 per unit payable in units. The special distribution
of the Business Transformation Plan. Proceeds from these
was principally made to distribute to unitholders a portion
sales were pivotal in providing the REIT with the flexibility
of the capital gain realized by the REIT from transactions
to improve its balance sheet and liquidity position. With
completed during 2021. Immediately following the issuance
these sales complete, Artis was able to make notable
of units pursuant to the special distribution, the outstanding
improvements to key debt metrics, including significantly
units of Artis were consolidated such that each unitholder
decreasing total debt to GBV to 42.9% at December 31,
held, after the consolidation, the same number of units as
2021, from 49.3% at December 31, 2020. Artis’ Adjusted
before the special distribution. The amount of the special
EBITDA interest coverage ratio was 3.80 for the year ended
distribution payable in units increased the adjusted cost
December 31, 2021, improved from 3.48 for the year ended
base of unitholders’ consolidated units.
December 31, 2020.
In the real estate industry, other common key performance
At year end, Artis had a stronger balance sheet and liquidity
indicators include funds from operations (“FFO”) and
that included $221.5 million of cash on hand and unsecured
adjusted funds from operations (“AFFO”). FFO and AFFO in
credit facilities totalling $1.2 billion of which $503.5
2021 were primarily impacted by dispositions completed
million was available to be drawn at December 31, 2021.
in 2020 and 2021 and a lower US dollar to Canadian dollar
Additionally, Artis’ pool of unencumbered assets totalled
average exchange rate in 2021 compared to 2020, partially
85 properties and six parcels of development land and
offset by year-over-year decrease in interest expense. FFO
representing a fair value of $1.9 billion. In addition to the
and AFFO per unit results are also impacted by the decrease
above, also during 2021, the REIT repaid the outstanding
in the weighted-average number of units outstanding,
confirmed the ratings at BBB (low) and Pfd-3 (low) with
selected financial information
000’S, EXCEPT PER UNIT AMOUNTS
Total Revenue
Net Operating Income
Net Income
Total Comprehensive Income (loss)
Basic Income per Common Unit
Diluted Income per Common Unit
Distributions per Unit
Common Units (1)
Preferred Units - Series A
Preferred Units - Series E
Preferred Units - Series G
Preferred Units - Series I
FFO (2)
FFO per Unit (2)
FFO Payout Ratio (2) (3)
AFFO (2)
AFFO per Unit (2)
AFFO Payout Ratio (2)
Same Property NOI (decline) GrOwth (2)
Adjusted EBITDA interest coverage ratio (2)
(1) Includes the special distribution declared in December 2021.
YEAR ENDED DEC 31,
2021
YEAR ENDED DEC 31,
2020
YEAR ENDED DEC 31,
2019
$ 419,499
$ 458,917
$ 521,660
237,785
389,175
387,702
2.87
2.86
269,275
21,543
(6,274)
0.03
0.02
$ 2.98
$ 0.54
1.42
1.37
_
1.50
1.42
1.37
_
1.50
309,856
122,737
51,069
0.72
0.72
$0.54
1.42
1.37
0.73
1.50
$ 174,343
$ 192,411
$ 202,398
1.34
44.0%
1.41
38.3%
1.41
38.3%
$ 124,476
$ 139,552
$ 150,518
0.96
61.5%
(4.1)%
3.80
1.02
52.9%
(1.7)%
3.48
1.05
51.4%
3.8%
3.04
Series C senior unsecured debentures with a face value
primarily due to units repurchased under the NCIB. In 2021,
(2) Represents a non-GAAP measure or non-GAAP ratio. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this Annual Report.
of $250.0 million, repaid nine mortgages in the amount of
FFO was $174.3 million, compared to $192.4 million in
$247.6 million and received new mortgage financing on
2020. On a per unit basis, FFO was $1.34, compared to
four properties, a net uplift upon renewal of two maturing
$1.41 year-over-year. AFFO was $124.5 million in 2021,
mortgages and drew on a construction loan, net of financing
compared to $139.6 million in 2020. This translates to a per
costs, in the amount of $130.2 million.
unit AFFO of $0.96 in 2021, compared to $1.02 in 2020. The
Artis’ primary objective is to create value for its investors
44.0% and 61.5%, respectively, for 2021.
by growing NAV per unit and distributions. In accordance
with this objective, NAV is a critical area of focus and an
Artis continues to maintain its investment grade credit
important key performance indicator for Artis. In 2021, Artis’
rating from DBRS Limited of BBB (low) and Pfd-3 (low).
REIT reported conservative FFO and AFFO payout ratios of
(3) FFO payout and AFFO payout ratio are calculated excluding the special distribution declared in December 2021.
000’S, EXCEPT PER UNIT AMOUNTS
Total Assets
Total non-current Financial liabilities
NAV per Unit (1)
Secured Mortgages and loans to GBV (1)
Total debt to GBV (1)
Unencumbered Assets (1)
DECEMBER 31,
2021
DECEMBER 31,
2020
DECEMBER 31,
2019
$ 4,576,024
$ 4,859,841
$ 5,330,019
1,166,123
1,648,305
2,142,090
17.37
23.7%
42.9%
15.03
26.2%
49.3%
15.56
26.3%
51.3%
$1,902,748
$1,901,073
$1,926,661
NAV increased significantly to $17.37 from $15.03 year over
As at December 31, 2021, DBRS had the ratings of the
(1) Represents a non-GAAP measure, non-GAAP ratio or supplementary financial measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures
Disclosure section in this Annual Report.
19
BALANCE SHEET & FINANCIAL PERFORMANCE
BALANCE SHEET & FINANCIAL PERFORMANCE
20
ARTIS REAL ESTATE INVESTMENT TRUST
CAPITAL ALLOCATION
Effective capital allocation is a foundational component of
arrangement agreement, Cominar
Artis’ new vision and strategy. The sales completed in 2021
unitholders (other than certain
provided the REIT with the resources to improve its balance
Cominar unitholders
that are
sheet while also providing liquidity to focus on other areas
members of the consortium) would
of the Business Transformation Plan. In addition to the
receive consideration of $11.75 in
allocation of capital towards debt repayment, as outlined
cash per unit. The transaction was
in the Balance Sheet and Financial Performance section and
approved by Cominar unitholders
investments in development projects and the REIT’s core
on December 21, 2021, and closed
long-term real estate holdings and development projects
subsequent to the end of the year
as outlined in the Portfolio and Operational Performance
on March 1, 2022. Artis contributed
section, the REIT invested in public real estate securities,
$212.0 million to the arrangement,
including the utilization of its NCIB, in 2021.
including $112.0 million to acquire
common equity units (representing
In 2021, Artis bought back 11,137,764 common units under
approximately 32.64% of the total
its NCIB for an aggregate market price of $125.8 million
common equity units in the newly
and 149,188 preferred units for an aggregate market price
formed entity) and $100.0 million
of $3.5 million. This translates to a weighted-average price
to acquire junior preferred units
per common unit of $11.29 (a price well below the REIT’s
that carry a distribution rate of
year end NAV of $17.37) and weighted-average price per
18.0% per annum. As part of the
preferred unit of $23.36. Artis continues to see the NCIB
consideration, Artis contributed its
as a powerful tool for enhancing value for unitholders and
existing Cominar units, which had
will continue to use it under circumstances where the REIT’s
a fair value of $13.4 million as at
units trade at a significant discount to NAV.
December 31, 2021. Sandpiper
Group contributed $56.0 million
With respect to public real estate entities, Artis’ Business
to the arrangement, representing
Transformation Plan includes seeking to acquire meaningful
16.32% of the common equity,
and influential ownership positions in undervalued entities.
and Halcyon International Limited,
The REIT’s near-term focus is on publicly listed Canadian
a company controlled by Steven
real estate entities. Artis will unlock value in its portfolio
Joyce, contributed $20.0 million
companies through active management, which may include
to the arrangement, representing
pursuing board representation and engaging constructively
5.83%. Together, Artis, Sandpiper
with boards and management teams of its portfolio
Group and Halcyon International Limited control 54.79% of
companies to effectuate long-term value creation. Artis may
the total common equity units in the newly formed entity.
serve as a catalyst for privatizations, merger and acquisition
Also during 2021, Artis began accumulating a position in
opportunities, strategic transformations, and operational
Dream Office Real Estate Investment Trust (“Dream Office”)
and governance improvements for its portfolio companies,
and, subsequent to the end of the year, announced that
with a focus on maximizing value for the owners of Artis.
together with its joint-actors had acquired a 10% ownership
position in Dream Office.
During 2021, compelling opportunities were identified in the
public markets. In October, Artis announced that it was part
Artis has strong conviction in its strategy and in these
of a consortium that had, through a newly formed entity,
investments. They align with Artis’ Business Transformation
entered into an arrangement agreement to acquire Cominar
Plan and are reflective of the attractive opportunities that
Real Estate Investment Trust (“Cominar”). Under the
exist within the public markets.
2021 ANNUAL REPORT
220 PORTAGE AVENUE
WINNIPEG, MB
ENVIRONMENTAL, SOCIAL & GOVERNANCE (ESG)
As part of Artis’ vision, to build a best-in-class asset
and practices of the REIT, including the environmental and
management and investment platform focused on growing
social governance of Artis.
net asset value per unit and distributions for investors
through value investing in real estate, the REIT is committed
Artis strives to be a sustainability leader, and to demonstrate
to making ESG a focal point and to establishing a company-
a high standard of ESG consciousness and best practices
wide ESG-minded culture.
through its commitment to ongoing review, transparency
and performance. Some of Artis’ ESG priorities for the future
Artis’ Board of Trustees is responsible for the stewardship
include:
of Artis and for overseeing the conduct of business of
Artis and the activities of management. The Governance,
•
Improving operating efficiencies by establishing
Nominating and Compensation Committee is responsible
sustainability targets (using Greenhouse Gas Protocols)
for providing leadership in shaping the governance policies
with respect to achieving reductions in carbon pollution,
21
CAPITAL ALLOCATION
ESG
22
ARTIS REAL ESTATE INVESTMENT TRUST
energy consumption, water consumption and waste;
Managers Association (“BOMA”) Building Environmental
•
Aligning a portion of performance-based compensation
Standards (“BEST”) certification and 19 properties with an
with achieving ESG targets;
Energy Star certification.
•
•
Establishing an internal ESG committee;
Participating in (with a focus on improving) Artis’
GRESB rating;
•
Targeting LEED certification wherever possible and
prioritizing sustainable design and components on all
new ground-up development projects; and
•
Publishing an annual ESG report and provide regular
updates on our progress.
Artis looks forward to publishing is 2021 ESG Report in the
coming months, providing a comprehensive update on the
progress that has been made over the last year.
Environmental
Sustainability is a priority across the organization. Through
Social
Artis takes pride in its team and recognizes that success
is made possible by great people who feel empowered to
make a difference and who feel fulfilled and supported in
their career objectives. Artis recognizes that today, more
than ever before, people want to work at a company that
they feel is aligned with their core values, that they feel
connected to and that they are proud to represent.
This goes far beyond day-to-day operations and extends
to company policies on important topics such as diversity,
equity and inclusion, community involvement, volunteerism
and charitable giving, sustainability and environmental
protection and awareness, professional development and
Governance
Artis’ Board of Trustees is responsible for the stewardship of Artis and for
overseeing the conduct of business of Artis and the activities of management.
The Governance, Nominating and Compensation Committee is responsible for
providing leadership in shaping the governance policies and practices of the
REIT, including the environmental and social governance of Artis. in 2021, under
the stewardship of the Governance, Nominating and Compensation Committee,
the Board has completed a comprehensive review of all governance policies
and practices with a view to establishing Artis as a leader in governance best
practices.
Transparency, communication and accessibility are the foundation of Artis’
stakeholder engagement strategy. This includes a commitment to continuously
strengthen relationships with employees, the investment community, tenants,
vendors and other partners and stakeholders. Internally, Management hosts
regular meetings and virtual townhalls with its team of 188 employees
across North America. Externally, Artis has augmented its investor relations
engagement strategy by leveraging virtual platforms to engage with the
the implementation and management of internal policies
work life balance, among other things.
investment community more readily.
and goals, Artis is committed to minimizing its impact on
the environment by reducing excess waste generation and
With a total of 188 employees, (of which 144 are based in
seeking to use energy efficient and environmentally friendly
Canada and 44 are based in the U.S.), the REIT depends on
systems, fixtures and products in its buildings. Many of Artis’
a diverse, productive and engaged workforce and culture to
continuous improvement initiatives focus on sustainability
achieve its business objectives. The REIT strives to create
and energy reduction strategies to ensure buildings are
an environment that promotes sustainability in all of its
operating at their peak efficiency. As buildings are upgraded
offices and properties.
and equipment is replaced, it is done with technology that
Strong and effective governance practices are part of Artis’ organizational
culture. This encompasses sound and effective internal processes and
procedures, minimizing risks, continuous enhancement of human resource
policies and practices, a strong cyber security strategy, promoting efficiency,
and having an “owner’s mentality”. In 2021, Artis’ Board of Trustees took
significant strides towards improving Artis’ governance practices
promotes energy efficiency and best practices.
In 2021, Artis established an internal ESG Committee that,
The following is a list of select achievements in 2021.
At December 31, 2021, the REIT had 10 properties with a
Compensation Committee, is responsible for supporting the
Leadership in Energy and Environmental Design (“LEED”)
REIT’s on-going commitment to making ESG a focal point
certification, 5 properties with a Building Owners and
and establishing a company-wide ESG-minded culture.
under the stewardship of the Governance, Nominating and
Preferred Environmental Programs
Artis is committed to mitigating the impact of its operations
on the environment, minimizing its carbon footprint and
promoting the use of energy efficient practices in its
buildings.
We value energy certification and consider it an asset, both
with respect to our existing portfolio and when acquiring
new properties. The three major property certifications we
pursue are:
23
ESG
BOMA or the Building Owners and Managers
Association promotes energy efficiency and
sustainability for new and existing buildings
by assigning certification levels based on
achievement of energy targets.
LEED or Leadership in Energy & Environmental
Design is a green building tool that addresses the
entire building lifecycle, recognizing best-in-class
building strategies
Energy Star is a voluntary U.S. Environmental
Protection Agency (EPA) and U.S. Department of
Energy program that certifies buildings for superior
energy performance.
•
Renamed the Governance, Nominating and Compensation Committee
(formerly the Governance and Compensation Committee) effective March
2, 2021, to expand its scope of responsibilities to include nominating. Also
expanded the committee’s scope of responsibilities to include a focus on
ESG and diversity, equity and inclusion matters;
•
Updated and adopted improved Board Mandate, Committee Charters and
Position Descriptions;
•
Implemented an enhanced Code of Business Conduct and Ethics,
Whistleblower Protection Policy and Insider Trading and Blackout Policy;
• Approved a Board Diversity and Renewal Policy with an objective to maintain
a minimum of 40% female representation on the Board and a minimum of
20% Black, Indigenous and People of Colour representation on the Board,
and other qualification requirements; and
•
Created an executive compensation framework to align with best practices
in performance-based compensation.
At December 31, 2021, the Board exceeded its diversity targets, with 57% female
representation and 29% Black, Indigenous and People of Colour representation.
2021 ANNUAL REPORT
BOULDER LAKES BUSINESS PARK
TWIN CITIES AREA, MN
“Transparency,
communication
and accessibility
are the
foundation
of Artis’
stakeholder
engagement
strategy.”
ESG
24
ARTIS REAL ESTATE INVESTMENT TRUST
cedar port i
HOUSTON, TX
Board Of Trustees
OUTLOOK
2021 ANNUAL REPORT
Looking ahead, Artis continues to see strong value in the
Artis is committed to collaborating with and supporting its
industrial, office, and retail asset classes. As has been
tenants to promote a safe, healthy and positive return to
the case throughout the pandemic, the industrial asset
work over the coming months.
class continues to show its strength and resilience and
Artis expects this trend will continue for the foreseeable
The past year has been one of unprecedented change at
future. As restrictions ease and indoor capacity limits
Artis. Despite the uncertain economic environment, Artis
increase, Artis anticipates that its needs and service-based
has taken significant steps in the execution of the Business
open-air retail will continue to be a source of stability and
Transformation Plan. The considerable progress the REIT
strong performance within its portfolio. With respect to
was able to make in 2021 demonstrates the opportunities
the office market, Artis believes that over time tenants
that exist in all areas of Artis’ strategy. Artis is not the
will realize that the benefit of face-to-face collaboration,
company today that it was a year ago. Debt metrics have
social interaction, and the ability to make decisions in
improved, NAV per unit has increased significantly and
real time cannot be replicated in a virtual setting and will
considerable strides have been taken towards transforming
return to their offices. Although some tenants may require
Artis
into a value-investing asset management and
less space going forward due to flexible work from home
investment platform – but there is still lots of work to do.
arrangements, Artis expects this will be partially offset by
Management and the Board look forward to building on last
a requirement for more space per employee and a shift
year’s achievements and continue to have strong conviction
towards private workstations to accommodate social
in the strategy and optimism for the opportunities that lie
distancing requirements. With the imminent easing of
ahead in 2022.
restrictions in many Canadian provinces and U.S. states,
Heather-Anne Irwin
Member of the Governance,
Nominating & Compensation
Committee
Samir Manji
Trustee, President & Chief
Executive Officer
Ben Rodney
Chair of the Board
Mike Shaikh
Aida Tammer
Lis Wigmore
Chair of the Audit Committee
and Member of the Investment
Committee
Member of the Governance,
Nominating & Compensation
Committee and Member of the
Audit Committee
Chair of the Governance,
Nominating & Compensation
Committee and Member of the
Investment Committee
Lauren Zucker
Chair of the Investment Committee
and Member of the Audit Committee
executive management
samir manji
Jaclyn koenig
kim riley
President & Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
25
ESG
OUTLOOK
26
management’s discussion & analysis
2021 annual
Years ended December 31, 2021 and 2020
(In thousands of Canadian dollars, unless otherwise noted)
TSX: AX.UN AX.PR.A AX.PR.E AX.PR.I
OTCQX: ARESF
27
management’s discussion & analysis
management’s discussion & analysis
28
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST 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, 2021 and 2020, 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", and the "REIT", 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 3, 2022. Additional information, 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 Artis' website
at www.artisreit.com.
FORWARD-LOOKING DISCLAIMER
This MD&A contains forward-looking statements within the meaning of applicable Canadian securities laws. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "outlook", "objective", “expects”, “anticipates”,
“intends”, “estimates”, “projects”, "believes", "plans", “seeks”, and similar expressions or variations of such words and phrases suggesting future outcomes or events, or
which state that certain actions, events or results ‘‘may’’, ‘‘would’’ "should" or ‘‘will’’ occur or be achieved are intended to identify forward-looking statements. Such forward-
looking information reflects management’s current beliefs and is based on information currently available to management.
Particularly, statements regarding the Business Transformation Plan, the steps required to implement the Business Transformation Plan, Artis’ return of capital and value
investing strategies, building Artis into a best-in-class asset management and investment platform focused on value investing in real estate, the REIT’s ability to execute its
strategy, the REIT’s ability to maximize long-term value and anticipated returns, planned divestitures, expected distributions by the REIT, the use of proceeds from
divestitures, prospective investments and investment strategy, Artis’ plans to optimize the value and performance of its assets, Artis’ goals to grow net asset value ("NAV") per
unit and distributions, efficiencies and cost savings, the tax treatment of Artis, Artis' status(es) under the Tax Act, the tax treatment of divestitures, are forward-looking
statements.
Forward-looking statements are based on a number of factors and assumptions, which are subject to numerous risks and uncertainties, which have been used to develop such
statements, but which may prove to be incorrect. Although Artis believes that the expectations reflected in the forward-looking statements are reasonable, it cannot
guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political
and social uncertainties and contingencies. Assumptions have been made regarding, among other things: the general stability of the economic and political environment in
which Artis operates, treatment under governmental regulatory regimes, securities laws and tax laws, the ability of Artis and its service providers to obtain and retain qualified
staff, equipment and services in a timely and cost efficient manner, currency, exchange and interest rates, global economic, financial markets and economic conditions in
Canada and the United States will not, in the long term, be adversely impacted by the COVID-19 pandemic, disruptions resulting from the temporary restrictions that
governments imposed on businesses to address the COVID-19 pandemic will not be long term.
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 risk related to tax matters;
and, credit, market, currency, operational, liquidity and funding risks generally and relating specifically to the Cominar Transaction; 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. Further, the Business Transformation Plan has additional risk factors including, but not
limited to: failure to execute the Business Transformation Plan in part or at all, the ability to achieve certain efficiencies to generate savings in general and administrative
expenses, pace of completing investments and divestitures, the ability of Sandpiper Asset Management Inc. ("Sandpiper") to provide services to Artis, risk of not obtaining
control or significant influence in portfolio companies, risks associated with minority investments, reliance on the performance of underlying assets, operating and financial
risks of investments, ranking of Artis’ investments and structural subordination, follow-on investments, investments in private issuers, valuation methodologies involve
subjective judgments, risks associated with owning illiquid assets, competitive market for investment opportunities, risks upon disposition of investments, reputation of Artis
and Sandpiper, unknown merits and risks of future investments, resources could be wasted in researching investment opportunities that are not ultimately completed, credit
risk, tax risk, regulatory changes, foreign security risk, foreign exchange risk, potential conflicts of interest with Sandpiper and market discount.
For more information on the risks, uncertainties and assumptions that could cause the Artis’ actual results to materially differ from current expectations, refer to the section
entitled “Risk Factors” of Artis’ Annual Information Form for the year ended December 31, 2021 as well as Artis’ other public filings, available at www.sedar.com.
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 other than as required by applicable securities laws. All forward-looking statements contained in this MD&A
are qualified by this cautionary statement.
NOTICE WITH RESPECT TO NON-GAAP & SUPPLEMENTARY FINANCIAL MEASURES DISCLOSURE
In addition to reported IFRS measures, certain non-GAAP and supplementary financial 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.
Non-GAAP measures and ratios include Same Property Net Operating Income ('Same Property NOI"), Same Property NOI Excluding Bad Debt Expense (Recovery) and Rent
Abatements, Funds From Operations ("FFO"), Adjusted Funds from Operations ("AFFO"), FFO per Unit, AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio, Net Asset
Value ("NAV"), NAV per Unit, Gross Book Value ("GBV"), Secured Mortgages and Loans to GBV, Total Debt to GBV, Adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization ("Adjusted EBITDA"), Adjusted EBITDA Interest Coverage Ratio and Total Debt to Adjusted EBITDA.
Supplementary financial measures include unencumbered assets to unsecured debt, percentage of unhedged variable rate mortgage debt, excess of cash flow from
operations over distributions declared and excess of net income over distributions declared.
Management believes that these measures are helpful to investors because they are widely recognized measures of Artis' performance and provide a relevant basis for
comparison among real estate entities.
These non-GAAP and supplementary financial measures are not defined under IFRS and are not intended to represent financial performance, financial position or cash flows
for the period, 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.
A description of the composition and a reconciliation to each of these measures to the nearest IFRS measure can be found in the MD&A sections as outlined below:
Non-GAAP / Supplementary Financial Measure
MD&A Section
Same Property NOI, Same Property NOI Excluding Bad Debt Expense (Recovery) and Rent Abatements
Same Property NOI Analysis
FFO, AFFO, FFO per Unit, AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio
NAV Per Unit
GBV, Secured Mortgages & Loans to GBV, Total Debt to GBV
Adjusted EBITDA, Adjusted EBITDA Interest Coverage Ratio & Debt to Adjusted EBITDA
Unencumbered assets to unsecured debt
Percentage of unhedged variable rate mortgage debt
FFO & AFFO
Other Financial Measures
Other Financial Measures
Other Financial Measures
Other Financial Measures
Liabilities
Excess of cash flow from operations over distributions declared, excess of net income over distributions declared
Liquidity & Capital Resources
The above measures are not standardized financial measures under the financial reporting framework used to prepare the financial statements of Artis. Readers should be
further cautioned that the above measures as calculated by Artis may not be comparable to similar measures presented by other issuers.
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 December 19, 2021 (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 3, 2022, there were 119,961,215 common units, 11,924,950 preferred units, 412,347 restricted units and 149,863 deferred units of Artis
outstanding (refer to the Outstanding Unit Data section of this MD&A for further details).
NEW VISION AND BUSINESS TRANSFORMATION PLAN
On March 10, 2021, the REIT announced a new vision: to become a best-in-class real estate asset management and investment platform focused on growing NAV per unit and
distributions for its investors through value investing. In conjunction with this announcement, the REIT unveiled a detailed strategy (the "Business Transformation Plan") to
achieve its vision and to create Canada’s pre-eminent asset management and investment platform, focused on value investing in real estate.
The Business Transformation Plan included the following key elements:
1.
2.
3.
4.
Strengthening the balance sheet to provide significant liquidity and flexibility
•
•
Unlocking value by monetizing a portion of Artis’ institutional-grade industrial portfolio;
Maximizing value of Artis’ office and retail assets by improving operating performance and pursuing a measured, opportunistic and patient strategy for
divestitures;
Maintaining strong liquidity to capitalize on opportunities; and
Maintaining low leverage and debt metrics within the investment grade credit rating parameters defined by DBRS Morningstar.
•
•
Focusing on value investing by identifying real estate opportunities that are mispriced, misunderstood or mismanaged
•
•
•
•
Identifying investments that are undervalued with potential to produce above average risk-adjusted returns over the medium-to-long term;
Evaluating opportunistic investments that can be fixed or turned around;
Acting as a catalyst to influence positive change; and
Capitalizing on mispricing in the public markets.
Driving organic growth
•
•
•
•
Improving the income profile of assets to the highest potential;
Developing a recurring fee stream for management of assets through future joint arrangements;
Optimizing the value of existing properties through operational efficiencies; and
Focusing on operating in a cost-efficient manner across the organization.
Institutionalizing the new platform
•
•
•
•
•
Establishing an entrepreneurial culture that supports and promotes the execution of Artis’ long-term vision and strategy;
Continuously raising the bar for financial reporting and other disclosures;
Developing a robust environmental, social and governance strategy;
Enhancing the investor relations and communications program; and
Rebranding – new name, new image, new future.
As part of the Business Transformation Plan, Artis confirmed it will become agnostic as to how it owns real estate and will embrace opportunism and the inefficiencies that the
public markets provide, leveraging and capitalizing on opportunities that exist today or will surface in the future.
Artis will also seek to deploy capital into liquid, strategic investments in portfolio companies (i.e. undervalued public real estate entities) as well as high-conviction hard assets.
The REIT will seek to drive performance both in its hard assets and portfolio companies through active management to generate ample operating cashflow for distributions
while continually recycling excess capital over the long term. Additionally, Artis confirmed its intention to reduce its leverage and take an owner-centric approach to capital
allocation that will build investor confidence and brand equity through execution and performance.
As a first step to the above, Artis began unlocking some of the trapped value in some of its hard real estate assets through the monetization of certain assets, including most
of its industrial assets in the Greater Toronto Area for sale proceeds of $724,300. This transaction represented a significant milestone in the implementation of the Business
Transformation Plan.
29
management’s discussion & analysis
management’s discussion & analysis
30
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Over the short-to-medium term, the REIT will evaluate the sale of a portion of its office and retail assets in an opportunistic and disciplined manner, with the goal of
maximizing value on a tax-efficient basis. As with the sale of the industrial portfolio, this could take many forms. In 2021, Artis sold six office properties, six retail properties
and a portion of a retail property for an aggregate sale price of $131,115.
As Artis continues to divest partial or entire ownership positions as described above, the REIT will focus on improving its balance sheet while deploying some of the proceeds
into new real estate investments including core cash-flowing hard assets, undervalued publicly traded real estate securities and value-add real estate acquisitions or
developments. During 2021, Artis invested in equity securities in accordance with the Business Transformation Plan for an aggregate cost of $71,866 and at December 31,
2021 has numerous ongoing development projects.
With respect to public real estate entities, Artis will seek to acquire meaningful and influential ownership positions in undervalued entities. The REIT's near-term focus will be
on publicly listed Canadian real estate entities. Artis will unlock value in its portfolio companies through active management, which may include pursuing board
representation and engaging constructively with boards and management teams of its portfolio companies to effectuate long-term value creation. Artis may serve as a
catalyst for privatizations, merger and acquisition opportunities, strategic transformations, and operational and governance improvements for its portfolio companies, with a
focus on maximizing value for the owners of Artis. In 2021, Artis announced its participation in an investor group to acquire Cominar Real Estate Investment Trust ("Cominar").
The transaction closed subsequent to the end of the year.
The goal of the Business Transformation Plan is to generate meaningful long-term growth in NAV per unit and distributions by monetizing assets, strengthening the balance
sheet and scaling-up through value investing. Artis will concentrate its ownership in the highest and best return opportunities in an effort to maximize long-term value for
unitholders.
In connection with the Business Transformation Plan, Artis has entered into an agreement with Sandpiper to provide certain advisory services to Artis. Refer to Agreement with
Sandpiper Asset Management Inc. section of this MD&A for further details.
The REIT intends to maintain its corporate operations headquartered in Winnipeg and will evaluate its satellite offices going forward based on geographical presence and
ongoing job functions.
AGREEMENT WITH SANDPIPER ASSET MANAGEMENT INC.
On May 17, 2021, in connection with Artis’ Business Transformation Plan, Artis entered into an agreement with Sandpiper (the "Services Agreement") to provide certain
services to support the REIT’s strategy to acquire meaningful and influential active ownership positions in undervalued publicly-listed real estate entities. The material terms of
the Services Agreement are outlined below.
Artis’ Investment Mandate
Investments in equity securities of real estate companies or real estate investment trusts or entities that provide real estate services, including common shares, preferred
shares, trust units, securities convertible into common shares, preferred shares or trust units, and rights/warrants listed on the TSX or another stock exchange in Canada, in
Canadian dollars.
Scope of Services to be Provided by Sandpiper (the “Services”)
•
•
•
•
•
Research, underwriting, due diligence and analysis of potential active investments in public companies;
Analysis in relation to the negotiation and structuring of the terms of proposed acquisitions/dispositions of investments (including the terms of active management
involvement);
Strategic advice regarding active investments made and information regarding the management thereof, including exit strategies;
Providing regular reporting and assistance and information in connection with Artis’ preparation of internal reports, analysis and books and records related to the
investments, including as may be necessary for Artis to prepare reports and disclosure documents; and
Providing advice and assistance in connection with Artis’ active engagement with investee entities.
Delivery of Services
Sandpiper will provide the Services to Artis so as to enable Artis, upon the recommendation of its Chief Executive Officer (“CEO”), to make its own investment decisions. Artis
will at all times make its own investment and divestment decisions under the supervision of its Investment Committee.
Artis estimates a two-to-three-year period to implement the Business Transformation Plan.
Fee Structure
The successful execution of the REIT’s new vision and Business Transformation Plan requires suitable opportunities, careful timing and business judgment, as well as sufficient
resources to make investments and restructure them, if required. There can be no assurance that the REIT will be able to execute the Business Transformation Plan or to
identify suitable or sufficient opportunities to monetize or maximize the value of its existing portfolio of assets or to make investments that satisfy its investment criteria at
attractive prices, in either case, in a timely manner, or at all.
PARTICIPATION IN INVESTOR GROUP TO ACQUIRE COMINAR REAL ESTATE INVESTMENT TRUST
In 2021, Artis announced its participation in a consortium to acquire all of the outstanding units of Cominar Real Estate Investment Trust (“Cominar”) for consideration of
$11.75 per unit in cash under a Plan of Arrangement (the “Cominar Transaction”). Also under the Plan of Arrangement, certain of Cominar’s office, retail and industrial assets
were to be acquired by other parties not part of the consortium.
The REIT's contribution to the Cominar Transaction is $112,000 to acquire approximately 32.64% of the total common equity units in the newly-formed entity and $100,000 of
junior preferred units that carry a distribution rate of 18.0% per annum. As part of the consideration, the REIT contributed its existing Cominar units, which had a fair value of
$13,419 as at December 31, 2021.
The Cominar Transaction closed on March 1, 2022.
SPECIAL DISTRIBUTION
The Board of Trustees declared a special distribution of $2.39 per common unit (the "Special Distribution"), which was comprised of $0.32 per common unit payable in cash
and $2.07 per common unit payable in common units. The Special Distribution was payable on December 31, 2021 to unitholders of record at the close of business on
December 31, 2021, with payment of the cash distribution to be made as soon as practicable after the payable date, which occurred subsequent to the end of the year.
The Special Distribution was principally being made to distribute to common unitholders a portion of the capital gain realized by the REIT from transactions completed during
the year ended December 31, 2021. The cash portion of the Special Distribution was intended to provide liquidity to common unitholders to cover all or part of any Canadian
income tax or non-resident withholding tax obligations that may arise in relation to the Special Distribution.
Immediately following the issuance of the common units pursuant to the Special Distribution, the outstanding common units of Artis were consolidated such that each
common unitholder holds, after the consolidation, the same number of common units as such common unitholder held before the Special Distribution. The amount of the
Special Distribution payable in common units increased the adjusted cost base of common unitholder's consolidated common units. Canadian resident common unitholders
are generally required to include their proportionate share of the REIT’s income and net taxable capital gain for the 2021 tax year as allocated and designated by the REIT in
computing their respective income for the 2021 tax year. Common unitholders not resident in Canada for Canadian federal income tax purposes may be subject to applicable
withholding taxes in connection with the payment of the special distribution.
Artis cautions that the foregoing comments are not intended to be, and should not be construed as, legal or tax advice to any particular unitholder and recommends that
unitholders consult their own tax advisors regarding the income tax consequences to them of this Special Distribution and related common unit consolidation.
BOARD AND MANAGEMENT CHANGES
During 2021, the REIT announced the following Board and management changes:
1.
2.
3.
Appointed Samir Manji as Interim Chief Executive Officer effective January 1, 2021, and subsequently appointed to permanent Chief Executive Officer effective March 9,
2021;
Appointed Ben Rodney as Chair of the Board of Trustees effective March 9, 2021;
Appointed Kim Riley, formerly Artis’ Executive Vice-President of Investments and Developments, to Chief Operating Officer (a newly created position at Artis) effective
April 1, 2021; and
4.
Appointed Jaclyn Koenig, formerly Artis’ Senior Vice-President of Accounting, to Chief Financial Officer effective May 24, 2021.
In consideration of the services performed by Sandpiper, Sandpiper shall be paid the following amounts in respect of investments made by Artis pursuant to the Services
provided:
•
•
•
an annual fee of 0.50% for years one to three of the investments;
0.40% for year four of the investments; and
0.30% for year five and thereafter
based on, in each case, the net value of Artis’ investments in its investee companies.
First Offer Right
Separate and apart from the information provided to Artis pursuant to requests originating from Artis, Sandpiper will (prior to the making of any such investments) present to
Artis for consideration all investments and targets that are within the Investment Mandate and independently identified by Sandpiper as potential active investments it wishes
to make. Artis will be offered the right to participate in each such investment together with Sandpiper and shall be offered no less than a 50% participation level.
Expenses
Sandpiper will bear the costs and expenses incurred by it in connection with the provision of the Services. Each of Sandpiper and Artis shall be responsible for their own costs
and expenses in connection with the making of any investment, including brokerage and custodial fees. Once an investment is made, the parties shall share any third-party
costs and expenses in connection with the active management of the investment in proportion to the size of their respective investments. The cost of directors, officers and
employees of each shall be for the account of each and such persons shall not be considered employed by the other, nor shall there be any charge for overhead or other
costs.
Termination
The Services Agreement shall continue in full force until termination by either party upon 60-day written notice, or upon other specific circumstances, at no cost to Artis. The
arrangement with Sandpiper was negotiated and reviewed by the Governance, Nominating and Compensation Committee (the “GNC”) of the Board of Trustees of Artis (the
“Board”) (all of whom are independent trustees and independent of Sandpiper), which included a review of Sandpiper’s past performance and track record (including
execution of past full cycle active investments). In this regard, the GNC considered a number of factors, including the nature of the relationship between Artis and Sandpiper,
the need to align their respective interests in the context of the arrangements, and various regulatory matters. While reviewing the Services arrangements, the GNC also
finalized the employment agreement with Artis’ CEO, as well as the terms of a space-sharing arrangement with Sandpiper at Sandpiper’s offices in Vancouver, British
Columbia. As a result, the GNC was able to view the Services Agreement within the broader context of the overall relationship with Sandpiper. The GNC received legal and
financial advice from independent, third-party advisors. Based on its review, the GNC concluded that the arrangements were in the best interest of, and fair to, Artis and
recommended to the Board that Artis enter into the Services Agreement.
A copy of the Services Agreement is available on the REIT’s profile on SEDAR.
31
management’s discussion & analysis
management’s discussion & analysis
32
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
2021 OVERVIEW
SELECTED FINANCIAL INFORMATION
000's, except per unit amounts
2021
2020
Change
Change
2019
Year ended
December 31,
Year ended
%
December 31,
Revenue:
Rental revenue from investment properties
$
401,638
$
458,917
$
Condominium sales
Total revenue
Net operating income
Net income
Total comprehensive income (loss)
Basic income per common unit
Diluted income per common unit
Distributions per unit:
Common units (1)
Preferred units - Series A
Preferred units - Series E
Preferred units - Series G
Preferred units - Series I
FFO (2))
FFO per unit (2)
FFO payout ratio (2) (3)
AFFO (2)
AFFO per unit (2)
AFFO payout ratio (2) (3)
17,861
419,499
—
458,917
$
237,785
$
269,275
$
389,175
387,702
2.87
2.86
$
$
2.98
1.42
1.37
—
1.50
21,543
(6,274)
0.03
0.02
0.54
1.42
1.37
—
1.50
$
174,343
$
192,411
$
1.34
44.0 %
1.41
38.3 %
$
124,476
$
139,552
$
0.96
61.5 %
1.02
52.9 %
(57,279)
17,861
(39,418)
(31,490)
367,632
393,976
2.84
2.84
(12.5) % $
521,660
— %
—
(8.6) %
521,660
(11.7) % $
1,706.5 %
(6,279.5) %
9,466.7 %
14,200.0 %
309,856
122,737
51,069
0.72
0.72
$
2.44
451.9 % $
—
—
—
—
(18,068)
(0.07)
(15,076)
(0.06)
— %
— %
— %
— %
(5.9) %
8.6 %
(2.4) %
(9.4) % $
202,398
(5.0) %
5.7 %
1.41
38.3 %
(10.8) % $
150,518
0.54
1.42
1.37
0.73
1.50
1.05
51.4 %
3.8 %
3.04
Same Property NOI (decline) growth (2)
(4.1) %
(1.7) %
Adjusted EBITDA interest coverage ratio (2)
3.80
3.48
0.32
9.2 %
(1) Includes the Special Declaration declared in December 2021. Refer to Special Distribution section in this MD&A.
(2) Represents a non-GAAP measure or non-GAAP ratio. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
(3) FFO payout ratio and AFFO payout ratio are calculated excluding the Special Distribution declared in December 2021.
Artis reported portfolio occupancy of 91.5% (including commitments) at December 31, 2021, increased from 90.6% at December 31, 2020. During the year, 690,839 square
feet of new leases and 1,920,609 square feet of lease renewals commenced. The weighted-average increase in renewal rents compared to expiring rents on renewals that
began during the year was 4.1%.
Net income and total comprehensive income were impacted by the fair value change on investment properties (gain of $197,511 in 2021, compared to loss of $140,876 in
2020), the fair value change on financial instruments (gain of $21,224 in 2021, compared to a loss of $16,538 in 2020), a decrease to proxy matter expenses ($nil in in 2021,
compared to $17,423 in 2020), a decrease in interest expense ($69,648 in 2021, compared to $86,106 in 2020), a decrease to strategic initiative expenses ($18 in 2021,
compared to $4,029 in 2021) and an increase in distribution income from equity securities ($898 in 2021, compared to $nil in 2020).
Partially offsetting the above increases to net income were a decrease in income from equity accounted investments ($16,795 in 2021, compared to $24,851 in 2020) and a
decrease to interest income ($1,885 in 2021 compared to $4,797 in 2020).
Foreign exchange had an impact on Artis' financial results, due to a lower US dollar to Canadian dollar average exchange rate of 1.2537 in 2021, compared to 1.3412 in 2020.
FFO per unit for 2021 was $1.34, compared to $1.41 for 2020, while AFFO per unit for 2021 was $0.96, compared to $1.02 for 2020. FFO and AFFO in 2021 were primarily
impacted by dispositions completed in 2020 and 2021 and a lower US dollar to Canadian dollar average exchange rate in 2021 compared to 2020, partially offset by year-over-
year decrease in interest expense. FFO and AFFO per unit results are also impacted by the decrease in the weighted-average number of units outstanding, primarily due to
units repurchased under the normal course issuer bid ("NCIB"). The REIT reported conservative FFO and AFFO payout ratios of 44.0% and 61.5%, respectively, for 2021.
Balance Sheet and Liquidity
During 2021, Artis drew a net balance of $2,043 on its revolving credit facilities. On February 22, 2021, the REIT repaid the outstanding Series C senior unsecured debentures
with a face value of $250,000. Also during 2021, the REIT repaid nine mortgages in the amount of $247,567. Additionally, the REIT received new mortgage financing on four
properties, received a net uplift upon renewal of two maturing mortgages and drew on a construction loan, net of financing costs, in the amount of $130,244.
Total debt to GBV decreased to 42.9% at December 31, 2021, compared to 49.3% at December 31, 2020. Artis' Adjusted EBITDA interest coverage ratio was 3.80 for the year
ended December 31, 2021, improved from 3.48 for the year ended December 31, 2020.
In 2021, Artis utilized the NCIB to purchase 11,137,764 common units for an aggregate market price of $125,772, and 60,600 Series A and 88,588 Series E preferred units for an
aggregate market price of $3,485.
At December 31, 2021, NAV per unit was $17.37, increased from $15.03 at December 31, 2020. The increase is primarily due to the fair value gain on investment properties,
net operating income, the impact of units purchased under the NCIB and the fair value gain on financial instruments, partially offset by distributions to unitholders during the
year and the impact of foreign exchange.
Distributions
On March 10, 2021, the REIT announced an increase to common unitholder distributions, from $0.5562 per unit annually to $0.60 per unit annually, effective for the March 2021
distribution payable on April 15, 2021.
In 2021, Artis declared distributions of $389,190 to unitholders, which included distributions to preferred unitholders in the amount of $17,260. The distributions to unitholders
included the Special Distribution of $2.39 per common unit, which was comprised of $0.32 per common unit payable in cash and $2.07 per common unit payable in common
units. Immediately following the issuance of common units, the common units were consolidated such that each unitholder held the same number of units after the
consolidation as each unitholder held prior to the Special Distribution. Refer to the Special Distribution section of this MD&A for further information.
PORTFOLIO ACTIVITY
Industrial
Office
Retail
Total
Property
count
S.F.
(000's)
Property
count
S.F.
(000's)
Property
count
S.F.
(000's)
Property
count
S.F.
(000's)
Portfolio properties, December 31, 2020
Acquisition
Adjustment for inventory properties (1)
Dispositions
105
11,183
1
(1)
100
(53)
(29)
(2,482)
53
—
—
(6)
7,733
—
—
(695)
39
—
—
(6)
2,627
197
21,543
—
—
1
(1)
100
(53)
(484)
(41)
(3,661)
000's, except per unit amounts
Total assets
Total non-current financial liabilities
NAV per unit (1)
Secured mortgages and loans to GBV (1)
Total debt to GBV (1)
Unencumbered assets (1)
December 31,
December 31,
%
December 31,
2021
2020
Change
2019
Portfolio properties, December 31, 2021
76
8,748
47
7,038
33
2,143
156
17,929
(1) In 2021, Artis completed the conversion of 2145-2155 Dunwin Drive from an industrial property to commercial condominium units.
$
4,576,024
$
4,859,841
(5.8) % $
5,330,019
Acquisitions
1,166,123
1,648,305
(29.3) %
2,142,090
17.37
23.7 %
42.9 %
15.03
26.2 %
49.3 %
15.6 %
15.56
(2.5) %
(6.4) %
26.3 %
51.3 %
$
1,902,748
$
1,901,073
0.1 % $
1,926,661
On January 26, 2021, the REIT acquired the remaining 5% interest in Park 8Ninety IV, an industrial property located in the Greater Houston Area, Texas, for total consideration
of US$309. The REIT now owns 100% of the property.
On May 7, 2021, the REIT acquired a parcel of industrial development land in Twin Cities Area, Minnesota, for a purchase price
of US$1,480.
On September 24, 2021, the REIT acquired a second parcel of industrial development land in the Twin Cities Area, Minnesota, for a purchase price of US$2,220.
(1) Represents a non-GAAP measure, non-GAAP ratio or supplementary financial measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
Dispositions
Financial and Operational Results
Rental revenue from investment properties and net operating income decreased year-over-year primarily due to the impact of dispositions as the REIT disposed properties
throughout 2020 and 2021. Additionally, the COVID-19 pandemic has impacted Artis' financial results. The REIT recorded bad debt expense and rent abatements in the
amount of $1,661 in 2021, compared to bad debt expense and rent abatements of $4,862 in 2020, 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.
During 2021, Artis sold 29 industrial properties, six office properties, six retail properties as well as a portion of a retail property for an aggregate sale price of $858,615. The
sale proceeds, net of costs of $6,837, notes receivable of $16,000 and related debt of $44,053, were $791,725.
At December 31, 2021, Artis had entered into an agreement to sell a portfolio comprised of two office properties located in the Greater Toronto Area, Ontario for a sale price
of $35,500. The sale closed on January 20, 2022.
Subsequent to December 31, 2021, Artis entered into an unconditional sale agreement for an industrial property located in the Greater Toronto Area, Ontario for a sale price
of $29,200. The sale is anticipated to close in March 2022.
33
management’s discussion & analysis
management’s discussion & analysis
34
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
At December 31, 2021, the REIT had 10 properties with a Leadership in Energy and Environmental Design ("LEED") certification, 5 properties with a Building Owners and
Managers Association ("BOMA") Building Environmental Standards ("BEST") certification and 19 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.
BUSINESS ENVIRONMENT AND OUTLOOK
Artis' portfolio continued to demonstrate stability and resiliency during 2021. Portfolio occupancy including commitments was consistently above 90.0% throughout the year
and 1,920,609 square feet of renewals commenced in 2021 at a weighted-average increase in rental rate of 4.1%. Rent collections have remained strong since the beginning
of the pandemic and the fourth quarter was no exception. Artis collected 98.2% of rent charges (both excluding and including deferred rent charges) for the three months
ended December 31, 2021. While governments cautiously reduce or eliminate restrictions in many of Artis’ markets, the REIT’s property management team continues to work
diligently to maintain a clean and safe environment at all properties and support its tenants during this time of unprecedented challenges.
On March 10, 2021, Artis announced a new vision and strategy – to build a best-in-class asset management and investment platform focused on growing net asset value per
unit and distributions for investors through value investing in real estate. The first step towards the execution of the Business Transformation Plan was to unlock value in Artis’
existing portfolio through the monetization of certain assets. During the year, Artis sold 41 properties and a portion of a retail property totalling 3,659,055 square feet of gross
leasable area for an aggregate sale price of $858,615. These dispositions included the sale of Artis’ GTA Industrial Portfolio, which was a milestone transaction for the REIT,
and the sale of all of Artis’ remaining Calgary office properties. With respect to the current business environment, these sales reaffirm the significant demand for all classes of
real estate across Artis’ existing markets, despite an environment of economic uncertainty due to the pandemic.
The next step in the Business Transformation Plan is to continue to focus on improving the REIT’s balance sheet while deploying some of the proceeds into new real estate
investments, including undervalued publicly traded real estate securities and value-add real estate acquisitions or developments. The proceeds from asset sales in 2021
provided Artis with the financial flexibility to significantly improve debt metrics, while embarking on the next phase of the strategy – investing in equity securities. During 2021,
compelling opportunities were identified in the public markets. In October, Artis announced that it was part of a consortium that had, through a newly-formed entity, entered
into an arrangement agreement to acquire Cominar. Under the arrangement agreement, Cominar unitholders (other than certain Cominar unitholders that are members of
the consortium) would receive consideration of $11.75 in cash per unit. The transaction was approved by Cominar unitholders on December 21, 2021, and closed subsequent
to the end of the year on March 1, 2022. Also during 2021, Artis began accumulating a position in Dream Office Real Estate Investment Trust (“Dream Office”) and,
subsequent to the end of the year, announced that together with its joint-actors had acquired a 10% ownership position in Dream Office. Artis has strong conviction in these
investments. They align with Artis’ Business Transformation Plan and are reflective of the attractive opportunities that exist within the public markets.
Looking ahead, Artis continues to see strong value in the industrial, office, and retail asset classes. As has been the case throughout the pandemic, the industrial asset class
continues to show its strength and resilience and Artis expects this trend will continue for the foreseeable future. As restrictions ease and indoor capacity limits increase, Artis
anticipates that its needs and service-based open-air retail will continue to be a source of stability and strong performance within its portfolio. With respect to the office
market, Artis believes that over time tenants will realize that the benefit of face-to-face collaboration, social interaction, and the ability to make decisions in real time cannot
be replicated in a virtual setting and will return to their offices. Although some tenants may require less space going forward due to flexible work from home arrangements,
Artis expects this will be partially offset by a requirement for more space per employee and a shift towards private workstations to accommodate social distancing
requirements. With the imminent easing of restrictions in many Canadian provinces and U.S. states, Artis is committed to collaborating with and supporting its tenants to
promote a safe, healthy and positive return to work over the coming months.
The past year has been one of unprecedented change at Artis. Despite the uncertain economic environment, Artis has taken significant steps in the execution of the Business
Transformation Plan. The considerable progress the REIT was able to make in 2021 demonstrates the opportunities that exist in all areas of Artis’ strategy. Management and
the Board look forward to building on last year’s achievements and continuing to demonstrate their steadfast commitment to building value for unitholders in the quarters
ahead.
IMPACT OF COVID-19
Health and Safety of Stakeholders
Artis continues to work diligently to maintain a safe environment for all of those who attend its properties. The REIT's first priority and intention is to keep its buildings safe
and open (unless ordered closed by government authority). Management has made and continues to make appropriate contingency plans to maintain building supplies and
necessary personnel for operations.
In accordance with current recommendations, common area cleaning has increased at all properties. Cleaning contractors have been instructed 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. There have been no service reductions and Artis is currently fully staffed with building operations and cleaning personnel.
In an effort to minimize risk related to COVID-19 throughout Artis' buildings, protocols have been imposed for employees and contractors, as directed by local or federal
government guidelines and recommendations, and tenants are encouraged to do the same, namely:
•
•
•
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 the REIT's
buildings and to follow public health recommendations.
Artis' management team will continue to closely monitor this situation and will adjust its approach as recommended by public health agencies.
Tenant Support Program and Rent Collection
As a diversified REIT, Artis' portfolio comprises industrial, office and retail properties which, at December 31, 2021, were 89.4% leased (91.5% including commitments on
vacant space) to high-quality tenants across Canada and the U.S. with a weighted-average remaining lease term of 5.1 years.
Rent Collection
Rent collection has been a key focus during this time. As at December 31, 2021, 98.2% of rent charges (both excluding and including deferred rent charges) have been
collected for the three months ended December 31, 2021.
Rent Deferrals
Due to government-mandated capacity restrictions and temporary closures of certain non-essential businesses throughout the course of the COVID-19 pandemic, a number
of tenants had to limit operations. To support tenants through this difficult time, qualifying tenants who were in need of assistance were 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, 2021, the outstanding balance of rent deferrals granted to tenants
was $955, compared to $4,901 at December 31, 2020.
Allowance for Doubtful Accounts
The majority of rent deferrals and rents receivable are anticipated to be collected, however, there are certain tenants that may not be able to pay their outstanding rent. As at
December 31, 2021, an allowance for doubtful accounts in the amount of $1,717 has been recorded, compared to $1,989 at December 31, 2020.
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, Artis sets a high standard of sustainable practices and demonstrates the importance of striving for excellence and promoting
best practices in the areas of environmental, social and governance ("ESG"). The REIT is on a path of continuous improvement in all areas of ESG and is committed to
ensuring that excellence in ESG practices is an integral part of its business model and is a core component of its corporate culture.
During 2021, notable initiatives and improvements to ESG include (but are not limited to):
1.
2.
3.
4.
5.
6.
7.
8.
9.
Renamed the Governance, Nominating and Compensation Committee (formerly the Governance and Compensation Committee) effective March 2, 2021, to expand
its scope of responsibilities to include nominating. Also expanded the committee's scope of responsibilities to include a focus on ESG and Diversity, Equity and
Inclusion ("DEI") matters.
Approved the adoption of improved Board Mandate, Committee Charters and Position Descriptions;
Implemented an enhanced Code of Business Conduct and Ethics, Whistleblower Protection Policy and Insider Trading and Blackout Policy;
Approved a Board Diversity and Renewal Policy with an objective to maintain a minimum of 40% female representation on the Board and a minimum of 20% Black,
Indigenous and People of Colour representation on the Board, and other qualification requirements;
Addition of Yardi Pulse software to track, monitor and identify opportunities to reduce energy consumption at the property level and to keep tenants comfortable,
simplify analysis and streamline reporting;
Named one of Canada's Top Small and Medium Employers for 2021 (by the Globe and Mail);
Continued prioritization of health and wellness initiatives for employees, including planning for 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;
Established an internal ESG committee to support the REIT's on-going commitment to making ESG a focal point and establishing a company-wide ESG-minded
culture;
Published 2020 ESG Report; and
10.
Ongoing organization of various employee fundraising initiatives and challenges to raise funds for numerous charitable organizations.
35
management’s discussion & analysis
management’s discussion & analysis
36
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
PROPERTY PORTFOLIO
At December 31, 2021, the REIT's portfolio was comprised of 156 commercial properties totalling approximately 17.9 million square feet ("S.F.") of gross leasable area
("GLA").
Additionally, the REIT has ownership interest in 10 investment properties, two investment properties under development and one parcel of development land held under
equity accounted investments, which have been excluded from financial and operating metrics throughout this MD&A, unless otherwise noted. Refer to Equity Accounted
Investments section of this MD&A for further information.
Diversification by Geographical Region
GLA
Net Operating Income (Q4-21)
WI 11.9%
AB 16.0%
TX 3.9%
NY 0.8%
WI 9.8%
AB 10.8%
BC 1.8%
TX 6.1%
NY 0.7%
MN 31.6%
MB 20.9%
MN 23.4%
ON 2.3%
SK 3.1%
CO 3.2%
AZ 9.7%
CO 5.2%
BC 2.7%
MB 18.0%
ON 4.3%
SK 4.2%
AZ 9.6%
Canada
U.S.
38.9%
61.1%
Canada
U.S.
45.2%
54.8%
Diversification by Asset Class
GLA
Net Operating Income (Q4-21)
Retail
12.0%
Office
39.2%
Retail 20.3%
Industrial 32.0%
Industrial
48.8%
Office
47.7%
Portfolio by Asset Class (1)
Asset class
City
Canadian portfolio:
Industrial
Calgary
Greater Edmonton Area
Greater Toronto Area
Greater Vancouver Area
Red Deer
Saskatoon
Winnipeg
Industrial total
Office
Greater Edmonton Area
Greater Toronto Area
Greater Vancouver Area
Office total
Retail
Saskatoon
Winnipeg
Calgary
Fort McMurray
Grande Prairie
Greater Edmonton Area
Saskatoon
Winnipeg
Retail total
Total Canadian portfolio
U.S. portfolio:
Industrial
Greater Denver Area
Greater Phoenix Area
Twin Cities Area
Greater Houston Area
Industrial total
Office
Greater Denver Area
Greater Phoenix Area
Madison
New Hartford
Twin Cities Area
Office total
Total U.S. portfolio
Province /
State
Property
count
Owned share
of GLA
(000's S.F.)
% of
portfolio
GLA
%
Occupied
%
Committed (2)
AB
AB
ON
BC
AB
SK
MB
AB
ON
BC
SK
MB
AB
AB
AB
AB
SK
MB
CO
AZ
MN
TX
CO
AZ
WI
NY
MN
5
2
1
1
1
2
26
38
1
4
2
1
9
17
5
8
5
5
3
7
33
88
1
7
26
4
38
2
4
16
1
7
30
68
350
94
76
73
126
269
1,658
2,646
29
342
248
64
1,511
2,194
344
187
355
459
219
579
1.9 %
0.5 %
0.4 %
0.4 %
0.7 %
1.5 %
9.3 %
14.7 %
0.2 %
1.9 %
1.4 %
0.4 %
8.3 %
12.2 %
1.9 %
1.0 %
2.0 %
2.6 %
1.2 %
3.3 %
2,143
12.0 %
100.0 %
100.0 %
93.3 %
100.0 %
61.6 %
100.0 %
96.3 %
95.7 %
27.5 %
87.1 %
89.4 %
78.0 %
82.4 %
83.1 %
95.8 %
79.5 %
66.4 %
96.8 %
97.7 %
96.9 %
90.2 %
100.0 %
100.0 %
100.0 %
100.0 %
61.6 %
100.0 %
97.3 %
96.5 %
27.5 %
87.1 %
91.6 %
78.0 %
82.4 %
83.4 %
96.5 %
85.6 %
66.4 %
97.3 %
98.9 %
98.6 %
91.5 %
6,983
38.9 %
90.1 %
90.8 %
138
921
3,952
1,091
6,102
429
820
1,763
123
1,709
4,844
0.8 %
5.1 %
22.1 %
6.1 %
34.1 %
2.4 %
4.6 %
9.8 %
0.7 %
9.5 %
27.0 %
100.0 %
100.0 %
89.3 %
100.0 %
93.1 %
90.7 %
75.3 %
86.3 %
100.0 %
82.0 %
83.6 %
100.0 %
100.0 %
92.4 %
100.0 %
95.1 %
90.7 %
94.3 %
88.8 %
100.0 %
82.0 %
87.8 %
10,946
61.1 %
88.9 %
91.9 %
Total Canadian and U.S. portfolio
156
17,929
100.0 %
89.4 %
91.5 %
(1) Information is as at December 31, 2021, and excludes properties listed in the New Developments in Process section on the following page and properties held in equity accounted investments.
(2) Percentage committed is based on occupancy at December 31, 2021, plus commitments on vacant space.
New Developments in Process
At December 31, 2021, Artis had three development projects in process: 300 Main, Blaine 35 I and Blaine 35 II.
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.
Blaine 35 is a two-phase industrial development project located in the Twin Cities Area, Minnesota, with prominent interstate frontage at the intersection of I-35W and 85th
Ave N. The first phase of the project, Blaine 35 I, consists of one building anticipated to total approximately 118,500 square feet of leasable area. Construction commenced in
Q2-21. The second phase, Blaine 35 II, will comprise two buildings expected to total approximately 198,900 square feet of leasable area upon completion.
Refer to the Risks and Uncertainties section of this MD&A for discussion of the risks related to Artis' ongoing development projects.
37
management’s discussion & analysis
management’s discussion & analysis
38
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Future Development Program
Asset class
City
Province / State
Estimated owned share of
GLA (000's of S.F.)
Property
Industrial
Office
Office
Greater Houston Area
Madison
Madison
TX
WI
WI
789
43
50
Cedar Port - Future Phases
1630 Aspen
Heartland Trail Land
Additional information about these developments will be released as progress is made and key milestones are achieved.
Rezoning and Densification Initiatives
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 Q4-21 net
operating income:
Single tenant 37.3%
Artis is exploring an opportunity 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.
Multi-tenant 62.7%
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, 2021, the
REIT's industrial portfolio was comprised of 76 properties totalling approximately 8.7 million square feet of gross leasable area.
At December 31, 2021, the fair value of the properties in Artis’ industrial portfolio was $1,302,397, and represented 48.8% of the REIT’s GLA at December 31, 2021, and 32.0%
of Q4-21 net operating income. Below is a breakdown of REIT’s industrial portfolio by geographical region:
Artis' industrial portfolio includes 313 tenant leases with a weighted-average term to maturity of 5.0 years. Approximately 29.1% of the REIT's industrial gross revenue is
derived from national or government tenants. As indicated below, the largest tenant by gross revenue is Bell Canada, which is one of Canada's leading national
communication companies providing voice services, internet and data services and television.
GLA
Net Operating Income (Q4-21)
The following is a list of Artis’ top 10 industrial tenants by gross revenue:
TX 12.5%
AB 6.5%
TX 12.0%
AB 12.3%
BC 0.8%
MB 18.9%
ON 0.9%
SK 3.1%
MN 36.1%
MN 45.2%
AZ 10.5%
CO 1.6%
Canada
U.S.
30.2%
69.8%
BC 1.2%
Tenant
MB 13.8%
ON 3.7%
SK 4.3%
CO 1.1%
AZ 15.5%
Canada
U.S.
35.3%
64.7%
Bell Canada
PBP, Inc.
Silent Aire USA, Inc.
Civeo Canada, Ltd.
Maple Leaf Consumer Foods, Inc.
Distribution Alternatives, Inc.
SunGard Recovery Services, Inc.
Home Depot
St. Jude Medical Cardiology Division, Inc
Footprint, LLC
Total
Top 10 Industrial Tenants by Gross Revenue (1)
Tenant
location
Canada
U.S.
U.S.
Canada
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
% of total industrial
gross revenue (2)
Owned share of GLA
(000's of S.F.)
% of total
industrial GLA
Weighted-average
remaining lease
term
7.2 %
4.1 %
3.3 %
2.9 %
2.5 %
2.5 %
2.3 %
2.0 %
1.9 %
1.7 %
111
519
289
72
163
403
99
100
185
132
1.3 %
5.9 %
3.3 %
0.8 %
1.9 %
4.6 %
1.1 %
1.1 %
2.1 %
1.5 %
30.4 %
2,073
23.6 %
8.0
9.9
5.2
6.5
7.5
11.0
4.0
9.1
2.2
8.1
7.9
The following is a historical summary of key performance indicators related to the REIT’s industrial portfolio:
(1) Based on owned share of GLA of properties. Excludes properties under development and properties held in equity accounted investments.
(2) Total gross revenue is in Canadian and US dollars.
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Q3-20
Q2-20
Q1-20
Number of properties
Occupancy (including commitments)
Same Property NOI (decline) growth (1)
76
95.5 %
(3.0) %
74
95.6 %
(1.4) %
103
96.5 %
(4.2) %
102
97.9 %
1.1 %
102
96.4 %
0.9 %
103
96.7 %
1.9 %
103
97.4 %
4.8 %
103
97.4 %
5.5 %
Leasable area renewed (in S.F.)
435,376
138,716
214,085
327,096
37,004
151,354
480,613
149,815
Increase (decrease) in weighted-average rental rate
23.1 %
3.7 %
13.3 %
8.5 %
29.4 %
24.8 %
(7.3) %
11.3 %
(1) Represents a non-GAAP measure . Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
During 2021, Artis sold the GTA Industrial Portfolio, comprising 27 industrial properties located in the Greater Toronto Area, Ontario for an aggregate sale price of $724,300.
39
management’s discussion & analysis
management’s discussion & analysis
40
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Office Portfolio
The following is a list of Artis’ top 10 office tenants by gross revenue:
Artis’ office portfolio is strategically located across primary and secondary markets in both Canada and the U.S. At December 31, 2021, the REIT's office portfolio was
comprised of 47 properties totalling approximately 7.0 million square feet of gross leasable area.
Top 10 Office Tenants by Gross Revenue (1)
At December 31, 2021, the fair value of the properties in Artis’ office portfolio was $1,859,569, representing 39.2% of the REIT’s GLA at December 31, 2021, and 47.7% of
Q4-21 net operating income. Below is a breakdown of REIT’s office portfolio by geographical region:
WI 25.0%
NY 1.7%
MN 24.3%
GLA
AB 0.4%
BC 3.5%
MB 21.5%
ON 4.9%
SK 0.9%
AZ 11.7%
CO 6.1%
Canada
U.S.
31.2%
68.8%
Net Operating Income (Q4-21)
WI 24.9%
NY 1.7%
AB 0.1%
BC 5.0%
MB 16.5%
ON 6.4%
SK 0.7%
AZ 9.7%
MN 24.9%
CO 10.1%
Canada
U.S.
28.7%
71.3%
The following is a historical summary of key performance indicators related to the REIT’s office portfolio:
Number of properties
Occupancy (including commitments)
Same Property NOI (decline) growth (1)
47
86.4 %
(4.0) %
53
85.9 %
(8.7) %
52
86.0 %
(9.2) %
53
86.3 %
(10.4) %
53
86.8 %
(9.4) %
56
87.6 %
(3.5) %
55
88.6 %
(1.6) %
55
89.4 %
1.1 %
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Q3-20
Q2-20
Q1-20
Tenant
Government Tenants
AT&T
Bell MTS
Prime Therapeutics LLC
TDS Telecommunications Corporation
Catalent Pharma Solutions, LLC
CB Richard Ellis, Inc.
Recipe Unlimited Corporation
UCare Minnesota
Telephone and Data Systems, LLC
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
Canada
U.S.
Canada
U.S.
U.S.
U.S.
U.S.
Canada
U.S.
U.S.
5.0 %
4.3 %
3.9 %
3.8 %
3.0 %
2.8 %
2.6 %
2.3 %
1.9 %
1.6 %
299
257
214
386
173
234
108
100
124
105
4.2 %
3.6 %
3.0 %
5.5 %
2.5 %
3.3 %
1.5 %
1.4 %
1.8 %
1.5 %
8.7
1.2
5.0
12.8
6.1
14.6
5.0
7.0
11.6
2.0
8.1
Total
31.2 %
2,000
28.3 %
(1) Based on owned share of GLA of properties. Excludes properties under development and properties held in equity accounted investments.
(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, 2021, the REIT's retail portfolio was comprised of 33
properties totalling approximately 2.1 million square feet of gross leasable area.
At December 31, 2021, the fair value of the properties in Artis’ retail portfolio was $662,646, and represented 12.0% of the REIT’s GLA at December 31, 2021, and 20.3% of
Q4-21 net operating income. Below is a breakdown of REIT’s retail portfolio by geographical region:
GLA
Net Operating Income (Q4-21)
SK 10.2%
SK 12.2%
Leasable area renewed (in S.F.)
286,546
105,402
48,738
111,941
175,345
357,511
54,855
149,570
(Decrease) increase in weighted-average rental rate
(2.6) %
0.9 %
7.8 %
(1.6) %
(3.1) %
10.4 %
4.1 %
1.8 %
(1) Represents a non-GAAP measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
MB 27.0%
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 Q4-21
net operating income:
MB 27.3%
AB 62.8%
AB 60.5%
Downtown 20.7%
The following is a historical summary of key performance indicators related to the REIT’s retail portfolio:
Number of properties
Occupancy (including commitments)
Same Property NOI growth (decline) (1)
33
91.5 %
3.5 %
33
91.5 %
1.6 %
36
90.8 %
13.8 %
39
90.6 %
(4.0) %
39
90.7 %
(5.8) %
42
89.5 %
(0.9) %
42
90.0 %
(13.4) %
41
90.9 %
(3.2) %
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Q3-20
Q2-20
Q1-20
Suburban 79.3%
Leasable area renewed (in S.F.)
64,609
85,350
63,574
39,176
34,866
105,188
56,066
25,540
(Decrease) increase in weighted-average rental rate
(2.0) %
2.4 %
1.5 %
6.3 %
(0.3) %
(13.3) %
5.3 %
8.3 %
(1) Represents a non-GAAP measure . Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
Artis' office portfolio includes 512 tenant leases with a weighted-average term to maturity of 5.7 years. Approximately 29.5% of the REIT's office gross revenue is derived from
national or government tenants. As indicated below, the largest tenant by gross revenue is a combination of government tenants, providing various Federal, Provincial, and
local services.
41
management’s discussion & analysis
management’s discussion & analysis
42
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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 Q4-21 net operating income:
PORTFOLIO OCCUPANCY
Community Centre
(100,000 - 400,000 SF)
45.7%
Convenience Centre
(10,000 - 39,999 SF)
10.4%
Neighbourhood Centre
(40,000 - 99,999 SF)
43.9%
Artis' retail portfolio includes 404 tenant leases with a weighted-average term to maturity of 4.0 years. Approximately 44.3% of the REIT's retail gross revenue is derived from
national or government tenants. As indicated below, the largest tenant by gross revenue is Cineplex Entertainment LP, a leading Canadian entertainment and media company
that serves millions of guests annually at its circuit of theatres and location-based entertainment venues across the country.
The following is a list of Artis’ top 10 retail tenants by gross revenue:
Top 10 Retail Tenants by Gross Revenue (1)
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
Cineplex Entertainment LP
Shoppers Drug Mart
Sport Chek International Ltd.
Winners
Jysk Linen 'n Furniture
The Brick
PetSmart, Inc.
Sobeys
GoodLife Fitness Centres, Inc.
Mark's Work Wearhouse
Total
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
4.1 %
3.6 %
3.2 %
2.4 %
2.4 %
2.3 %
1.7 %
1.5 %
1.5 %
1.4 %
108
64
82
84
75
62
40
37
35
44
5.0 %
3.0 %
3.8 %
3.9 %
3.5 %
2.9 %
1.9 %
1.7 %
1.6 %
2.1 %
24.1 %
631
29.4 %
3.9
5.2
1.4
2.4
3.5
3.4
1.8
1.2
14.8
4.7
3.8
(1) Based on owned share of GLA of properties. Excludes properties under development and properties held in equity accounted investments.
Residential Portfolio
Artis’ residential portfolio is comprised of one development project located in Winnipeg, Manitoba. At December 31, 2021, the fair value of Artis' residential portfolio was
$174,997.
Occupancy levels impact the REIT's revenues and net operating income. Occupancy and commitments at December 31, 2021, and the previous four quarterly periods, were
as follows:
Occupancy Report by Asset Class (1)
Q4-21 %
Committed (2)
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Industrial
Office
Retail
95.5 %
86.4 %
91.5 %
93.9 %
83.5 %
90.2 %
93.9 %
83.3 %
90.5 %
94.8 %
84.6 %
90.1 %
96.1 %
85.4 %
89.1 %
95.9 %
84.1 %
87.9 %
Total portfolio
91.5 %
89.4 %
89.1 %
90.6 %
91.4 %
90.6 %
Occupancy Report by Geographical Region (1)
Q4-21%
Committed (2)
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total U.S.
87.7 %
93.5 %
91.5 %
89.4 %
97.0 %
90.8 %
97.3 %
93.0 %
89.3 %
100.0 %
100.0 %
88.8 %
91.9 %
86.8 %
91.8 %
90.8 %
88.2 %
96.5 %
90.1 %
88.4 %
93.0 %
87.1 %
100.0 %
100.0 %
86.3 %
88.9 %
82.6 %
97.4 %
91.7 %
87.6 %
96.5 %
88.8 %
88.4 %
88.6 %
88.1 %
100.0 %
100.0 %
87.2 %
89.2 %
83.7 %
97.5 %
91.3 %
94.9 %
96.1 %
90.7 %
92.0 %
90.1 %
89.3 %
100.0 %
100.0 %
86.9 %
90.5 %
79.6 %
87.4 %
90.6 %
96.0 %
94.0 %
89.7 %
91.9 %
90.1 %
94.1 %
100.0 %
100.0 %
86.6 %
92.9 %
79.7 %
91.1 %
87.2 %
96.7 %
93.7 %
88.6 %
91.7 %
87.1 %
93.9 %
100.0 %
100.0 %
86.4 %
92.6 %
Total portfolio
91.5 %
89.4 %
89.1 %
90.6 %
91.4 %
90.6 %
(1) Information is as at December 31, 2021, and excludes properties under development and properties held in equity accounted investments.
(2) Percentage committed is based on occupancy at December 31, 2021, plus commitments on vacant space.
PORTFOLIO LEASING ACTIVITY AND LEASE EXPIRIES
Renewal Summary (1)
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Q3-20
Q2-20
Q1-20
Leasable area renewed (in S.F.)
786,531
329,468
326,397
478,213
247,215
614,053
591,534
324,925
Increase (decrease) in weighted-average rental rate
3.9 %
2.0 %
7.3 %
4.3 %
(0.5) %
6.1 %
(3.3) %
4.6 %
(1) Based on owned share of GLA of properties and excludes properties under development and properties held in equity accounted investments.
In 2021, 1,920,609 square feet were renewed at an increase in the weighted-average rental rate of 4.1%, compared to 1,797,146 square feet renewed at an increase in the
weighted-average rental rate of 2.4% in 2020.
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.
Lease Maturities and Rental Rates
In-place rental rates reflect the weighted-average net annual rental rate per square foot as at December 31, 2021, 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.
43
management’s discussion & analysis
management’s discussion & analysis
44
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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 and Uncertainties section of
this MD&A for further information. Market rents at December 31, 2021, were estimated to be 0.2% above in-place rents across the portfolio, compared to 1.9% below in-place
rents at September 30, 2021 and 0.9% above in-place rents at December 31, 2020. Today's market rents for the 2022 and 2023 lease expiries are estimated to be 1.4% and
0.1% below in-place rents, respectively.
The following tables contain information on lease maturities and rental rates and are based on owned share of GLA of properties included in the Portfolio by Asset Class table
in the Property Portfolio section of this MD&A. Monthly tenants includes holdovers and renewals where term has not been negotiated.
Lease Maturities and Rental Rates by Asset Class
Square Feet
Expiring
% of GLA
Weighted-Average
In-Place Rental Rate
Weighted-Average
Market Rental Rate
Industrial:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Office:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Retail:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Total Portfolio:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
535,266
—
1,522,595
914,829
1,366,782
725,945
3,682,737
8,748,154
1,163,804
22,248
500,023
1,061,650
428,568
450,174
3,411,693
7,038,160
209,928
18,664
335,109
378,618
301,577
236,027
662,693
2,142,616
1,908,998
40,912
2,357,727
2,355,097
2,096,927
1,412,146
7,757,123
3.0 %
— %
8.5 %
5.1 %
7.6 %
4.0 %
20.6 %
48.8 %
6.5 %
0.1 %
2.8 %
5.9 %
2.4 %
2.5 %
19.0 %
39.2 %
1.2 %
0.1 %
1.9 %
2.1 %
1.7 %
1.3 %
3.7 %
12.0 %
10.7 %
0.2 %
13.2 %
13.1 %
11.7 %
7.8 %
43.3 %
17,928,930
100.0 %
N/A
N/A
$7.00
$6.62
$6.46
$9.58
$7.78
$7.44
N/A
N/A
$21.90
$18.10
$20.20
$18.95
$17.14
$18.08
N/A
N/A
$24.30
$24.72
$24.42
$24.87
$22.90
$23.99
N/A
N/A
$12.62
$14.71
$11.85
$15.12
$13.19
$13.32
N/A
N/A
$7.01
$6.58
$6.66
$9.74
$7.76
$7.48
N/A
N/A
$20.89
$18.47
$19.45
$19.42
$17.40
$18.20
N/A
N/A
$24.51
$23.68
$23.60
$24.32
$23.07
$23.68
N/A
N/A
$12.44
$14.69
$11.71
$15.27
$13.31
$13.35
Lease Maturities and Rental Rates by Geographical Location
Square Feet
Expiring
% of GLA
Weighted-Average
In-Place Rental Rate
Weighted-Average
Market Rental Rate
Alberta:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
British Columbia:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Manitoba:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Ontario:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Saskatchewan:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Arizona:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
256,051
13,974
268,760
291,217
177,767
228,925
707,489
1,944,183
26,226
—
27,277
35,210
28,126
5,872
198,014
320,725
343,998
9,153
458,452
447,123
472,670
410,871
1,605,482
3,747,749
49,299
—
12,574
155,225
21,315
30,064
149,873
418,350
19,214
4,690
169,380
45,942
43,841
12,339
256,440
551,846
202,511
3,562
230,809
145,760
142,835
272,860
742,352
1,740,689
1.4 %
0.1 %
1.5 %
1.6 %
1.0 %
1.2 %
4.0 %
10.8 %
0.1 %
— %
0.2 %
0.2 %
0.2 %
— %
1.1 %
1.8 %
2.0 %
0.1 %
2.6 %
2.5 %
2.6 %
2.3 %
8.8 %
20.9 %
0.3 %
— %
0.1 %
0.8 %
0.1 %
0.2 %
0.8 %
2.3 %
0.1 %
— %
0.9 %
0.3 %
0.2 %
0.1 %
1.5 %
3.1 %
1.1 %
— %
1.3 %
0.8 %
0.8 %
1.5 %
4.2 %
9.7 %
N/A
N/A
$25.04
$24.27
$24.14
$23.48
$21.08
$22.93
N/A
N/A
$23.95
$22.86
$30.01
$33.79
$17.11
$20.00
N/A
N/A
$9.52
$10.85
$14.42
$12.89
$13.39
$12.61
N/A
N/A
$13.03
$17.95
$16.29
$13.75
$24.98
$20.20
N/A
N/A
$13.34
$19.65
$25.09
$26.52
$16.36
$16.64
N/A
N/A
$19.53
$23.03
$12.88
$14.50
$14.88
$16.10
N/A
N/A
$24.20
$22.59
$22.98
$23.01
$20.52
$22.07
N/A
N/A
$25.41
$29.21
$31.51
$34.75
$16.85
$20.88
N/A
N/A
$9.76
$10.91
$14.10
$13.20
$13.87
$12.88
N/A
N/A
$13.00
$16.53
$16.30
$14.93
$24.72
$19.59
N/A
N/A
$13.09
$19.83
$24.36
$26.41
$15.02
$15.86
N/A
N/A
$18.57
$22.05
$14.40
$15.06
$15.99
$16.64
45
management’s discussion & analysis
management’s discussion & analysis
46
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Lease Maturities and Rental Rates by Geographical Location (continued)
LARGEST SEGMENTS BY PROPERTY NOI
Colorado:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Minnesota:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
New York:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Texas:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Wisconsin:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Total portfolio:
Current vacancy
Monthly tenants
2022
2023
2024
2025
2026 +
Square Feet
Expiring
% of GLA
Weighted-Average
In-Place Rental Rate
Weighted-Average
Market Rental Rate
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, 2021, the five largest segments of the REIT's portfolio (by net operating income) were Twin Cities Area office, Madison office, Twin Cities Area industrial,
Winnipeg office and Winnipeg retail.
Twin Cities Area Office Segment
The Twin Cities Area office segment represents 11.9% of Q4-21 net operating income and 9.5% of the overall portfolio by GLA. Direct vacancy in the Twin Cities Area office
market, as reported by Colliers, was 21.0% at December 31, 2021, decreased from 21.2% at September 30, 2021. At December 31, 2021, the Twin Cities Area office segment
of Artis' portfolio was 82.0% occupied, compared to 82.4% at September 30, 2021. During 2022, 69,196 square feet come up for renewal, which represents 0.4% of the total
portfolio GLA; 3.6% was renewed or committed to new leases at December 31, 2021. Of Artis' total Twin Cities Area office GLA, 65.8% expires in 2026 or later.
Madison Office Segment
The Madison office segment represents 11.9% of Q4-21 net operating income and 9.8% of the overall portfolio by GLA. At December 31, 2021, the Madison office segment
of Artis' portfolio was 86.3% occupied, compared to 87.2% at September 30, 2021. During 2022, 192,161 square feet come up for renewal, which represents 1.1% of the total
portfolio GLA; 32.0% was renewed or committed to new leases at December 31, 2021. Of Artis' total Madison office GLA, 40.9% expires in 2026 or later.
Twin Cities Area Industrial Segment
The Twin Cities Area industrial segment represents 11.5% of Q4-21 net operating income and 22.1% of the overall portfolio by GLA. Direct vacancy in the Twin Cities Area
industrial market, as reported by CBRE, was 4.3% at December 31, 2021, compared to 4.2% at September 30, 2021. The average asking market lease rate was $6.50 per
square foot at December 31, 2021, compared to $6.53 at September 30, 2021. At December 31, 2021, the Twin Cities Area industrial segment of Artis' portfolio was 89.3%
occupied, compared to 92.5% at September 30, 2021. During 2022, 685,646 square feet come up for renewal, which represents 3.8% of the total portfolio GLA; 59.9% was
renewed or committed to new leases at December 31, 2021. Of Artis' total Twin Cities Area industrial GLA, 30.5% expires in 2026 or later.
Winnipeg Office Segment
The Winnipeg office segment represents 8.1% of Q4-21 net operating income and 8.3% of the overall portfolio by GLA. Overall direct vacancy in the Winnipeg office market,
as reported by Colliers, was 13.2% at December 31, 2021, compared to 13.0% at September 30, 2021. At December 31, 2021, the Winnipeg office segment of Artis' portfolio
was 82.4% occupied, compared to 85.7% at September 30, 2021. During 2022, 32,592 square feet come up for renewal, which represents 0.2% of the total portfolio GLA; 2.0%
was renewed or committed to new leases at December 31, 2021. Of Artis' Winnipeg Office segment GLA, 53.3% expires in 2026 or later.
Winnipeg Retail Segment
The Winnipeg retail segment represents 5.6% of Q4-21 net operating income and 3.3% of the overall portfolio by GLA. At December 31, 2021, the Winnipeg retail segment of
Artis' portfolio was 96.9% occupied, increased from 95.7% at September 30, 2021. During 2022, 80,530 square feet come up for renewal, which represents 0.4% of the total
portfolio GLA; 71.3% was renewed or committed to new leases at December 31, 2021. Of Artis' Winnipeg retail segment GLA, 40.0% expires in 2026 or later.
39,991
4,732
92,293
298,326
53,635
37,171
41,399
567,547
729,451
1,146
754,842
598,905
971,036
277,809
2,327,744
5,660,933
—
—
—
83,003
40,207
—
—
123,210
—
—
128,625
—
36,501
46,111
880,530
1,091,767
242,257
3,655
214,715
254,386
108,994
90,124
847,800
1,761,931
1,908,998
40,912
2,357,727
2,355,097
2,096,927
1,412,146
7,757,123
0.2 %
— %
0.5 %
1.7 %
0.3 %
0.2 %
0.3 %
3.2 %
4.1 %
— %
4.2 %
3.3 %
5.5 %
1.5 %
13.0 %
31.6 %
— %
— %
— %
0.5 %
0.2 %
— %
— %
0.7 %
— %
— %
0.7 %
— %
0.2 %
0.3 %
4.9 %
6.1 %
1.4 %
— %
1.2 %
1.4 %
0.6 %
0.5 %
4.7 %
9.8 %
10.7 %
0.2 %
13.2 %
13.1 %
11.7 %
7.8 %
43.3 %
17,928,930
100.0 %
N/A
N/A
$14.43
$19.19
$14.61
$29.15
$16.74
$18.39
N/A
N/A
$7.25
$7.41
$6.15
$10.34
$10.84
$8.92
N/A
N/A
$—
$15.28
$17.50
$—
$—
$16.00
N/A
N/A
$5.45
$—
$9.22
$9.30
$6.30
$6.42
N/A
N/A
$16.60
$13.48
$16.67
$15.56
$14.22
$14.69
N/A
N/A
$12.62
$14.71
$11.85
$15.12
$13.19
$13.32
N/A
N/A
$14.01
$18.84
$13.85
$28.30
$16.12
$17.93
N/A
N/A
$7.35
$7.37
$6.21
$10.33
$10.81
$8.93
N/A
N/A
$—
$15.00
$15.00
$—
$—
$15.00
N/A
N/A
$5.27
$—
$8.40
$8.40
$5.82
$5.95
N/A
N/A
$16.18
$16.28
$16.25
$16.26
$15.03
$15.56
N/A
N/A
$12.44
$14.69
$11.71
$15.27
$13.31
$13.35
47
management’s discussion & analysis
management’s discussion & analysis
48
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
FINANCIAL & OPERATING RESULTS
NET OPERATING INCOME
Rental revenue from investment properties
Rental income
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
Condominium sales
Three months ended
December 31,
Year ended
December 31,
2021
2020
2021
2020
$
99,186
$
117,794
$
420,123
$
(5,938)
303
2,104
2,010
(6,424)
1,535
105
—
(24,765)
3,405
2,875
17,861
478,145
(24,854)
4,923
703
—
97,665
113,010
419,499
458,917
Property operating and realty tax expenses
Condominium cost of sales
40,776
1,462
48,043
—
165,676
16,038
189,642
—
Net operating income
$
55,427
$
64,967
$
237,785
$
269,275
Net Operating Income by Asset Class
Three months ended December
31,
Year ended
December 31,
2021
2020
Change
2021
2020
Change
Canada:
Industrial
Office
Retail
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
$
6,275 $
10,426 $
(4,151)
$
35,077 $
42,222 $
7,589
11,226
25,090
11,482
18,847
30,329
17,757
26,436
11,226
55,419
8,419
12,973
31,818
11,989
21,115
33,104
22,415
29,534
12,973
(830)
(1,747)
(6,728)
(507)
(2,268)
(2,775)
(4,658)
(3,098)
(1,747)
64,922
(9,503)
34,098
47,443
116,618
46,878
74,186
121,064
81,955
108,284
47,443
237,682
38,681
52,024
(7,145)
(4,583)
(4,581)
132,927
(16,309)
48,144
87,898
136,042
90,366
126,579
52,024
268,969
(1,266)
(13,712)
(14,978)
(8,411)
(18,295)
(4,581)
(31,287)
Rental income is revenue earned from tenants primarily related to lease agreements. In 2021, rental income was impacted by rent abatements in the amount of $1,087 (Q4-21
- $266), compared to $2,169 (Q4-20 - $500) in 2020, granted to certain tenants affected by the COVID-19 pandemic.
REIT
8
45
(37)
103
306
(203)
Tenant inducement costs are amortized over the term of the tenant's lease.
Net operating income
$
55,427 $
64,967 $
(9,540)
$
237,785 $
269,275 $
(31,490)
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.
In Q4-21, the Canadian industrial, office and retail segments were primarily impacted by dispositions in 2021 and 2020. The office segment decrease was partially offset by
increased occupancy at an office property and the industrial segment decrease was partially offset by the net operating income generated from the sale of condominium
units.
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.
The U.S. office segment was impacted by a disposition in 2020 and increased vacancy in certain properties.
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 $574 (Q4-21 - $188) in 2021 compared to $2,693 (Q4-20 - $462) in 2020. 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.
During 2021, 21 commercial condominium units were sold for consideration of $17,861 and cost of sales related to the units sold were $16,038.
Net operating income in all regions was impacted by changes in bad debt provisions and rent abatements. The U.S. portfolio was also impacted by the effect of foreign
exchange.
Canadian Portfolio (Q4-21)
U.S. Portfolio (Q4-21)
Total Portfolio (Q4-21)
Retail
44.7%
Industrial
25.0%
Office
30.3%
Office
62.1%
Industrial
37.9%
Retail
20.3%
Industrial
32.0%
Office
47.7%
Canadian Portfolio (Q4-20)
U.S. Portfolio (Q4-20)
Total Portfolio (Q4-20)
Retail
40.8%
Industrial
32.8%
Industrial
36.2%
Retail
20.0%
Industrial
34.5%
Office
63.8%
Office
26.4%
Office
45.5%
49
management’s discussion & analysis
management’s discussion & analysis
50
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Net Operating Income by Geographical Region
Same Property NOI Analysis
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total portfolio
REIT
Three months ended December 31,
Year ended
December 31,
2021
2020
Change
2021
2020
Change
10,710 $
(1,844)
$
40,696 $
42,556 $
$
8,866 $
1,512
10,008
2,372
2,332
25,090
5,303
2,863
12,983
454
2,138
6,588
1,564
8,441
6,927
4,176
31,818
6,581
2,094
15,298
501
2,027
6,603
(52)
1,567
(4,555)
(1,844)
(6,728)
(1,278)
769
(2,315)
(47)
111
(15)
30,329
33,104
(2,775)
5,893
39,065
18,991
11,973
6,834
35,729
30,331
17,477
116,618
132,927
23,938
8,194
53,486
1,993
8,476
24,977
121,064
28,350
8,863
60,446
2,020
8,262
28,101
136,042
(1,860)
(941)
3,336
(11,340)
(5,504)
(16,309)
(4,412)
(669)
(6,960)
(27)
214
(3,124)
(14,978)
55,419
64,922
(9,503)
237,682
268,969
(31,287)
8
45
(37)
103
306
(203)
Same Property NOI is a non-GAAP measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section of this MD&A.
Artis calculates Same Property NOI by including net operating income 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. Same Property NOI includes Artis' portfolio of investment
properties and investment properties held under joint venture arrangements. Adjustments are made to this measure to exclude certain non-cash revenue items and other
non-recurring revenue amounts. 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.
As the COVID-19 pandemic has resulted in bad debt provisions related to the collectability of rents receivable from certain tenants, Artis has calculated Same Property NOI
excluding bad debt expense (recovery) and rent abatements. This is calculated by adjusting Same Property NOI for bad debt expense (recovery) and rent abatements for the
properties in the Same Property reporting pool, as outlined above.
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.
Reconciliation to Net Operating Income
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
Net operating income
$
55,427 $
64,967
$ 237,785 $ 269,275
Add (deduct) net operating income from:
Equity accounted investments
Dispositions and unconditional dispositions
(Re)development properties
Lease termination income adjustments
Disposition of condominium units
Other
2,202
(622)
227
(2,041)
(548)
(273)
2,346
(9,087)
40
66
—
(942)
8,847
11,138
(7,509)
(32,630)
(191)
(2,444)
(1,823)
(3,896)
(61)
348
—
(1,984)
Net operating income
$
55,427 $
64,967 $
(9,540)
$
237,785 $
269,275 $
(31,490)
(1,055)
(7,577)
(7,016)
(23,189)
In Q4-21, net operating income decreased in Alberta, Ontario and Saskatchewan and Arizona primarily due to dispositions. Alberta, Arizona and Minnesota were also
impacted by increased vacancy in certain properties. Manitoba increased primarily due to increased occupancy at an office property.
Straight-line rent adjustments (1)
Tenant inducements amortized to revenue (1)
(472)
5,815
(1,597)
5,314
(3,965)
(5,565)
24,545
21,635
Net operating income in all regions was impacted by changes in bad debt provisions and rent abatements. The U.S. portfolio was also impacted by the effect of foreign
exchange.
Same Property NOI
$
59,715 $
61,107 $
(1,392)
(2.3) %
$ 251,349 $ 262,156 $ (10,807)
(4.1) %
Total Portolio (Q4-21)
Total Portfolio (Q4-20)
WI 11.9%
AB 16.0%
BC 2.7%
WI 10.2%
TX 3.1%
NY 0.8%
MB 18.0%
MN 23.6%
AB 16.5%
BC 2.4%
MB 13.0%
Add (deduct):
Bad debt expense (recovery) (1)
Rent abatements (1)
Same Property NOI, excluding bad debt
expense (recovery) and rent abatements
(1) Includes equity accounted investments.
Same Property NOI by Asset Class
ON 4.3%
SK 4.2%
CO 3.2%
ON 10.7%
AZ 10.1%
SK 6.4%
Canada
U.S.
49.0%
51.0%
Industrial
Office
Retail
TX 3.9%
NY 0.8%
MN 23.4%
CO 5.2%
AZ 9.6%
Canada
U.S.
45.2%
54.8%
191
266
(1)
452
366
1,081
1,825
1,957
$
60,172 $
61,558 $
(1,386)
(2.3) %
$ 252,796 $ 265,938 $ (13,142)
(4.9) %
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
$
20,076 $
20,696 $
(620)
(3.0) %
$
83,784 $
85,272 $
(1,488)
28,216
11,423
29,377
11,034
(1,161)
389
(4.0) %
3.5 %
121,384
132,265
(10,881)
46,181
44,619
1,562
%
Change
(1.7) %
(8.2) %
3.5 %
Same Property NOI
$
59,715 $
61,107 $
(1,392)
(2.3) %
$ 251,349 $ 262,156 $
(10,807)
(4.1) %
51
management’s discussion & analysis
management’s discussion & analysis
52
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Canada:
Industrial
Office
Retail
Total Canada
U.S.:
Industrial
Office
Total U.S.
Three months ended
December 31,
Year ended
December 31,
2021
2020
Change
%
Change
2021
2020
Change
%
Change
$
7,521 $
7,541 $
7,957
11,423
6,986
11,034
(20)
971
389
(0.3) %
$
34,561 $
33,964 $
597
13.9 %
3.5 %
40,040
46,181
38,566
44,619
1,474
1,562
1.8 %
3.8 %
3.5 %
26,901
25,561
1,340
5.2 %
120,782
117,149
3,633
3.1 %
9,960
16,073
10,098
17,180
(138)
(1,107)
(1.4) %
(6.4) %
39,254
64,879
38,276
69,847
978
(4,968)
2.6 %
(7.1) %
26,033
27,278
(1,245)
(4.6) %
104,133
108,123
(3,990)
(3.7) %
Total in functional currency
Foreign exchange
52,934
6,781
52,839
8,268
95
0.2 %
224,915
225,272
(357)
(0.2) %
(1,487)
(18.0) %
26,434
36,884
(10,450)
(28.3) %
Same Property NOI
$
59,715 $
61,107 $
(1,392)
(2.3) %
$ 251,349 $ 262,156 $
(10,807)
(4.1) %
Same Property NOI by Geographical Region
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
$
10,183 $
10,434 $
1,705
11,106
1,323
2,584
4,452
2,045
1,494
9,676
1,383
2,574
5,030
2,169
(251)
211
1,430
(60)
10
(578)
(124)
10,991
12,160
(1,169)
398
2,329
5,818
382
2,218
5,319
16
111
499
(2.4) %
$
46,675 $
47,011
$
14.1 %
14.8 %
(4.3) %
0.4 %
(11.5) %
(5.7) %
(9.6) %
4.2 %
5.0 %
9.4 %
6,501
44,607
11,653
11,346
19,244
8,281
44,747
1,570
8,638
6,074
40,866
12,047
11,151
20,623
8,675
47,456
1,423
7,436
21,653
22,510
(336)
427
3,741
(394)
195
(1,379)
(394)
(2,709)
147
1,202
(857)
%
Change
(0.7) %
7.0 %
9.2 %
(3.3) %
1.7 %
(6.7) %
(4.5) %
(5.7) %
10.3 %
16.2 %
(3.8) %
Same Property NOI by Asset Class - Excluding Bad Debt Expense (Recovery) and Rent Abatements
Canada:
Industrial
Office
Retail
Total Canada
U.S.:
Industrial
Office
Total U.S.
Three months ended
December 31,
Year ended
December 31,
2021
2020
Change
%
Change
2021
2020
Change
%
Change
$
7,694 $
7,535 $
7,987
11,391
7,127
11,046
159
860
345
2.1 % $
34,738 $
34,076 $
12.1 %
40,066
3.1 %
46,269
39,223
45,999
662
843
270
1.9 %
2.1 %
0.6 %
27,072
25,708
1,364
5.3 %
121,073
119,298
1,775
1.5 %
9,971
16,288
10,083
17,429
(112)
(1.1) %
39,274
(1,141)
(6.5) %
65,785
38,492
70,845
782
(5,060)
2.0 %
(7.1) %
26,259
27,512
(1,253)
(4.6) %
105,059
109,337
(4,278)
(3.9) %
Total in functional currency
Foreign exchange
53,331
6,841
53,220
8,338
111
0.2 %
226,132
228,635
(2,503)
(1.1) %
(1,497)
(18.0) %
26,664
37,303
(10,639)
(28.5) %
Same Property NOI, excluding bad debt
expense (recovery) and rent abatements
$
60,172 $
61,558 $
(1,386)
(2.3) % $ 252,796 $ 265,938 $
(13,142)
(4.9) %
Same Property NOI by Geographical Region - Excluding Bad Debt Expense (Recovery) and Rent Abatements
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
$
10,342 $
10,364
$
1,705
11,129
1,334
2,562
4,456
2,072
1,486
9,923
1,377
2,558
5,100
2,158
(22)
219
1,206
(43)
4
(644)
(86)
11,131
12,251
(1,120)
398
2,329
5,873
383
2,218
5,402
15
111
471
(0.2) %
$
46,854
$
47,997
$
(1,143)
(2.4) %
14.7 %
12.2 %
(3.1) %
0.2 %
(12.6) %
(4.0) %
(9.1) %
3.9 %
5.0 %
8.7 %
6,508
44,677
11,620
11,414
19,249
8,313
45,423
1,570
8,638
6,083
41,745
12,089
11,384
20,722
8,896
48,002
1,424
7,435
21,866
22,858
425
2,932
(469)
30
(1,473)
(583)
(2,579)
146
1,203
(992)
7.0 %
7.0 %
(3.9) %
0.3 %
(7.1) %
(6.6) %
(5.4) %
10.3 %
16.2 %
(4.3) %
Total in functional currency
52,934
52,839
95
0.2 %
224,915
225,272
(357)
(0.2) %
Foreign exchange
6,781
8,268
(1,487)
(18.0) %
26,434
36,884
(10,450)
(28.3) %
Same Property NOI
$
59,715 $
61,107 $
(1,392)
(2.3) %
$ 251,349 $ 262,156
$
(10,807)
(4.1) %
Total in functional currency
53,331
53,220
111
0.2 %
226,132
228,635
(2,503)
(1.1) %
Foreign exchange
6,841
8,338
(1,497)
(18.0) %
26,664
37,303
(10,639)
(28.5) %
Same Property NOI, excluding bad debt
expense (recovery) and rent abatements
$
60,172 $
61,558
$
(1,386)
(2.3) %
$ 252,796
$ 265,938
$
(13,142)
(4.9) %
53
management’s discussion & analysis
management’s discussion & analysis
54
Same Property Occupancy
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Asset Class
Industrial
Office
Retail
Total
As at December 31,
2021
2020
93.8 %
83.6 %
90.2 %
95.4 %
86.4 %
87.4 %
89.4 %
90.9 %
INTEREST EXPENSE
Mortgages and other loans (1)
Senior unsecured debentures
Credit facilities (1)
Preferred shares (1)
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
$
7,795 $
8,916 $
(1,121)
$
33,365 $
39,214 $
(5,849)
2,524
4,952
40
4,925
4,839
34
(2,401)
113
6
11,303
20,178
140
13,311
26,068
135
(2,008)
(5,890)
5
15,311
18,714
(3,403)
(18.2) %
64,986
78,728
(13,742)
(17.5) %
Geographical Region
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total U.S.
Total
CORPORATE EXPENSES
As at December 31,
2021
2020
86.6 %
91.8 %
90.6 %
90.8 %
96.5 %
90.0 %
88.4 %
93.0 %
87.1 %
100.0 %
100.0 %
86.6 %
89.0 %
86.3 %
90.7 %
87.2 %
93.7 %
96.7 %
88.1 %
91.7 %
87.1 %
93.9 %
100.0 %
100.0 %
86.6 %
92.7 %
89.4 %
90.9 %
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,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
723
338
1,263
632
343
343
1,236
509
3,623
416
397
473
(513)
(171)
(41.5) %
(33.6) %
(2,360)
(65.1) %
216
51.9 %
(54)
(13.6) %
(130)
(27.5) %
3,262
1,396
3,357
2,083
1,362
1,253
3,316
1,367
2,855
1,940
1,422
1,305
(54)
29
502
143
(60)
(52)
%
Change
(1.6) %
2.1 %
17.6 %
7.4 %
(4.2) %
(4.0) %
Total corporate expenses
$
3,642 $
6,654 $
(3,012)
(45.3) %
$
12,713 $
12,205 $
508
4.2 %
Corporate expenses in 2021 were $12,713 (Q4-21 - $3,642), or 3.0% (Q4-21 - 3.7%) of total revenues compared to $12,205 (Q4-20 - $6,654), or 2.7% (Q4-20 - 5.9%) of total
revenues in 2020.
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 $nil in 2021 (Q4-21 - $nil) compared to $17,423 (Q4-20 - $17,423) in 2020, 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 engaged independent financial and legal advisors to review various strategic alternatives. The strategic initiative expenses in 2020 and 2021 were primarily fees paid for
legal and advisory services.
In 2021, strategic initiative expenses were $18 (Q4-21 - $nil) compared to $4,029 (Q4-20 - $810) in 2020.
Foreign exchange
1,149
1,533
(384)
4,662
7,378
(2,716)
Total interest expense
(1) Amounts shown are in Canadian and US dollars.
$
16,460 $
20,247 $
(3,787)
(18.7) %
$
69,648 $
86,106 $
(16,458)
(19.1) %
During 2021, interest expense on mortgages and other loans decreased primarily due to the repayment of mortgages upon disposition of investment properties and the
repayment of maturing mortgages, partially offset by interest expense on new mortgages. Interest expense on senior unsecured debentures decreased primarily due to the
repayments of the Series C senior unsecured debentures in February 2021, partially offset by the issuance of the Series D debentures on September 18, 2020. Interest expense
on credit facilities decreased primarily due to lower balances drawn on the revolving credit facilities during the year.
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.
At December 31, 2021, the weighted-average effective interest rate on mortgages and other loans secured by properties, was 3.31%, compared to 3.23% at December 31,
2020. The weighted-average nominal interest rate on mortgages and other loans secured by properties at December 31, 2021, was 3.04%, compared to 3.03% at December
31, 2020.
FAIR VALUE GAIN (LOSS) 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 2021, the fair value gain
on investment properties was $197,511 (Q4-21 - gain of $9,247), compared to a loss of $140,876 (Q4-20 - loss of $8,985) in 2020. The fair value gain in 2021 was primarily due
to capitalization rate compression and higher expected market rents across the industrial portfolio in both Canada and the U.S., partially offset by a decrease in market rents
as well as an increase in capitalization rates, estimated vacancy allowances and tenant inducement allowances in certain office markets.
Fair Value Gain (Loss) on Investment Properties by Asset Class
Three months ended
December 31, 2021
Year ended December
31, 2021
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Total portfolio
$
5,725
$
(6,512)
(1,336)
167
(1,956)
38,903
(27,700)
11,203
44,628
(34,212)
(1,336)
167
257,230
(62,431)
(2,919)
(15,388)
176,492
96,253
(75,234)
21,019
353,483
(137,665)
(2,919)
(15,388)
$
9,247
$
197,511
FOREIGN CURRENCY TRANSLATION (LOSS) GAIN
Artis held certain US dollar denominated monetary assets and liabilities, including cash, deposits and a portion of its revolving term credit facilities. The foreign currency
translation (loss) 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 loss of $3,244 (Q4-21 - gain of $473) in 2021, compared to a gain of $530 (Q4-20 - gain of $3,105) in 2020.
55
management’s discussion & analysis
management’s discussion & analysis
56
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
FAIR VALUE GAIN (LOSS) ON FINANCIAL INSTRUMENTS
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 gain on
the fair value adjustment of the interest rate swaps outstanding of $15,966 (Q4-21 - gain of $5,708) in 2021, compared to an unrealized loss of $18,388 (Q4-20 - gain of $2,563)
in 2020. The REIT anticipates holding the mortgages, non-revolving term credit facilities and related interest rate swap contracts until maturity.
000's, except per unit amounts
2021
2020
Change
Three months ended
December 31,
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
Artis recorded a gain of $305 (Q4-21 - $nil) in 2021 on the fair value of outstanding foreign currency contracts, compared to an unrealized gain of $2,257 (Q4-20 - loss of
$2,328) in 2020.
Net income
Add (deduct):
$
60,404 $
32,424
$
389,175 $
21,543
In conjunction with the Business Transformation Plan, the REIT purchased equity securities in 2021. The REIT recorded a fair value gain of $5,320 (Q4-21 - gain of $5,864) in
2021 on equity securities.
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 21% to 30% 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 unrealized foreign currency translation losses of $1,473 (Q4-21 - losses of $7,469) in 2021, compared to losses of $27,817 (Q4-20 - losses of
$64,903) in 2020. Foreign currency translation gains and losses relate to the REIT's net investments in its U.S. subsidiaries.
Fair value (gain) loss on investment properties
Tenant inducements amortized to revenue
Transaction costs on acquisitions
(9,247)
5,938
—
8,985
6,424
—
Adjustments for equity accounted investments
(1,492)
(16,133)
Proxy matter expenses
Strategic initiative expenses
Foreign currency translation (gain) loss
Fair value (gain) loss on financial instruments
Deferred income tax recovery
Remeasurement component of unit-based
compensation
Distributions on preferred shares treated as interest
expense
Incremental leasing costs
Preferred unit distributions
—
—
17,423
810
(473)
(3,105)
(11,302)
(38)
28
50
749
(265)
(18)
2,774
45
779
FUNDS FROM OPERATIONS ("FFO") AND ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
FFO and AFFO are non-GAAP measures. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section of this MD&A.
FFO
Add (deduct):
(197,511)
140,876
24,765
24,854
11
—
(9,945)
(17,271)
—
18
3,244
17,423
4,029
(530)
(21,224)
16,538
(43)
(63)
176
3,000
(43)
(935)
181
3,166
(4,294)
(4,347)
(17,260)
(17,420)
$
40,323 $
45,796 $
(5,473)
(12.0) %
$
174,343 $
192,411 $
(18,068)
(9.4) %
Artis calculates FFO and AFFO substantially in accordance with the guidelines set out by the Real Property Association of Canada ("REALpac"), as issued in January 2022.
FFO adjusts net income for items that are non-cash or not recurring in nature such as fair value gains or losses on investment properties and financial instruments, foreign
currency translation gains and losses, tenant inducements amortized to revenue, transaction costs on acquisitions, deferred income taxes, distributions on preferred shares
treated as interest expense, remeasurement component of unit-based compensation, incremental leasing costs, and preferred unit distributions. AFFO adjusts FFO by
excluding straight-line rent adjustments, as well as costs incurred relating to leasing activities and property capital expenditures. AFFO includes adjustments related to the
REIT's equity accounted investments.
The REIT also adjusted FFO and AFFO for strategic initiative and proxy matter expenses for a total of $18 (Q4-21 - $nil) in 2021 compared to $21,452 (Q4-20 - $18,233) in 2020.
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 January 2022, management
believes it provides a better representation of recurring FFO and AFFO.
Management considers FFO and AFFO to be a valuable recurring earnings measures for evaluating the REIT's operating performance.
Amortization of recoverable capital expenditures
$
(2,953) $
(3,508)
$
(9,848) $
(11,204)
Straight-line rent adjustments
Adjustments for equity accounted investments
Non-recoverable property maintenance reserve
Leasing costs reserve
(303)
(148)
(1,100)
(7,900)
(1,535)
(32)
(1,100)
(7,900)
(3,405)
(614)
(4,400)
(4,923)
(1,032)
(4,400)
(31,600)
(31,300)
AFFO
$
27,919 $
31,721 $
(3,802)
(12.0) %
$
124,476 $
139,552 $
(15,076)
(10.8) %
FFO and AFFO in 2021 were primarily impacted by dispositions completed in 2020 and 2021 and a lower US dollar to Canadian dollar average exchange rate in 2021
compared to 2020, partially offset by a year-over-year decrease in interest expense.
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, including equity accounted investments. Approximately 76.2% (Q4-21 - 73.2%) is recoverable from tenants in 2021, compared to
77.1% (Q4-20 - 74.6%) in 2020. The non-recoverable property maintenance reserve reflects management's estimate of a normalized expenditure using the 2018, 2019, 2020,
and 2021 actual expenditures and the 2022 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.
FFO and AFFO per Unit
FFO per unit and AFFO per unit are non-GAAP ratios. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section of this MD&A.
Artis calculates FFO and AFFO per unit by dividing FFO and AFFO, respectively, by the weighted-average diluted units outstanding for the period.
Management considers FFO per unit and AFFO per unit to be a valuable recurring earnings measures for evaluating the REIT's operating performance.
57
management’s discussion & analysis
management’s discussion & analysis
58
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
The following reconciles the weighted-average number of basic common units to diluted common units:
FINANCIAL POSITION
Three months ended
December 31,
Year ended
December 31,
ASSETS
2021
2020
2021
2020
Investment Properties, Investment Properties Under Development and Investment Properties Held for Sale
124,637,757
135,400,559
129,553,433
136,206,856
Artis' total investment properties are as follows:
414,281
133,552
355,902
92,908
366,757
105,727
320,049
80,016
125,185,590
135,849,369
130,025,917
136,606,921
Basic units
Add:
Restricted units
Deferred units
Diluted units
FFO and AFFO per Unit
000's, except per unit amounts
2021
2020
Change
Three months ended
December 31,
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
FFO per unit:
Basic
Diluted
AFFO per unit:
Basic
Diluted
$
0.32 $
0.34 $
0.32
0.34
$
0.22 $
0.23 $
0.22
0.23
(0.02)
(0.02)
(0.01)
(0.01)
(5.9) %
$
1.35 $
1.41 $
(5.9) %
1.34
1.41
(0.06)
(0.07)
(4.3) %
(5.0) %
(4.3) %
$
0.96 $
1.02 $
(4.3) %
0.96
1.02
(0.06)
(0.06)
(5.9) %
(5.9) %
FFO and AFFO per unit results have been impacted by the decrease in the weighted-average number of units outstanding, primarily due to units repurchased under the
NCIB.
FFO and AFFO Payout Ratios
FFO payout ratio and AFFO payout ratios are non-GAAP ratios. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section of this MD&A.
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.
Management uses the FFO and AFFO payout ratios to measure the REIT's ability to pay distributions.
Investment properties
Investment properties under development
Investment properties held for sale
Total
The change in total investment properties is a result of the following:
Balance, December 31, 2020
Additions:
Acquisitions
Reclassification from equity accounted investments (1)
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 equity accounted investments (3)
Dispositions
Foreign currency translation loss
Fair value gain
Balance, December 31, 2021
December 31,
2021
December 30,
2020
$
3,741,544 $
4,325,121
195,161
62,904
132,243
74,483
$
3,999,609 $
4,531,847
$
4,531,847
5,823
16,642
21,562
69,008
1,087
9,805
3,405
3,576
(906)
(851,772)
(7,979)
197,511
$
3,999,609
Distributions per common unit (1)
FFO per unit
FFO payout ratio
Distributions per common unit (1)
AFFO per unit
$
$
Three months ended
December 31,
2021
2020
%
Change
Year ended
December 31,
2021
2020
%
Change
$
0.15
0.32
0.14
0.34
$
$
0.59
1.34
0.54
1.41
(1) On January 26, 2021, the REIT increased its ownership interest in Park 8Ninety IV to 100%.
(2) During 2021, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 1.98%.
(3) During 2021, the REIT contributed capitalized development expenditures to Park Lucero East, an equity accounted associate.
Acquisitions
During 2021, the REIT acquired two parcel of industrial development land in the Twin Cities Area, Minnesota, for an aggregate purchase price of US$3,700.
46.9 %
41.2 %
5.7 %
44.0 %
38.3 %
5.7 %
Also during 2021, the REIT also acquired the remaining 5% interest in Park 8Ninety IV, an industrial property located in the Greater Houston Area, Texas, for total
consideration of US$309. The REIT now owns 100% of the property.
$
0.15
0.22
0.14
0.23
$
$
0.59
0.96
0.54
1.02
The results of operations for the acquired properties are included in the REIT's accounts from the date of acquisition. Artis funded these acquisitions with cash on hand.
AFFO payout ratio
68.2 %
60.9 %
7.3 %
61.5 %
52.9 %
8.6 %
(1) Excludes the Special Distribution declared in December 2021.
59
management’s discussion & analysis
management’s discussion & analysis
60
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Capital Expenditures by Type
Leasing Costs by Type
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.
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.
New and (re)development
expenditures
Building improvements expenditures:
Recoverable from tenants
Non-recoverable
Property maintenance expenditures:
Recoverable from tenants
Non-recoverable
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
$
17,870 $
19,473 $
(1,603)
$
69,008 $
69,082 $
(74)
918
1,740
1,615
4,765
(697)
(3,025)
2,150
11,548
3,742
13,493
(1,592)
(1,945)
1,429
112
1,688
531
(259)
(419)
4,945
2,919
6,742
4,954
(1,797)
(2,035)
Investment property leasing costs:
Tenant inducements
Leasing commissions
Investment property
(re)development related leasing
costs:
Tenant inducements
Leasing commissions
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
$
7,955 $
11,790 $
(3,835)
$
25,718 $
42,775 $
(17,057)
3,798
3,536
262
8,799
11,779
(2,980)
951
910
86
509
865
401
2,623
1,006
2,295
687
328
319
Total leasing costs
$
13,614 $
15,921 $
(2,307)
(14.5) %
$
38,146 $
57,536 $
(19,390)
(33.7) %
Total capital expenditures
$
22,069 $
28,072 $
(6,003)
(21.4) %
$
90,570 $
98,013 $
(7,443)
(7.6) %
Leasing Costs by Asset Class
Capital Expenditures by Asset Class
Three months ended
December 31,
%
Year ended
December 31,
%
2021
2020
Change
Change
2021
2020
Change
Change
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Total portfolio
$
391 $
1,311 $
1,808
1,114
11,477
14,790
6,531
748
7,279
6,922
2,556
1,114
2,627
672
14,209
18,819
1,035
8,218
9,253
2,346
10,845
672
(920)
(819)
442
(2,732)
(4,029)
5,496
(7,470)
(1,974)
4,576
(8,289)
442
11,477
14,209
(2,732)
$
1,677
$
4,142 $
(2,465)
6,796
1,816
55,768
66,057
16,371
8,142
24,513
18,048
14,938
1,816
55,768
8,203
9,973
53,158
75,476
5,512
17,025
22,537
9,654
25,228
9,973
53,158
(1,407)
(8,157)
2,610
(9,419)
10,859
(8,883)
1,976
8,394
(10,290)
(8,157)
2,610
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
$
209 $
1,212 $
(1,003)
$
3,395 $
4,520 $
(1,125)
2,534
1,157
920
4,820
4,091
4,703
8,794
4,300
7,237
1,157
920
2,475
1,229
—
4,916
1,133
9,872
11,005
2,345
12,347
1,229
—
59
(72)
920
(96)
2,958
(5,169)
(2,211)
1,955
(5,110)
(72)
920
7,788
5,256
920
11,375
4,197
—
17,359
20,092
7,643
13,144
20,787
11,038
20,932
5,256
920
4,003
33,441
37,444
8,523
44,816
4,197
—
(3,587)
1,059
920
(2,733)
3,640
(20,297)
(16,657)
2,515
(23,884)
1,059
920
Total leasing costs
$
13,614 $
15,921 $
(2,307)
(14.5) %
$
38,146 $
57,536 $
(19,390)
(33.7) %
In 2021, tenant inducements related to new and (re)developments included $2,479 for five retail tenants in Winnipeg, Manitoba.
$
22,069 $
28,072 $
(6,003)
(21.4) %
$ 90,570
$
98,013 $
(7,443)
(7.6) %
Dispositions
In 2021, new and (re)development expenditures included $55,768 for 300 Main, $12,773 for Blaine 35 I and Blaine 35 II.
During 2021, Artis sold 29 industrial properties, six office properties, six retail properties as well as a portion of a retail property for an aggregate sale price of $858,615. The
sale proceeds, net of costs of $6,837, notes receivable of $16,000 and related debt of $44,053, were $791,725.
In 2020, new and (re)development expenditures included $53,159 for 300 Main, $4,847 for 330 Main, and $3,233 for Linden Ridge Shopping Centre II.
Foreign currency translation loss on investment properties
In 2021, the foreign currency translation loss on investment properties was $7,979 due to the change in the year end US dollar to Canadian dollar exchange rate from 1.2732 at
December 31, 2020 to 1.2678 at December 31, 2021.
Investment properties held for sale
At December 31, 2021, the REIT had one industrial and two office properties located in Canada with an aggregate fair value of $62,904, classified as held for sale. These
properties were actively marketed for sale or under unconditional sale agreements at December 31, 2021.
61
management’s discussion & analysis
management’s discussion & analysis
62
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Fair value gain (loss) on investment properties
During 2021, the REIT recorded a gain on the fair value of investment properties of $197,511 (Q4-21 - gain of $9,247), compared to a loss of $140,876 (Q4-20 - loss of $8,985) in
2020. The fair value gain in 2021 was primarily due to capitalization rate compression and higher expected market rents across the industrial portfolio in both Canada and the
U.S., partially offset by a decrease in market rents as well as an increase in capitalization rates, estimated vacancy allowances and tenant inducement allowances in certain
office markets.
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 3.50% to 8.75%.
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, 2021
December 31, 2020
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
7.75 %
3.50 %
7.00 %
4.00 %
6.75 %
7.75 %
6.25 %
4.50 %
7.75 %
7.50 %
7.75 %
5.00 %
3.50 %
5.75 %
4.00 %
6.25 %
3.50 %
5.00 %
4.50 %
5.00 %
5.00 %
4.50 %
6.07 %
3.50 %
5.87 %
4.00 %
6.37 %
5.76 %
5.37 %
4.50 %
6.02 %
5.50 %
5.74 %
7.75 %
3.75 %
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 %
6.75 %
3.75 %
5.25 %
5.00 %
5.50 %
5.50 %
5.00 %
6.57 %
3.75 %
6.57 %
4.76 %
6.81 %
5.45 %
5.59 %
5.00 %
6.55 %
5.76 %
6.13 %
Total industrial portfolio
7.75 %
3.50 %
5.75 %
7.75 %
3.75 %
5.72 %
Office:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canadian office portfolio
Arizona
Colorado
Minnesota
New York
Wisconsin
Total U.S. office portfolio
7.25 %
5.50 %
7.75 %
6.50 %
7.50 %
7.75 %
8.00 %
6.50 %
7.50 %
7.75 %
8.00 %
8.00 %
7.25 %
4.75 %
5.00 %
6.00 %
7.50 %
4.75 %
6.00 %
6.00 %
6.25 %
7.75 %
7.00 %
6.00 %
7.25 %
4.92 %
6.11 %
6.38 %
7.50 %
5.99 %
6.67 %
6.30 %
6.86 %
7.75 %
7.57 %
7.00 %
9.00 %
5.50 %
7.75 %
7.00 %
7.50 %
9.00 %
8.00 %
6.00 %
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 %
6.00 %
6.78 %
7.75 %
7.55 %
6.92 %
Total office portfolio
8.00 %
4.75 %
6.61 %
9.00 %
5.00 %
6.61 %
Retail:
Alberta
Manitoba
Saskatchewan
Total Canadian retail portfolio
8.75 %
6.25 %
6.25 %
8.75 %
6.00 %
5.50 %
6.00 %
5.50 %
6.81 %
6.12 %
6.10 %
6.54 %
8.75 %
6.25 %
9.25 %
9.25 %
5.75 %
5.50 %
6.25 %
5.50 %
6.78 %
6.11 %
7.37 %
6.73 %
Total retail portfolio
8.75 %
5.50 %
6.54 %
9.25 %
5.50 %
6.73 %
Residential:
Manitoba
Total Canadian residential portfolio
4.50 %
4.50 %
4.50 %
4.50 %
4.50 %
4.50 %
Total residential portfolio
4.50 %
4.50 %
4.50 %
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Total:
Canadian portfolio
U.S. portfolio
8.75 %
8.00 %
3.50 %
4.50 %
6.00 %
6.49 %
9.25 %
8.00 %
3.75 %
5.00 %
6.09 %
6.63 %
Total portfolio
8.75 %
3.50 %
6.22 %
9.25 %
3.75 %
6.30 %
63
management’s discussion & analysis
management’s discussion & analysis
64
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Investments in Equity Securities
Mortgages and Loans Payable by Asset Class
At December 31, 2021, the REIT had investments in equity securities of $77,186, compared to $nil at December 31, 2020. The change during the year is due to equity
securities purchased in accordance with the Business Transformation Plan and fair value adjustments due to fluctuations in market prices.
Notes Receivable
On December 17, 2021, the REIT disposed of a portfolio of two office properties and received as partial consideration a note receivable in the amount of $6,000. The REIT
receives monthly interest-only payments at a rate of 4.0% per annum. The note receivable is secured by the office properties and matures in January 2024.
On December 22, 2021, the REIT disposed of an office property and received as partial consideration a note receivable in the amount of $10,000. The REIT receives monthly
interest-only payments at an effective rate of 3.086% per annum. The note receivable is secured by the office property and matures in January 2028.
On January 31, 2020, the REIT disposed of an office property 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 a parcel of 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, 2021 was $36,282, compared to $21,684 at December 31, 2020.
Cash
At December 31, 2021, the REIT had $221,474 of cash on hand, compared to $34,703 at December 31, 2020. The balance is anticipated to be invested in investment
properties, used for working capital purposes, debt repayment or other activities in accordance with the Business Transformation Plan. All of the REIT's cash is held in current
accounts.
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 at December
31, 2021 was 2.3 years, unchanged from December 31, 2020.
At December 31, 2021, Artis had mortgages and loans payable outstanding, as follows:
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total portfolio
The change in total mortgages and loans payable is a result of the following:
Balance, December 31, 2020
Add (deduct):
New fixed rate mortgage financing on previously unencumbered properties
Net uplift upon renewal of maturing mortgages
Assumed variable rate mortgage upon acquisition of investment property
Draws on variable rate construction loans
Repayment of hedged rate mortgage related to sale of investment property
Repayment of fixed rate mortgages related to sale of investment properties
Canada
U.S.
Total Portfolio
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
$
348,186 $
334,626
$
46,524 $
70,987
$
394,710 $
405,613
Fixed rate mortgages
Variable rate mortgages:
Hedged
Unhedged
Net above- and below-market mortgage
adjustments
Financing costs
60,124
4,532
—
(1,588)
91,765
16,136
—
(1,128)
347,392
280,763
1,604
(2,498)
381,640
380,123
2,423
(3,050)
407,516
285,295
1,604
(4,086)
473,405
396,259
2,423
(4,178)
Repayment of hedged rate mortgage
Repayment of variable rate mortgages
Repayment of fixed rate mortgages
Principal repayments
Foreign currency translation gain
December 31,
2021
December 31,
2020
$
57,479 $
69,081
286,282
412,842
278,519
396,160
674,679
335,998
465,241
286,282
60,546
153,495
228,486
442,527
253,748
579,002
832,750
314,294
732,497
228,486
$
1,087,521 $
1,275,277
$
1,275,277
108,150
23,894
9,813
69
(28,010)
(16,043)
(9,330)
(151,697)
(86,540)
(30,483)
(7,579)
$
411,254 $
441,399
$
673,785 $
832,123
$
1,085,039 $
1,273,522
Balance, December 31, 2021
$
1,087,521
At December 31, 2021, unhedged variable rate mortgage debt as a percentage of total debt, including credit facilities and debentures was 14.5%, compared to 16.5% at
December 31, 2020. 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.
Senior Unsecured Debentures
Artis has one series of senior unsecured debentures outstanding, as follows:
Issued
Maturity
Interest rate
December 31, 2021
December 31, 2020
Carrying
value
Face
value
Carrying
value
Face
value
Series C
Series D
February 22, 2019
February 22, 2021
3.674 %
$
— $
—
$
249,920 $
250,000
September 18, 2020
September 18, 2023
3.824 %
249,346
250,000
248,999
250,000
At December 31, 2021, the carrying value of the senior unsecured debentures decreased $249,573 compared to December 31, 2020. The change is primarily due to the
repayment of the Series C senior unsecured debentures on February 22, 2021.
$
249,346 $
250,000
$
498,919 $
500,000
65
management’s discussion & analysis
management’s discussion & analysis
66
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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, 2022. 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, 2021, there
was $131,851 drawn on these facilities (December 31, 2020, $125,617).
Non-Revolving Credit Facilities
Total assets
Add: accumulated depreciation
Gross book value
Secured mortgages and loans
The REIT has three unsecured non-revolving credit facilities in the aggregate amount of $500,000. The first non-revolving credit facility of $150,000 matures on July 6, 2022,
the second non-revolving credit facility of $150,000 matures on July 18, 2022 and the third non-revolving credit facility of $200,000 matured February 4, 2022. Amounts drawn
on the non-revolving credit facilities bear interest at 3.57%, 3.50% and 2.22%, respectively. Subsequent to the end of the year, the non-revolving credit facility that matured on
February 4, 2022 was partially repaid, with the remaining balance renewed. Refer to Subsequent Events section of this MD&A for further details.
Secured mortgages and loans to GBV
Total Debt to GBV
December 31,
2021
December 31,
2020
$
4,576,024
$
4,859,841
9,275
7,915
4,585,299
4,867,756
$
1,085,039
$
1,273,522
23.7 %
26.2 %
At December 31, 2021, there was $500,000 drawn on the non-revolving credit facilities (December 31, 2020, $500,000).
Accounts Payable & Other Liabilities
Included in accounts payable and other liabilities were accrued distributions payable to unitholders of $47,016, which were paid subsequent to the end of the year.
UNITHOLDERS' EQUITY
Unitholders' equity increased overall by $121,456 between December 31, 2020 and December 31, 2021. The overall increase was primarily due to net income of $389,175, and
the issuance of common units for $428. The overall increase was partially offset by distributions made to unitholders of $137,417, other comprehensive loss of $1,473, and
common units of $145,137 and preferred units of $3,581 purchased through the NCIB, partially offset by the related contributed surplus of $19,461.
OTHER FINANCIAL MEASURES
The measures and ratios calculated below are not in accordance with GAAP. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section of
this MD&A.
NAV per Unit
NAV per unit is a non-GAAP measure. 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.
000's, except unit and per unit amounts
December 31,
2021
December 31,
2020
Change
Total debt to GBV is a non-GAAP measure. Artis calculates GBV based on the total consolidated assets of the REIT, adding back the amount of accumulated depreciation of
property and equipment. Artis calculates total debt to GBV by diving total debt, which consists of mortgages and loans, the carrying value of senior unsecured debentures,
credit facilities and preferred shares liability, by GBV.
Management considers total debt to GBV to be a valuable measure of the REIT's leverage. Under the terms of the REIT's Declaration of Trust, the total indebtedness of the
REIT is limited to 70% of GBV.
Total assets
Add: accumulated depreciation
Gross book value
Secured mortgages and loans
Preferred shares liability
Carrying value of debentures
Credit facilities
Total debt
Total debt to GBV
December 31,
2021
December 31,
2020
$
4,576,024
$
4,859,841
9,275
7,915
4,585,299
4,867,756
1,085,039
1,273,522
889
249,346
631,253
610
498,919
624,461
$
1,966,527
$
2,397,512
42.9 %
49.3 %
Unitholders' equity
$
2,455,353
$
2,333,897 $
121,456
Unencumbered Assets to Unsecured Debt
Less face value of preferred equity
(299,017)
(302,746)
3,729
Unencumbered assets to unsecured debt is a supplementary financial measure. Unencumbered assets represent the fair value of investment properties that have not been
pledged as security under mortgage agreements. Artis calculates unencumbered assets to unsecured debt by dividing the total unencumbered assets, inclusive of joint
venture arrangements, by total unsecured debt, which consists of senior unsecured debentures and unsecured credit facilities.
NAV attributable to common unitholders
$
2,156,336
$
2,031,151 $
125,185
Management considers this ratio to be a valuable measure of the REIT's ability to draw on the revolving credit facilities.
Total number of dilutive units outstanding:
Common units
Restricted units
Deferred units
123,544,536
134,643,175
(11,098,639)
462,891
133,552
404,937
92,908
57,954
40,644
Unencumbered assets
Unencumbered assets in properties held under joint venture arrangements
124,140,979
135,141,020
(11,000,041)
Total unencumbered assets
NAV per unit
$
17.37
$
15.03 $
2.34
Unitholders' equity increased primarily due to net income and the issuance of common units, partially offset by units purchased under the NCIB, distributions made to
unitholders and foreign exchange loss recorded in other comprehensive loss . The total number of dilutive units outstanding has decreased primarily due to units purchased
under the NCIB.
Secured Mortgages and Loans to GBV
Secured mortgages and loans to GBV is a non-GAAP measure. Artis calculates GBV based on the total consolidated assets of the REIT, adding back the amount of
accumulated depreciation of property and equipment. Artis calculates secured mortgages and loans to GBV by diving secured mortgages and loans by GBV.
Management considers secured mortgages and loans to GBV to a be valuable measure of the REIT's leverage.
Senior unsecured debentures
Unsecured credit facilities
Total unsecured debt
Unencumbered assets to unsecured debt
December 31,
2021
December 31,
2020
$
1,902,748 $
1,901,073
36,805
1,939,553
249,346
631,253
40,886
1,941,959
498,919
624,461
$
880,599 $
1,123,380
2.20
1.73
67
management’s discussion & analysis
management’s discussion & analysis
68
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Adjusted EBITDA Interest Coverage Ratio
Adjusted EBITDA interest coverage ratio is a non-GAAP measure.
Total Debt to Adjusted EBITDA
Total debt to Adjusted EBITDA is a non-GAAP measure. Artis calculates total 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.
Prior to December 31, 2021, the REIT calculated Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") as net income, adjusted for
interest expense, transaction costs, income taxes, all non-cash revenue and expense items and non-recurring items, such as strategic initiative and proxy matter expenses.
Management considers this ratio to be a valuable measure of Artis' ability to meet financial obligations.
Effective December 31, 2021, the REIT calculates Adjusted EBITDA as defined above and also deducts net income (loss) from equity accounted investments and adds
distributions from equity accounted investments.
Adjusted EBITDA interest coverage ratio is calculated by dividing Adjusted EBITDA by interest expense from operations (excluding amortization of financing costs and above-
and below-market mortgage adjustments) and excludes the REIT's share of interest expense in equity accounted investments.
The REIT changed the composition of Adjusted EBITDA and Adjusted EBITDA interest coverage ratio to better reflect the REIT's cash flows from operations relative to debt
service requirements.
Management considers this ratio to be a valuable measure of Artis' ability to service the interest requirements on its outstanding debt.
Three months ended
December 31,
Year ended
December 31,
Secured mortgages and loans
Preferred shares liability
Carrying value of debentures
Credit facilities
Total debt
EBITDA per above
2021
2020
2021
2020
Annualized adjusted EBITDA
$
60,404 $
32,424
$
389,175 $
21,543
Total debt to Adjusted EBITDA
December 31,
2021
December 31,
2020
$
1,085,039 $
1,273,522
889
249,346
631,253
610
498,919
624,461
1,966,527
2,397,512
59,781
239,124
66,074
264,296
8.2
9.1
Net income
Add (deduct):
Tenant inducements amortized to revenue
Straight-line rent adjustments
Interest expense
Net income from equity accounted investments
Distributions from equity accounted investments (1)
Fair value (gain) loss on investment properties
Foreign currency translation (gain) loss
Transaction costs
Proxy matter expenses
Strategic initiative expenses
Fair value (gain) loss on financial instruments
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
5,938
(303)
16,460
(3,276)
839
(9,247)
(473)
—
—
—
(11,302)
343
398
59,781
16,460
(814)
216
6,424
(1,535)
20,247
(17,724)
1,847
8,985
(3,105)
—
17,423
810
(265)
397
146
66,074
20,247
(966)
183
24,765
(3,405)
69,648
(16,795)
4,577
(197,511)
3,244
11
—
18
(21,224)
1,362
1,289
24,854
(4,923)
86,106
(24,851)
5,958
140,876
(530)
—
17,423
4,029
16,538
1,422
733
255,154
289,178
69,648
86,106
(3,334)
799
(3,744)
752
EQUITY ACCOUNTED INVESTMENTS
JOINT VENTURE ARRANGEMENTS
The REIT has interests in the following investment properties under joint venture arrangements:
Property
Park 8Ninety II
Park 8Ninety IV
Park 8Ninety V
Corridor Park (1)
Tower Business Centre
Graham Portfolio
The Point at Inverness
Ownership Interest
Property
Count
Location
Asset Class
Owned Share
of GLA
December 31,
2021
December 31,
2020
1
—
—
—
—
8
1
Greater Houston Area, TX
Greater Houston Area, TX
Greater Houston Area, TX
Greater Denver Area, CO
Greater Denver Area, CO
Various Cities, AB/BC/SK
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Greater Denver Area, CO
Office
543,210
—
643,150
—
—
243,109
94,899
95 %
— %
95 %
90 %
— %
75 %
50 %
95 %
95 %
95 %
90 %
80 %
75 %
50 %
(1) Corridor Park is a parcel of development land and has no property count.
Park 8Ninety is a multi-phase industrial development project situated on a parcel of land in the Southwest industrial submarket in the Greater Houston Area, Texas. During
2021, construction of Park 8Ninety IV was complete and the REIT increased its ownership interest in the property to 100%. Artis also has 100% ownership in Park 8Ninety I and
Park 8Ninety III. Park 8Ninety V is currently under development.
During 2021, Tower Business Centre, an industrial property located in the Greater Denver Area, Colorado was sold. Artis had an 80% interest in this property under a joint
venture arrangement and the REIT's share of the proceeds, net of costs and related debt were $39,360.
Adjusted interest expense
$
15,862 $
19,464
$
67,113 $
83,114
Adjusted EBITDA interest coverage ratio
3.77
3.39
3.80
3.48
(1) Excludes distributions from proceeds of the sale of investment properties.
69
management’s discussion & analysis
management’s discussion & analysis
70
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
TX 29.8%
CO 8.8%
Interest Expense
Financial and Operating Results
Net Operating Income
Revenue
Total operating expenses
Net operating income
Financial Position
Investment properties held in joint ventures at the REIT's ownership interest consists of the following:
Three months ended
December 31,
Year ended
December 31,
2021
2020
2021
2020
4,025 $
4,490 $
15,758 $
1,823
2,144
6,913
20,785
9,647
Investment properties
Investment properties under development
Investment properties held for sale
2,202 $
2,346 $
8,845 $
11,138
Total
$
$
December 31, 2021
December 31, 2020
$
$
233,635 $
42,337
—
275,972 $
236,954
14,466
60,819
312,239
The change in total investment properties under joint venture arrangements is a result of the following:
Net operating income decreased year-over-year primarily due to dispositions of properties held under joint venture arrangements in 2020 and 2021, partially offset by
development properties completed in 2021.
Below is a breakdown of Q4-21 net operating income by geographical region and asset class of the REIT's investments in joint ventures at the REIT's ownership interest:
Geographical Region
Asset Class
Office 5.5%
AB 38.5%
Balance, December 31, 2020
Additions:
Reclassifications from equity accounted investments (1)
Capital expenditures
Investment properties
Investment properties under development
Capitalized interest (2)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Dispositions
Foreign currency translation loss
Fair value gain
$
312,239
(16,642)
126
27,513
459
526
558
1,688
(60,403)
(588)
10,496
SK 17.1%
BC 5.8%
Industrial 94.5%
Balance, December 31, 2021
$
275,972
Canada
U.S.
61.4%
38.6%
(1) On January 26, 2021, the REIT increased its ownership interest in Park 8Ninety IV to 100%.
(2) During 2021, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 4.03%.
In 2021, capital expenditures for investment properties under development included $26,609 for Park 8Ninety V.
At December 31, 2021, mortgages and loans payable at the REIT's ownership interest in joint venture arrangements were as follows:
Mortgages and other loans (1)
Foreign exchange
$
518 $
784 $
(266)
$
2,256 $
3,689 $
(1,433)
63
151
(88)
290
872
(582)
Three months ended
December 31,
2021
2020
Change
%
Change
Year ended
December 31,
2021
2020
Change
%
Change
Fixed rate mortgages
Variable rate mortgages:
Financing costs
December 31,
2021
December 31,
2020
$
$
41,044 $
53,273
(550)
42,518
69,273
(1,029)
93,767 $
110,762
Total interest expense
$
581 $
935 $
(354)
(37.9) %
$
2,546 $
4,561 $
(2,015)
(44.2) %
The weighted-average term to maturity on mortgages and loans payable at the REIT's ownership interest in joint venture arrangements was 1.9 years at December 31, 2021,
unchanged from December 31, 2020.
(1) Amounts shown are in Canadian and US dollars.
Interest expense decreased year-over-year primarily due mortgages paid out upon disposition of investment properties in 2020 and 2021.
INVESTMENTS IN ASSOCIATES
Fair Value Gain on Investment Properties
In 2021, the fair value gain on investment properties was $10,496 (Q4-21 - $1,653), compared to $18,257 (Q4-20 - $16,301) in 2020. The fair value gain in 2021 was primarily due
to capitalization rate compression across the industrial portfolio in both Canada and the U.S.
During 2021, the REIT entered into a new arrangement, Park Lucero East. Park Lucero East is a state-of-the-art industrial development project located in the Greater Phoenix
Area, Arizona, along the South Loop 202 Freeway with 202 Freeway and Germann Road frontage and is adjacent to Park Lucero, a multi-phase industrial complex that is 100%
owned by Artis. Construction commenced in Q1-21 and this project is expected to comprise three Class A industrial buildings totalling approximately 561,000 square feet of
leasable area. Artis has a 10% interest in this development project in the form of an investment in an associate. At December 31, 2021, the REIT has a net investment in Park
Lucero East of $2,830.
The REIT has determined this to be an investment in associate as the REIT does not have joint control but has significant influence over the investment by virtue of having
control over the general partner of the limited partnership.
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2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
LIQUIDITY AND CAPITAL RESOURCES
The REIT's schedule of mortgage maturities is as follows:
Cash flow from operations represents the primary source of funds for distributions to unitholders and principal repayments on mortgages and loans.
DISTRIBUTIONS
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
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
Monthly distributions paid and payable
Special Distribution payable in cash
(Shortfall) excess of cash flow from operations over distributions paid and payable
Excess (shortfall) of net income over distributions paid and payable
Artis' primary objective is to provide tax-efficient monthly cash distributions.
Three months ended
Year ended
Year ended
Year ended
December 31,
December 31,
December 31,
December 31,
2021
2021
2020
2019
$
30,903 $
60,404
202,286 $
176,333 $
389,175
21,543
18,641
39,589
(27,327)
2,174
76,250
39,589
86,447
273,336 —
91,074
—
85,259
(69,531)
200,120
122,737
96,332
—
103,788
26,405
The shortfall of cash flow from operations over distributions for the three months ended December 31, 2021 was primarily due to the Special Distribution payable in cash in
the amount of $39,589. The Special Distribution payable in cash was funded with cash on hand.
2022
2023
2024
2025
2026
2027 & later
Total
$
278,671
426,352
49,172
78,552
110,205
76,774
27.4 % $
41.8 %
4.8 %
7.7 %
10.8 %
7.5 %
24,140 $
15,844
8,807
7,149
4,319
7,536
302,810
442,196
57,979
85,701
114,525
84,310
$
1,019,726
100.0 % $
67,795 $
1,087,521
3.21 %
3.18 %
2.37 %
3.63 %
2.25 %
2.82 %
3.01 %
RISKS AND UNCERTAINTIES
A summary of all risks applicable to the REIT are set forth in Artis' 2021 Annual Information Form. The REIT discusses specific risk factors below.
BUSINESS TRANSFORMATION PLAN
Failure to Execute the Business Transformation Plan
Pursuant to the Business Transformation Plan, Artis intends to make investments that achieve superior investment performance commensurate with reasonable risk. This goal
relies on the successful execution of its investment strategies, which may be uncertain as it requires suitable opportunities, careful timing and business judgment, as well as
sufficient resources to make investments and restructure them, if required, notwithstanding difficulties experienced in a particular industry. In addition, there is no assurance
that Artis will be able to identify suitable or sufficient opportunities that meet its investment criteria and be able to make investments at attractive prices to supplement its
growth in a timely manner, or at all. Further, Artis may be exposed to unexpected risks and costs associated with its investments, including that the costs necessary to bring
an investment up to Artis’ standards established for its intended market position may be higher than expected.
The shortfall of net income over distributions declared for the year ended December 31, 2020 was primarily due to the non-cash impact of the fair value loss on investment
properties.
Investment Portfolio
CAPITAL RESOURCES
At December 31, 2021, Artis had $221,474 of cash on hand. Management anticipates that the cash on hand may be invested in investment properties, used for working capital
purposes, debt repayment or other activities in accordance with the Business Transformation Plan.
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, 2021, the REIT had $568,149 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, 2021, this covenant limited the total borrowing capacity of the revolving credit facilities to $635,313 (December 31, 2020, limited to $388,163).
At December 31, 2021, the REIT had 85 unencumbered properties and six unencumbered parcels of development land, representing a fair value of $1,902,748.
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, 2021.
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.
CONTRACTUAL OBLIGATIONS
Total
Less than
1 year
1 - 3 years
4 - 5 years
After
5 years
Accounts payable and other liabilities
$
120,854
120,854 $
— $
— $
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
1,423
631,851
250,000
307
500,000
—
1,087,521
302,810
434
131,851
250,000
500,175
285
—
—
200,226
84,310
—
397
—
—
Total contractual obligations
$
2,091,649 $
923,971 $
882,460 $
200,511 $
84,707
In connection with the Business Transformation Plan, investment returns will become an increasingly important part of Artis’ overall profitability as Artis’ operating results will
depend in part on the performance of its investment portfolio. It is expected that Artis’ investment portfolio will include bond and other debt instruments, common stock,
preferred stock and derivative instruments. Accordingly, fluctuations in the fixed income or equity markets could have an adverse effect on Artis’ financial condition,
profitability or cash flows. The return on the portfolio and the risks associated with the investments are affected by the asset mix of the portfolio companies, which can change
materially depending on market conditions.
Acquisitions, Divestitures and Strategic Initiatives
Pursuant to the Business Transformation Plan, Artis may periodically explore opportunities to make strategic investments in all or part of certain businesses or companies.
Although Artis will undertake due diligence prior to the completion of an acquisition or investment, there can be no assurance that Artis will have adequate time or access to
complete appropriate investigations or that Artis will properly ascertain or assess all of the significant risks of such investment. Furthermore, some of the risks may be outside
of Artis’ control and leave Artis with no ability to mitigate or control the chances that those risks will adversely impact the target company. In addition, there is no assurance
that the anticipated financial or strategic objectives following an integration effort or the implementation of a strategic initiative will be achieved, which could adversely affect
Artis’ financial condition, profitability or cash flows. In particular, acquisitions may involve a number of special risks, including failure to retain key personnel, unanticipated
events or circumstances and legal liabilities, some or all of which could have a material adverse effect on Artis’ business, results of operations and financial position.
Control or Significant Influence Risk & Minority Investments
Although Artis may endeavour to make investments that allow it to acquire control or exercise significant influence over management and the strategic direction of its
portfolio entities, there can be no assurance that all investments will provide Artis with such a degree of influence or control. In addition, the exercise of control over a
portfolio company imposes additional risks of liability for failure to supervise management. The exercise of control over an investment could expose the assets of Artis to
claims by such businesses, its shareholders and its creditors. While Artis intends to manage its investments in a manner that will minimize the exposure to these risks, the
possibility of successful claims cannot be precluded. On occasion, Artis expects that it may also make minority equity investments in businesses in which Artis does not
participate in the management or otherwise control the business or affairs of such businesses. While Artis will monitor the performance of each investment and maintain an
ongoing dialogue with each business management team, it will be the responsibility of the management of the business to operate the business on a day-to-day basis and
Artis may not have the right or ability to control or otherwise influence such business. Accordingly, these companies may undertake activities which Artis does not believe is in
their best interests.
Competitive Market for Investment Opportunities
In accordance with the Business Transformation Plan and Artis’ business objective and investment strategies, Artis will compete with a large number of other investors, such as
private equity funds, mezzanine funds, investment banks and other equity and non-equity based public and private investment funds, and other sources of financing, including
traditional financial services companies, such as commercial banks. Competitors may have a lower cost of funds and may have access to funding sources that are not available
to Artis. In addition, certain competitors of Artis may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of
investments and establish more relationships and build their respective market shares. There can be no assurance that the competitive pressures faced by Artis will not have a
material adverse effect on its investment activities pursuant to the Business Transformation Plan.
Reputation
Artis could be negatively impacted if there is misconduct or alleged misconduct by its personnel, personnel of Sandpiper or those of the portfolio companies in which Artis
invests, including historical misconduct prior to its investment. Risks associated with misconduct at portfolio companies is heightened in cases where Artis does not have legal
control or exercise significant influence over an investment, or is not otherwise involved in actively managing a portfolio company. In such situations, given Artis’ ownership
position and affiliation with the portfolio company, it may still be negatively impacted from a reputational perspective through this association.
73
management’s discussion & analysis
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74
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Reliance on Services of Sandpiper
Some decisions with respect to the assets and investment strategy of Artis are expected to be made with reliance on the services and support of Sandpiper. Personnel and
support staff of Sandpiper who provide services to Artis are not required to treat their responsibilities to Artis as their primary responsibilities or to act exclusively for Artis
(other than Samir Manji, who has certain fiduciary duties and contractual obligations with respect to Artis in his capacity as CEO and a trustee). The Services Agreement does
not require Sandpiper to maintain the employment of any of its personnel or to cause any particular person to provide services to Artis. There can be no assurance that any of
the personnel and support staff of Sandpiper will remain in their current positions.
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 the REIT's 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 net operating income, located in the provinces of Alberta and Manitoba and in the state of Minnesota. As a result, 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, 2021, investment properties under development account for 4.9% of Artis' total investment properties (December 31, 2020, 2.9%). At December 31, 2021,
the REIT had three development projects in progress, 300 Main, Blaine 35 I and Blaine 35 II.
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, 2021, 36.3% of the REIT's mortgages and loans payable bear interest at fixed rates, and a further 37.5% of the REIT's mortgages and loans payable bear interest
at variable rates with interest rate swaps in place. At December 31, 2021, the REIT is a party to $1,324,662 of variable rate debt, including credit facilities (December 31, 2020,
$1,495,281). At December 31, 2021, the REIT had entered into interest rate swaps to hedge the interest rate risk associated with $907,516 of variable rate debt, including
credit facilities, (December 31, 2020, $973,405). 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, 2021, the REIT's ratio of secured mortgages and loans to GBV was 23.7%, compared to 26.2% at December 31, 2020. At December 31, 2021, the REIT's ratio
of total debt to GBV was 42.9%, compared to 49.3% at December 31, 2020. Approximately 27.4% of Artis' maturing mortgage debt comes up for renewal during 2022, and
41.8% in 2023. Management is in discussion with various lenders with respect to the renewal or refinancing of the 2022 mortgage maturities.
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 this risk, the REIT's debt on U.S. properties and a portion of the amounts drawn on credit facilities are 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 1,229 tenant
leases with a weighted-average term to maturity of 5.1 years. Approximately 2.8% of the REIT's gross revenue is derived from national or government tenants. As indicated
below, the largest tenant by gross revenue is AT&T, which is a leading provider of telecommunications, media and technology services globally. The second largest tenant by
gross revenue is Bell Canada, which is one of Canada's leading national communication companies providing voice services, internet and data services, and television.
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
Tenant
AT&T
Bell Canada
Bell MTS
Prime Therapeutics LLC
TDS Telecommunications Corporation
Catalent Pharma Solutions, LLC
CB Richard Ellis, Inc.
Recipe Unlimited Corporation
PBP, Inc.
UCare Minnesota
Silent Aire USA Inc.
Shoppers Drug Mart
Telephone and Data Systems, LLC
Co-Operators Financial Services Ltd.
Civeo Canada Ltd.
Cineplex Entertainment LP
MLT Aikins LLP
Soo Line Railroad Company
U of Wisconsin Medical Foundation
Maple Leaf Consumer Foods, Inc.
U.S.
Canada
Canada
U.S.
U.S.
U.S.
U.S.
Canada
U.S.
U.S.
U.S.
Canada
U.S.
Canada
Canada
Canada
Canada
U.S.
U.S.
Canada
2.2 %
2.1 %
2.0 %
2.0 %
1.5 %
1.5 %
1.3 %
1.2 %
1.2 %
1.0 %
1.0 %
0.9 %
0.8 %
0.8 %
0.8 %
0.8 %
0.8 %
0.8 %
0.7 %
0.7 %
257
115
214
386
173
233
108
100
519
124
289
78
105
79
72
108
60
92
101
163
1.4 %
0.6 %
1.2 %
2.2 %
1.0 %
1.3 %
0.6 %
0.6 %
2.9 %
0.7 %
1.6 %
0.4 %
0.6 %
0.4 %
0.4 %
0.6 %
0.3 %
0.5 %
0.6 %
0.9 %
1.2
7.8
5.0
12.8
6.1
14.6
5.0
7.0
9.9
11.6
5.2
5.0
2.0
1.4
6.5
3.9
2.8
5.7
5.7
7.5
7.4
Total
24.1 %
3,376
18.8 %
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76
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Government Tenants by Gross Revenue (1)
% of total
gross revenue (2)
Owned share
of GLA
(000's of S.F.)
% of total GLA
Weighted-average
remaining
lease term
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.
Tenant
Federal Government
Provincial Government
Civic or Municipal Government
Total
2.2 %
0.2 %
0.4 %
2.8 %
246
13
66
325
1.4 %
0.1 %
0.4 %
1.9 %
6.7
2.7
15.0
8.2
5.1
Weighted-average term to maturity (entire portfolio)
(1) Based on owned share of GLA of properties. Excludes properties under development and properties held in equity accounted investments.
(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.
OTHER INFORMATION
RELATED PARTY TRANSACTIONS
In 2021, the REIT paid employment benefits to employees and issued unit-based awards to trustees, officers and employees.
Sandpiper is a related party by virtue of being a company under joint control of the President and Chief Executive Officer of the REIT.
Effective May 1, 2021, the REIT entered into a Space Sharing Licence Agreement with Sandpiper for use of certain office premises for an annual fee of $130 inclusive of taxes.
The agreement has a two-year term, with an automatic one-year extension unless terminated by either party upon written notice no later than 120 days before the end of the
term or extension term.
Effective May 17, 2021, the REIT entered into a Services Agreement with Sandpiper to provide certain services to support the REIT’s strategy, under the Business
Transformation Plan, to acquire ownership positions in publicly-listed real estate entities. The annual fee payable to Sandpiper is 0.50% for years one to three, 0.40% for year
four, and 0.30% for year five and thereafter, based on the net value of the investments made by the REIT pursuant to this agreement. The agreement continues until
termination by either party upon 60-day written notice, or upon other specific circumstances. Under the Services Agreement, the REIT entered into a co-investment
agreement with Sandpiper and other Sandpiper related entities (together "Sandpiper Entities") to make certain investments in the identified publicly-traded securities of a
real estate entity on the basis of 50% of the aggregate investments by each of the REIT and Sandpiper Entities. The Sandpiper Entities are all under joint control of the
President and Chief Executive Officer of the REIT.
Details of the portfolio's expiry schedule is as follows:
Fees paid and accrued to Sandpiper were as follows:
Space sharing licence costs
Service fees
Three months ended
December 31,
Year ended
December 31,
2021
2020
2021
2020
$
$
$
31
76
$
—
—
$
83
111
107
$
—
$
194
$
—
—
—
Amounts payable to Sandpiper were $76 as at December 31, 2021 (December 31, 2020, $nil).
For the year ended December 31, 2020, the proxy matter expenses included reimbursements of advisory, legal and other out-of-pocket expenses incurred by Sandpiper and
RFA Capital Partners Inc. of $1,383 and $42, respectively, relating to the settlement agreement between the REIT and Sandpiper Group. RFA Capital Partners Inc. is a related
party of the REIT by virtue of being a company controlled by a Trustee.
Expiry Year
AB
BC
MB
SK
ON
AZ
CO
MN
NY
TX
WI
Total
Canada
U.S.
2022
2023
2024
2025
2026 & later
Vacant
Month-to-month
1.5 % 0.2 % 2.6 % 0.9 % 0.1 %
1.3 % 0.5 % 4.2 %
— % 0.7 % 1.2 %
1.6 % 0.2 % 2.5 % 0.3 % 0.8 %
0.8 % 1.7 % 3.3 % 0.5 %
— % 1.4 %
1.0 % 0.2 % 2.6 % 0.2 % 0.1 %
0.8 % 0.3 % 5.5 % 0.2 % 0.2 % 0.6 %
1.2 %
— % 2.3 % 0.1 % 0.2 %
1.5 % 0.2 % 1.5 %
— % 0.3 % 0.5 %
4.0 % 1.1 % 8.8 % 1.5 % 0.8 %
4.2 % 0.3 % 13.0 %
— % 4.9 % 4.7 %
1.4 % 0.1 % 2.0 % 0.1 % 0.3 %
1.1 % 0.2 % 4.1 %
0.1 %
— % 0.1 %
— %
— %
— %
— %
— %
— %
— %
— % 1.4 %
— %
— %
13.2 %
13.1 %
11.7 %
7.8 %
43.3 %
10.7 %
0.2 %
Total portfolio
10.8 %
1.8 % 20.9 %
3.1 %
2.3 %
9.7 %
3.2 % 31.6 %
0.7 %
6.1 %
9.8 % 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 Q4-21 net operating income) are Twin Cities Area office, Madison office, Twin Cities Area industrial, Winnipeg office and Winnipeg retail.
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
years ended December 31, 2021 and December 31, 2020. 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.
77
management’s discussion & analysis
management’s discussion & analysis
78
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
SUBSEQUENT EVENTS
SUMMARIZED QUARTERLY INFORMATION
As at December 31, 2021, Artis had $221,474 of cash on hand and $568,149 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, 2021, this covenant limits the total
borrowing capacity of the revolving credit facilities to $635,313 (December 31, 2020, limited to $388,163).
Subsequent to December 31, 2021, the following transactions took place:
The REIT participated in a consortium that acquired all of the outstanding units of Cominar for consideration of $11.75 per unit in cash under a Plan of
Arrangement. Also under the Plan of Arrangement, certain of Cominar’s office, retail and industrial assets were acquired by other parties not part of the
consortium. The REIT contributed $212,000, including $112,000 to acquire common equity units (representing approximately 32.64% of the total common equity
units in the newly-formed entity) and $100,000 to acquire junior preferred units that carry a distribution rate of 18.0% per annum. As part of the consideration, the
REIT contributed its existing Cominar units, which had a fair value of $13,419 as at December 31, 2021. The Cominar Transaction closed on March 1, 2022.
The REIT disposed a portfolio comprised of two office properties located in the Greater Toronto Area, Ontario, for a sale price of $35,500.
The REIT entered into an unconditional sale agreement to sell an industrial property located in the Greater Toronto Area, Ontario, for a sale price of $29,200 with
expected closing in March 2022.
The REIT drew a net balance of $244,000 and repaid a net balance of US$10,000 on its revolving term credit facilities.
The REIT repaid $100,000 of the non-revolving credit facility that matured on February 4, 2022 and entered into an amended agreement for the remaining balance
of $100,000, bearing interest at BA rate plus 1.60% or prime plus 0.60% and maturing February 6, 2023.
The REIT repaid a mortgage for an industrial property in the amount of US$7,803.
The REIT purchased through the NCIB 3,583,882 common units at a weighted-average price of $12.37, 16,400 Series A preferred units at a weighted-average price
of $24.82 and 19,300 Series E preferred units at a weighted-average price of $24.03.
The REIT purchased equity securities for an aggregate cost of $48,638.
•
•
•
•
•
•
•
•
•
•
$000's, except per unit amounts
Q4-21
Q3-21
Q2-21
Q1-21
Q4-20
Q3-20
Q2-20
Q1-20
Revenue
Net operating income
Net income (loss)
Total comprehensive income (loss)
Basic income (loss) per common unit
Diluted income (loss) per common unit
$ 97,665
$ 97,658
$ 103,299
$ 120,877
$ 113,010
$ 113,328
$ 114,038
$ 118,541
55,427
60,404
52,935
0.45
0.45
56,089
62,037
39,855
217,056
81,345
198,431
0.28
0.28
1.62
1.61
64,232
71,860
54,991
0.50
0.50
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)
FFO (1)
FFO per unit (1)
FFO payout ratio (1) (2)
AFFO (1)
AFFO per unit (1)
AFFO payout ratio (1) (2)
Same Property NOI (decline) growth (1)
Adjusted EBITDA interest coverage ratio (1)
$ 40,323
$ 42,019
$ 45,428
$ 46,573
$ 45,796
$ 50,816
$ 49,358
$ 46,441
0.32
46.9 %
0.33
45.5 %
0.34
44.1 %
0.35
40.0 %
0.34
41.2 %
0.37
37.8 %
0.36
38.9 %
0.33
42.4 %
$ 27,919
$ 29,827
$ 32,795
$ 33,935
$ 31,721
$ 37,671
$ 36,499
$ 33,661
0.22
68.2 %
(2.3) %
3.77
0.23
65.2 %
(4.7) %
3.79
0.25
60.0 %
(3.9) %
3.86
0.25
56.0 %
(5.4) %
3.78
0.23
60.9 %
(5.2) %
3.39
0.27
51.9 %
(1.2) %
3.75
0.27
51.9 %
(2.0) %
3.62
0.24
58.3 %
1.5 %
3.20
The REIT declared a monthly cash distribution of $0.05 per common unit for the months of January and February 2022.
Leasable area renewed (in square feet)
786,531
329,468
326,397
478,213
247,215
614,053
591,534
324,925
The REIT declared a quarterly cash distribution of $0.3750 per Series I preferred unit for the three months ended January 31, 2022.
Increase (decrease) in weighted-average
rental rate
3.9 %
2.0 %
7.3 %
4.3 %
(0.5) %
6.1 %
(3.3) %
4.6 %
OUTSTANDING UNIT DATA
As of March 3, 2022, the balance of common units outstanding is as follows:
Units outstanding at December 31, 2021
Units issued on redemption of restricted units
Units purchased and cancelled through NCIB
Units purchased through NCIB, not cancelled at March 3, 2022
Units outstanding at March 3, 2022
As of March 3, 2022, the balance of preferred units outstanding is as follows:
Total
123,544,536
561
(3,416,930)
(166,952)
119,961,215
Preferred units outstanding at December 31, 2021
Preferred units purchased and cancelled through NCIB
Preferred units purchased through NCIB, not cancelled at March 3, 2022
3,295,600
3,699,510
4,965,540
11,960,650
(12,000)
(4,400)
(13,400)
(5,900)
—
—
(25,400)
(10,300)
Series A
Series E
Series I
Total
2021
2021
2021
2021
2020
2020
2020
2020
Dec 31
Sept 30
Jun 30
Mar 31
Dec 31
Sept 30
Jun 30
Mar 31
Number of properties
GLA (000's of square feet)
Occupancy
156
17,929
89.4 %
161
18,526
89.1 %
194
21,108
90.6 %
197
21,524
91.4 %
197
21,543
90.6 %
203
22,431
91.2 %
202
22,338
91.9 %
201
22,315
92.2 %
NAV per unit (1)
$
17.37
$
17.45
$
16.78
$
15.34
$
15.03
$
15.35
$
15.40
$
15.52
Total debt to Adjusted EBITDA (1)
Secured mortgages and loans to GBV (1)
Total debt to GBV (1)
8.2
23.7 %
42.9 %
8.0
24.4 %
43.0 %
9.0
23.6 %
47.5 %
8.8
27.3 %
49.2 %
9.1
26.2 %
49.3 %
9.1
26.6 %
51.0 %
9.1
27.0 %
51.3 %
9.0
26.9 %
51.4 %
Fair value unencumbered assets (1)
$ 1,902,748
$ 1,905,921
$ 2,363,222
$ 1,876,380
$ 1,901,073
$ 1,929,858
$ 1,919,171
$ 1,845,983
Total assets
$ 4,576,024
$ 4,593,164
$ 4,955,764
$ 4,853,520
$ 4,859,841
$ 5,207,812
$ 5,236,565
$ 5,337,483
Total non-current financial liabilities
1,166,123
1,285,852
1,619,338
1,489,308
1,648,305
1,933,886
1,912,566
2,003,195
Preferred units outstanding at March 3, 2022
3,279,200
3,680,210
4,965,540
11,924,950
(1) Represents a non-GAAP measure or non-GAAP ratio. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
(2) FFO payout ratio and AFFO payout ratio are calculated excluding the Special Distribution declared in December 2021.
The balance of restricted units outstanding as of March 3, 2022 is 412,347, none of which have vested.
The balance of deferred units outstanding as of March 3, 2022 is 149,863. All of these deferred units have vested, none of which are redeemable.
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 financial 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.
79
management’s discussion & analysis
management’s discussion & analysis
80
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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
In February 2021, the IASB issued amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in which it introduces a new definition of accounting
estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The amendments
are effective for annual periods beginning on or after January 1, 2023 to changes in accounting policies and changes in accounting estimates that occur on or after the
beginning of that period, with earlier application permitted. The REIT does not expect a material impact to its consolidated financial statements from the adoption of these
amendments.
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 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 7.37% at December 31, 2021 and
7.42% at December 31, 2020. 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 6.22% at December 31, 2021 and 6.30% at December 31, 2020.
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.
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.
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 under their supervision, the effectiveness of the REIT's internal
controls over financial reporting (as described in NI 52-109). Based on this evaluation, the CEO and CFO have concluded that, as at December 31, 2021, the design of the
REIT's 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, 2021, that
have materially affected, or are reasonably likely to materially affect, the REIT's internal controls over financial reporting.
VALUATION OF DEFERRED TAX ASSETS AND LIABILITIES
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, 2021, under the supervision of the CEO and CFO and with the participation of management, the effectiveness of the REIT's disclosure controls and
procedures (as described in NI 52-109 was evaluated). 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, 2021.
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, 2021 and 2020.
CHANGES IN ACCOUNTING STANDARDS
New or Revised Accounting Standard Adopted During the Year
Interest Rate Benchmark Reform - Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 address issues that might affect financial reporting after the reform of an
interest rate benchmark, including its replacement with alternative benchmark rates. 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 inter-bank offered rate ("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.
These amendments had no impact on the consolidated financial statements except for the additional disclosures in the notes to the 2021 consolidated financial statements
regarding the derivative and non-derivative financial instruments affected by the interest rate benchmark reform and a summary of the actions taken by the REIT to manage
the risks relating to the reform. The REIT intends to use the practical expedient in future periods as it becomes applicable.
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 is in the process of assessing the impact 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.
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.
In February 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements. The
amendments to IAS 1 replace all instances of the term ‘significant accounting policies’ with ‘material accounting policy information’. Accounting policy information is material
if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of
general purpose financial statements make on the basis of those financial statements. The IASB has also developed guidance and examples to explain and demonstrate the
application of the ‘four-step materiality process’ described in IFRS Practice Statement 2. The amendments to IAS 1 are effective for annual periods beginning on or after
January 1, 2023, with earlier application permitted and are applied prospectively. The amendments to IFRS Practice Statement 2 do not contain an effective date or transition
requirements. The REIT does not expect a material impact to its consolidated financial statements from the adoption of these amendments.
81
management’s discussion & analysis
management’s discussion & analysis
82
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2021 and 2020
(In thousands of Canadian dollars except unit and per unit amounts)
83
consolidated financial statements
consolidated financial statements
84
2021 ANNUAL REPORTARTIS 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 this 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”
Samir Manji
President and Chief Executive Officer
March 3, 2022
“Jaclyn Koenig”
Jaclyn Koenig, CPA, CA
Chief Financial Officer
March 3, 2022
85
consolidated financial statements
consolidated financial statements
86
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
87
consolidated financial statements
consolidated financial statements
88
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST Consolidated Balance Sheets
ASSETS
Non-current assets:
Investment properties
Investment properties under development
Equity accounted investments
Investments in equity securities
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
Contingencies and guarantees
Subsequent events
December 31,
December 31,
Note
2021
2020
$
3,741,544
$
4,325,121
195,161
180,078
77,186
6,411
35,448
122
132,243
200,306
—
7,481
20,313
778
4,235,950
4,686,242
62,904
—
—
7,979
834
14,674
32,209
221,474
340,074
74,483
15,060
1,203
7,307
1,371
17,465
22,007
34,703
173,599
$
4,576,024
$
4,859,841
$
$
783,129
249,346
131,643
2,005
868,396
248,999
529,087
1,823
1,166,123
1,648,305
301,910
—
31,867
121,161
499,610
954,548
405,126
249,920
30,089
97,130
95,374
877,639
2,120,671
2,525,944
2,455,353
2,333,897
4
4
5
6
7
10
4
8
9
7
10
11
12
13
11
12
14
13
28
32
89
consolidated financial statements
consolidated financial statements
90
Total liabilities and unitholders' equity
$
4,576,024
$
4,859,841
See accompanying notes to consolidated financial statements.
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Operations
Consolidated Statements of Changes in Unitholders' Equity
Note
2021
2020
Year ended
December 31,
18
18
$
401,638
$
458,917
17,861
—
Common
units capital
contributions
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Contributed
surplus
Total
common
equity
Total
preferred
equity
Total
Unitholders' equity, December 31, 2019
$
1,798,747 $
169,201 $
175,048 $
33,273 $ 2,176,269 $
294,484 $ 2,470,753
419,499
458,917
Issuance of common units, net of issue costs (note 15)
4,455
Changes for the year:
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
Changes for the year:
Issuance of common units, net of issue costs (note 15)
428
Units acquired and cancelled through normal course
issuer bid (note 15)
Units acquired through normal course issuer bid, not
cancelled at year end (note 15)
(142,912)
(2,225)
—
—
—
Net income
Other comprehensive loss
Distributions
—
—
—
389,175
—
(137,417)
Distributions in units (note 15)
256,091
(256,091)
—
—
—
—
(1,473)
—
—
—
428
—
428
19,274
(123,638)
(3,521)
(127,159)
187
—
—
—
—
(2,038)
389,175
(1,473)
(137,417)
—
(60)
—
—
—
—
(2,098)
389,175
(1,473)
(137,417)
—
Unitholders' equity, December 31, 2021
$
1,865,983 $
86,666 $
145,758 $
68,725 $ 2,167,132 $
288,221 $ 2,455,353
See accompanying notes to consolidated financial statements.
Revenue:
Rental revenue from investment properties
Condominium sales
Total revenue
Expenses:
Property operating
Realty taxes
Condominium cost of sales
Total operating expenses
Net operating income
Other income (expenses):
Corporate expenses
Proxy matter expenses
Strategic initiative expenses
Interest expense
Interest income
Distribution income from equity securities
Net income from equity accounted investments
Fair value gain (loss) on investment properties
Foreign currency translation (loss) gain
Transaction costs
Fair value gain (loss) on financial instruments
Income before income taxes
Income tax expense
Net income
Other comprehensive loss that may be reclassified to net income in subsequent years:
Unrealized foreign currency translation loss
Unrealized foreign currency translation loss on equity accounted investments
Other comprehensive loss
Total comprehensive income (loss)
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.
100,819
64,857
16,038
112,871
76,771
—
181,714
189,642
237,785
269,275
(12,713)
—
(18)
(69,648)
1,885
898
16,795
197,511
(3,244)
(11)
21,224
(12,205)
(17,423)
(4,029)
(86,106)
4,797
—
24,851
(140,876)
530
—
(16,538)
390,464
22,276
(1,289)
(733)
389,175
21,543
(774)
(699)
(25,498)
(2,319)
(1,473)
(27,817)
387,702
$
(6,274)
2.87
$
2.86
0.03
0.02
129,553,433
136,206,856
130,025,917
136,606,921
$
$
19
20
5
4
3
21
22
15
15
15
15
91
consolidated financial statements
consolidated financial statements
92
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Cash Flows
Cash provided by (used in):
Operating activities:
Net income
Adjustments for:
Distribution income from equity securities
Net income from equity accounted investments
Fair value (gain) loss on investment properties
Fair value (gain) loss on financial instruments
Unrealized foreign currency translation loss (gain)
Other items not affecting cash
Changes in non-cash operating items
Investing activities:
Acquisition 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
Contributions to equity accounted investments
Distributions from equity accounted investments
Purchases of equity securities
Distributions from equity securities
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
Issuance of preferred shares, net of issue costs
Purchase of common units under normal course issuer bid
Purchase of preferred units under normal course issuer bid
Distributions paid on common units
Distributions paid on preferred units
Foreign exchange loss on cash held in foreign currency
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to consolidated financial statements.
Note
2021
Year ended
December 31,
2020
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
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 December 19, 2021 (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.
$
389,175
$
21,543
The Declaration of Trust provides that the REIT may make cash distributions to common unitholders of the REIT. The amount distributed annually (currently $0.60 per
common unit) is set by the Board of Trustees. The amounts distributed annually to the preferred unitholders are $1.4155 per Series A Unit, $1.3680 per Series E Unit and $1.50
per Series I Unit.
5
4
21
23
23
3
3
5
12
12
15
15
(898)
(16,795)
(197,511)
(21,224)
3,388
27,307
18,844
202,286
(5,339)
791,725
—
(21,562)
(70,095)
(38,146)
(11,690)
41,476
(71,866)
686
(5)
(150)
1,503
1,196
(10,260)
607,473
(278,051)
130,244
—
(250,000)
438,820
(436,777)
—
(288)
222
(125,772)
(3,485)
(80,624)
(17,263)
(622,974)
(14)
186,771
34,703
$
221,474
$
—
(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
On March 10, 2021, the REIT announced a business transformation plan that will shift the REIT from a diversified real estate investment trust to an organization focused on
growth in net asset value per unit and distributions through value investing in real estate (the "Business Transformation Plan").
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, investments in equity securities, 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. 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.
Regular way purchases and sales of equity securities are recognized using the trade date, which is the date that the REIT commits itself to purchase or sell the equity
securities. The REIT classifies and measures its investments in equity securities at FVTPL. Distributions from equity securities are recognized in the period the distributions are
declared on the consolidated statement of operations.
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.
93
consolidated financial statements
consolidated financial statements
94
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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:
A disposal group is classified as a 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 operations is re-presented as if the operation had been discontinued from the start of the comparative
period.
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 period.
(k) Cash held in trust:
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.
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.
(g) Investments in associates and joint arrangements:
Tenant inducements are recognized as a reduction to revenue and are amortized on a straight-line basis over the term of the lease.
An associate is an entity over which the REIT has significant influence. Significant influence is the power to participate in an entity’s financial and operating policy decisions
but there is no control nor joint control over the investment.
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. 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's interests in associates and joint ventures are accounted for using the equity method. Equity accounted investments are initially measured at cost at the date of
acquisition and adjusted thereafter for the REIT's share of changes in the net assets, less distributions received and any identified impairment loss. The REIT's share of the
profit or loss from its equity accounted investment is recognized in profit or loss for the period.
Revenue from the sale of commercial condominium units is 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) 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 units 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.
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.
(o) Earnings per unit:
(h) Inventory properties:
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.
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.
(p) Use of estimates and judgments:
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.
(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 in 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.
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.
Since the outbreak of COVID-19 was declared a global pandemic by the World Health Organization in March 2020, governments have introduced certain emergency
measures, including travel restrictions, physical distancing, capacity limits, temporary closure of non-essential businesses and required vaccination for participation in certain
activities in an effort to reduce the spread of the virus. The extent of these measures at any point in time can vary depending on the number of new COVID-19 cases, the
extent of vaccinations and the emergence of new virus variants. These restrictive measures have caused material disruptions to businesses where the REIT operates in both
Canada and the U.S. The governments have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.
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, 2021. 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, carrying amount of the equity accounted investments, and estimate of any expected credit losses on accounts receivable and notes receivable.
95
consolidated financial statements
consolidated financial statements
96
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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). Judgment is applied 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). Judgment is applied 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.
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.
In February 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements. The
amendments to IAS 1 replace all instances of the term ‘significant accounting policies’ with ‘material accounting policy information’. Accounting policy information is material
if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of
general purpose financial statements make on the basis of those financial statements. The IASB has also developed guidance and examples to explain and demonstrate the
application of the ‘four-step materiality process’ described in IFRS Practice Statement 2. The amendments to IAS 1 are effective for annual periods beginning on or after
January 1, 2023, with earlier application permitted and are applied prospectively. The amendments to IFRS Practice Statement 2 do not contain an effective date or transition
requirements. The REIT does not expect a material impact to its consolidated financial statements from the adoption of these amendments.
In February 2021, the IASB issued amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in which it introduces a new definition of accounting
estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The amendments
are effective for annual periods beginning on or after January 1, 2023 to changes in accounting policies and changes in accounting estimates that occur on or after the
beginning of that period, with earlier application permitted. The REIT does not expect a material impact to its consolidated financial statements from the adoption of these
amendments.
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.
Note 3.
Acquisitions and dispositions of investment properties
Classification of investments in associates - The REIT's accounting policy relating to investments in associates is described in note 2 (g) and note 5. Judgment is applied
in the assessment of the level of influence that the REIT has over the investees based on its decision-making authority with regards to the operating, financing and
investing activities as specified in the contractual terms of the arrangement.
Information about assumptions and estimation uncertainties that are critical to the determination of the amounts reported in the consolidated financial statements are as
follows:
Acquisitions:
On January 26, 2021, the REIT acquired an additional 5% interest in Park 8Ninety IV, an industrial property located in the Greater Houston Area, Texas. 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 a step acquisition and remeasured its
existing 95% interests to fair value at the acquisition date.
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.
On May 7, 2021 and September 24, 2021, the REIT acquired two parcels of industrial development land in the Twin Cities Area, Minnesota.
–
–
–
–
–
–
–
–
–
–
–
The REIT did not acquire any properties during the year ended December 31, 2020.
The acquisition of the 5% interest in Park 8Ninety IV has 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 equity accounted investments and including the acquisitions of land, were as follows:
Year ended
December 31,
2021
2020
Investment properties (note 4)
$
5,823
$
Long-term debt, including acquired above- and below-market mortgages, net of financing costs
Other net assets
Consideration was comprised of the following:
Cash consideration
Total consideration
Transaction costs expensed
(487)
3
5,339
5,339
$
$
5,339
$
11
$
—
—
—
—
—
—
—
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
22.
Allowance for doubtful accounts - The critical estimates and assumptions underlying the valuation of allowance for doubtful accounts are described in note 30.
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 31.
(q) New or revised accounting standards adopted during the year:
Interest Rate Benchmark Reform - Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 address issues that might affect financial reporting after the reform of an
interest rate benchmark, including its replacement with alternative benchmark rates. 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 inter-bank offered rate ("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.
These amendments had no impact on the consolidated financial statements except for the additional disclosures in note 30 regarding the derivative and non-derivative
financial instruments affected by the interest rate benchmark reform and a summary of the actions taken by the REIT to manage the risks relating to the reform. The REIT
intends to use the practical expedient in future periods as it becomes applicable.
(r) 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 is in the process of assessing the impact 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.
97
consolidated financial statements
consolidated financial statements
98
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Dispositions:
The REIT disposed of the following properties during the year ended December 31, 2021:
Property
Property count
Location
Disposition date
Asset class
Signal Centre (1)
Victoria Square Retail Portfolio
Fleet Street Crossing
Sierra Place
GTA Industrial Portfolio
King Edward Industrial Portfolio
East Landing Retail Portfolio
West Landing Mall
417 - 14th Street
Canadian Centre
Campana Place & Hillhurst Building
Heritage Square
—
2
1
1
27
2
2
1
1
1
2
1
Fort McMurray, AB
Regina, SK
Regina, SK
Calgary, AB
April 12, 2021
April 15, 2021
April 28, 2021
May 4, 2021
Retail
Retail
Retail
Office
Greater Toronto Area, ON
July 15, 2021 and August 19, 2021
Industrial
Winnipeg, MB
Regina, SK
Regina, SK
Calgary, AB
Calgary, AB
Calgary, AB
Calgary, AB
July 21, 2021
August 23, 2021
September 1, 2021
November 29, 2021
December 16, 2021
December 17, 2021
December 22, 2021
Industrial
Retail
Retail
Office
Office
Office
Office
(1) Signal Centre was comprised of two parcels of land with two buildings on each respective parcel. On April 12, 2021, the REIT sold one of these parcels.
The cash proceeds received from the sale of the above properties, net of costs and related debt, were $791,725. In conjunction with the sales of three office properties, the
REIT also received two notes receivable in the amounts of $10,000 and $6,000, which are secured by the properties 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, 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
Office
Office
Office
Office
Office
Retail
Retail
Retail
Office
Industrial
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. 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. The co-
owners' share of the parcels of land were 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 received from the sale of the above properties, net of costs and related debt, were $229,000. In conjunction with the sales of an office property and a
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.
Note 4.
Investment properties, investment properties under development and investment properties held for sale
Balance, beginning of year
Additions:
Acquisitions (note 3)
Reclassification from equity accounted investments (1)
Capital expenditures
Capitalized interest (2)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Contribution to equity accounted investments (3)
Dispositions
Foreign currency translation (loss) gain
Fair value gain (loss)
Reclassification of investment properties under development
Reclassification of investment properties held for sale
Year ended
December 31, 2021
Investment
properties
Investment
properties under
development
Investment
properties held for
sale
$
4,325,121
$
132,243
$
74,483
875
16,642
21,117
—
8,721
3,445
1,210
—
—
(7,938)
225,192
115
(852,956)
4,948
—
69,008
1,087
1,006
—
2,579
(906)
—
203
(14,892)
(115)
—
—
—
445
—
78
(40)
(213)
—
(851,772)
(244)
(12,789)
—
852,956
Balance, end of year
$
3,741,544
$
195,161
$
62,904
(1) On January 26, 2021, the REIT increased its ownership interest in Park 8Ninety IV to 100%. See note 3 for further information.
(2) During the year ended December 31, 2021, interest was capitalized to investment properties under development at a weighted-average effective rate of 1.98%.
(3) During the year ended December 31, 2021, the REIT contributed capitalized development expenditures to Park Lucero East, an equity accounted associate.
Balance, beginning of year
Additions:
Capital expenditures
Capitalized interest (1)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Contribution to equity accounted investments (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 rate of 2.59%.
(2) On January 24, 2020, the REIT contributed land under development to Park 8Ninety IV, a joint venture.
(3) On October 20, 2020, the REIT contributed land under development to Park 8Ninety V, a joint venture.
At December 31, 2021, investment properties under development included 300 Main, a commercial and residential/multi-family development project with a fair value of
$174,997 (December 31, 2020, $130,291). Estimation of the fair value 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.
99
consolidated financial statements
consolidated financial statements
100
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
The REIT had one industrial and two office properties classified as investment properties held for sale that were actively marketed for sale or under unconditional sale
agreements at December 31, 2021 (December 31, 2020, two office and two retail properties). The properties held for sale had an aggregate mortgage payable balance of $nil
at December 31, 2021 (December 31, 2020, $16,133).
At December 31, 2021, included in investment properties was $48,916 (December 31, 2020, $48,854) of net straight-line rent receivables arising from the recognition of rental
income on a straight-line basis over the lease term.
The following sensitivity table outlines the impact of a 0.25% change in the weighted-average capitalization rate on investment properties at December 31, 2021:
Change to fair value if capitalization rate increased
by 0.25%
Change to fair value if capitalization rate decreased
by 0.25%
Investment properties include right-of-use assets held under a lease with an aggregate fair value of $11,448 at December 31, 2021 (December 31, 2020, $12,955). The lease
payments required under this lease were fully paid at the time of acquisition of the property.
Canada
U.S.
At December 31, 2021, investment properties with a fair value of $2,096,861 (December 31, 2020, $2,645,834) 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, 2021, properties (including the REIT's ownership interest in properties held in equity accounted investments) with an appraised value of $775,751 (December 31,
2020, $916,550), 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, 2021 and 2020.
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.
The impact of the COVID-19 pandemic and the related measures enacted by governments, including travel restrictions, physical distancing, capacity limits and the temporary
closure of non-essential businesses, have created significant estimation uncertainty in the determination of the fair values of investment properties as at December 31, 2021.
The duration and extent of these measures is highly dependent on future developments, including but not limited to, the emergence of new virus variants and the actions
required to contain or manage its impact. The REIT has made assumptions with respect to the duration and severity of these government 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
values. As a result of this significant estimation uncertainty there is a risk that the assumptions used to determine fair values as at December 31, 2021 may change as more
information becomes available, resulting in a material adjustment to the fair values 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 31.
The REIT has used the following rates and investment horizons in estimating the fair value of investment properties:
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, 2021
December 31, 2020
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
9.50 %
9.00 %
8.75 %
12.0
9.75 %
8.50 %
8.00 %
12.0
9.75 %
9.00 %
8.75 %
12.0
4.75 %
3.50 %
3.50 %
10.0
6.00 %
4.75 %
4.50 %
10.0
4.75 %
3.50 %
3.50 %
10.0
7.11 %
6.09 %
6.00 %
10.5
7.65 %
6.63 %
6.49 %
10.4
7.37 %
6.34 %
6.22 %
10.4
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
The above information represents the REIT's entire portfolio of investment properties, excluding properties held in the REIT's equity accounted investments.
Note 5.
Equity accounted investments and joint operations
The REIT has interests in the following:
Property
Joint ventures:
Park 8Ninety II
Park 8Ninety IV (1)
Park 8Ninety V
Corridor Park
Tower Business Center
Graham Portfolio
The Point at Inverness
Associate:
Park Lucero East
Joint operations:
Cliveden Building
Kincaid Building
$
$
(77,613)
(79,362)
(156,975)
$
$
84,792
86,009
170,801
Principal purpose
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Investment property
Ownership interest
December 31,
December 31,
2021
2020
95 %
— %
95 %
90 %
— %
75 %
50 %
95 %
95 %
95 %
90 %
80 %
75 %
50 %
Investment property
10 %
— %
Investment property
Investment property
50 %
50 %
50 %
50 %
(1) During the year ended December 31, 2021, the REIT increased its ownership interest in this property to 100%. See note 3 for further information.
During the year ended December 31, 2021, the REIT entered into a new arrangement, Park Lucero East, an industrial development project in the Greater Phoenix Area,
Arizona. The REIT has determined this to be an investment in associate as the REIT does not have joint control but has significant influence over the investment by virtue of
having control over the general partner of the limited partnership. Park Lucero East acquired a parcel of industrial development land and the REIT's share of the purchase
price was $1,229.
During the year ended December 31, 2021, the REIT contributed $11,690 to Park 8Ninety V, Park Lucero East, Park 8Ninety IV, Park 8Ninety II and Corridor Park equity
accounted investments.
On February 9, 2021, the Tower Business Center joint venture disposed of its investment property and the REIT's share of the proceeds, net of costs and related debt, were
$39,360.
The REIT is contingently liable for the obligations of certain joint ventures, associate and joint operations. As at December 31, 2021, the co-owners' share of mortgage
liabilities was $34,920 (December 31, 2020, $34,299). Management has assessed that the assets available from its joint ventures, associate and joint operations are sufficient
for the purpose of satisfying such obligations.
101
consolidated financial statements
consolidated financial statements
102
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Summarized financial information of the REIT's share in its equity accounted investments is as follows:
Note 6.
Property and equipment
December 31, 2021
December 31, 2020
Joint ventures
Associate
Total
Joint ventures
Associate
Total
$
236,954
14,466
Office furniture and fixtures
Office equipment and software
Right-of-use leased assets
Accumulated depreciation
Note 7.
Notes receivable
Non-current assets:
Investment properties
$
233,635
$
—
$
233,635
$
236,954
$
Investment properties under development
42,337
4,687
47,024
14,466
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
—
280
347
3,874
—
—
7
22
—
280
354
3,896
60,819
172
819
14,241
280,473
4,716
285,189
327,471
47,544
715
48,259
49,832
46,223
2,253
7,205
—
—
1,171
46,223
2,253
8,376
60,930
2,861
13,542
Total liabilities
103,225
1,886
105,111
127,165
—
—
—
—
—
—
—
—
—
—
—
—
60,819
172
819
14,241
327,471
49,832
60,930
2,861
13,542
127,165
Equity accounted investments
$
177,248
$
2,830
$
180,078
$
200,306
$
—
$
200,306
Year ended
December 31, 2021
Year ended
December 31, 2020
Joint ventures
Associate
Total
Joint ventures
Associate
Total
$
15,758
$
2
$
15,760
$
20,785
$
—
$
20,785
Other notes receivable
Current portion
Non-current portion
3,635
3,278
6,913
8,845
(2,546)
4
10,496
(6)
—
—
—
2
—
—
—
—
3,635
3,278
6,913
8,847
(2,546)
4
10,496
(6)
4,457
5,190
9,647
11,138
(4,561)
17
18,257
—
—
—
—
—
—
—
—
—
4,457
5,190
9,647
11,138
(4,561)
17
18,257
—
Note 8.
Inventory properties
The changes to the REIT's inventory properties were as follows:
Balance, beginning of year
Capital expenditures
Capitalized interest (1)
Sale of condominium units
Balance, end of year
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
Income tax expense
December 31,
December 31,
2021
$
12,236
$
1,432
2,018
(9,275)
2020
12,242
1,428
1,726
(7,915)
$
6,411
$
7,481
December 31,
December 31,
2021
2020
10,000
6,000
5,111
3,249
1,922
—
—
5,450
3,137
3,097
36,282
21,684
834
1,371
$
35,448
$
20,313
December 31,
December 31,
2021
2020
$
15,060
$
14,632
9
—
(15,069)
285
143
—
$
—
$
15,060
Note receivable, maturing in January 2024, bearing interest at 5.00% per annum, interest-only monthly payment until
maturity, secured by an office property.
$
10,000
$
10,000
Note receivable, maturing in January 2028, bearing interest at an effective rate of 3.086% per annum, interest-only
monthly payment until maturity, secured by an office property.
Note receivable, maturing in January 2024, bearing interest at 4.00% per annum, interest-only monthly payment until
maturity, secured by two office properties.
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.
Net income from equity accounted investments
$
16,793
$
2
$
16,795
$
24,851
$
—
$
24,851
(1) During the year ended December 31, 2020, interest was capitalized at a weighted-average effective interest rate of 2.62%.
Inventory properties include an industrial property that was converted into commercial condominium units. In January 2021, a condominium corporation was registered for
this property. As at December 31, 2021, all condominium units were sold for aggregate consideration of $17,861.
103
consolidated financial statements
consolidated financial statements
104
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Note 9.
Prepaid expenses and other assets
Note 12.
Senior unsecured debentures
Prepaid insurance
Prepaid realty taxes
Prepaid acquisition, disposition and development costs
Derivative instruments (note 31)
Other prepaid expenses
Note 10.
Accounts receivable and other receivables
Rents receivable
Deferred rents receivable
Allowance for doubtful accounts
Accrued recovery income
Other receivables
December 31,
December 31,
2021
2020
$
3,937
$
3,948
755
735
1,029
1,523
993
749
—
1,617
$
7,979
$
7,307
$
December 31,
December 31,
$
2021
5,578
955
(1,717)
3,181
6,799
14,796
2020
5,660
4,901
(1,989)
3,344
6,327
18,243
Particulars of the REIT's outstanding senior unsecured debentures are as follows:
Senior unsecured debenture issue
Issue date
Maturity date
Applicable interest rate
Series D
September 18, 2020
September 18, 2023
3.824 %
Series D
December 31, 2021
December 31, 2020
Face value
Unamortized
financing
costs
Carrying
value
Current
portion
Non-current
portion
$
$
$
$
250,000
250,000
500,000
(654)
$
249,346
(654)
$
249,346
$
$
—
—
$
$
(1,081)
498,919
249,920
249,346
249,346
248,999
On February 22, 2021, upon maturity, the REIT repaid the outstanding face value of the Series C senior unsecured debentures in the amount of $250,000.
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.
On February 7, 2020, upon maturity, the REIT repaid the outstanding face value of the Series B senior unsecured debentures in the amount of $200,000.
During the year ended December 31, 2021, financing cost amortization of $427 (2020, $672) was recorded.
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.
Non-current portion of deferred rents receivable, net of related allowance for doubtful accounts of $53 (December
31, 2020, $152)
Current portion
122
778
In accordance with the Series D senior unsecured debenture supplemental indenture, 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, 2021
and 2020, the REIT was in compliance with these requirements.
$
14,674
$
17,465
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 November 15, 2021,
the revolving term credit facilities agreement was amended to extend the maturity date of the first tranche of the facilities in the amount of $400,000 from December 14, 2021
to December 14, 2022.
In 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.
Due to government-mandated capacity restrictions and temporary closures of certain non-essential businesses throughout the course of the COVID-19 pandemic, a number
of tenants had to limit operations. Deferred rents receivable represent rents deferred for certain qualifying tenants.
Refer to note 30 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,
2021
2020
$
1,087,521
$
1,275,277
1,604
(4,086)
2,423
(4,178)
1,085,039
1,273,522
301,910
405,126
$
783,129
$
868,396
Certain of the REIT's investment properties have been pledged as security under mortgages and other security agreements. As at December 31, 2021, 36.3% of the REIT's
mortgages and loans payable bear interest at fixed rates (December 31, 2020, 31.8%), and a further 37.5% of the REIT's mortgages and loans payable bear interest at variable
rates with interest rate swaps in place (December 31, 2020, 37.1%). The weighted-average effective rate on all mortgages and loans payable was 3.31% and the weighted-
average nominal rate was 3.04% at December 31, 2021 (December 31, 2020, 3.23% and 3.03%, respectively). Maturity dates range from January 23, 2022 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.
105
consolidated financial statements
consolidated financial statements
106
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
The REIT's unsecured credit facilities are summarized as follows:
December 31, 2021
December 31, 2020
Borrowing
capacity
Amounts
drawn
Available to
be drawn (1)
Amounts
drawn
Available to
be drawn (1)
Applicable
interest rates (2)
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.
Revolving facilities maturing December 14, 2022 $
400,000
$
—
$
400,000
$
95,617
$
304,383
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
131,851
200,000
150,000
150,000
(598)
168,149
—
—
—
30,000
200,000
150,000
150,000
(1,156)
270,000
—
—
—
Total credit facilities
$
1,200,000
$
631,253
$
568,149
$
624,461
$
574,383
Current portion
499,610
95,374
Non-current portion
$
131,643
$
529,087
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 %
(ii) Issued and outstanding:
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
Restricted units redeemed
Deferred units redeemed
Units acquired and cancelled through normal course issuer bid
Units acquired through normal course issuer bid, not cancelled at year end
Special distribution in units (1) (note 17)
Number of
units
Amount
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
26,172
12,953
(10,967,022)
(170,742)
—
293
135
(142,912)
(2,225)
256,091
(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, 2021, this covenant limited the total borrowing capacity of the revolving
credit facilities to $635,313 (December 31, 2020, limited to $388,163).
(2) The REIT has entered into interest rate swaps on the non-revolving credit facilities.
Balance at December 31, 2021
123,544,536
$
1,865,983
(1) The common units issued as part of the special distribution declared on December 31, 2021 were consolidated such that each unitholder held the same number of units after the consolidation as each unitholder held prior to the special non-cash distribution.
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, 2021 and 2020, the REIT was in compliance with these requirements.
(b) Preferred units:
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 I
Total
Note 14.
Accounts payable and other liabilities
Accounts payable and accrued liabilities
$
Distributions payable
Accrued interest
Accrued realty taxes
Tenant installments payable
Derivative instruments (note 31)
Cash-settled unit-based payments liability
Other payables and liabilities
December 31,
December 31,
$
2021
36,752
47,016
6,454
10,193
7,314
7,689
4,533
1,210
2020
35,407
7,485
10,132
11,563
5,458
22,792
2,958
1,335
$
121,161
$
97,130
Number of units outstanding at December 31, 2019
3,387,300
3,833,900
5,000,000
12,221,200
Units acquired and cancelled through normal course issuer bid
Units acquired through normal course issuer bid, not cancelled at year end
(29,600)
(1,500)
(44,578)
(1,224)
(34,460)
—
(108,638)
(2,724)
Number of units outstanding at December 31, 2020
3,356,200
3,788,098
4,965,540
12,109,838
Units acquired and cancelled through normal course issuer bid
Units acquired through normal course issuer bid, not cancelled at year end
(59,600)
(1,000)
(87,088)
(1,500)
—
—
(146,688)
(2,500)
Number of units outstanding at December 31, 2021
3,295,600
3,699,510
4,965,540
11,960,650
107
consolidated financial statements
consolidated financial statements
108
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
The carrying value of the REIT's outstanding preferred units are as follows:
(c) Normal course issuer bid:
Total
On December 15, 2021, 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 3, 2021 as follows:
Annual distribution rate
Distribution rate reset date
Series A
5.662%
Series E
5.472%
September
30, 2022
September
30, 2023
Series I
6.000%
April 30,
2023
Carrying value at December 31, 2019
$
80,651
$
92,529
$
121,304
$
294,484
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
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, 2021
Face value at December 31, 2021
Face value at December 31, 2020
(i) Series A:
(705)
(35)
79,911
(1,419)
(24)
(1,076)
(30)
91,423
(2,102)
(36)
(836)
—
(2,617)
(65)
120,468
291,802
—
—
(3,521)
(60)
$
$
78,468
$
89,285
$
120,468
$
288,221
82,390
$
92,488
$
124,139
$
299,017
83,905
94,702
124,139
302,746
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%.
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 I:
On January 31, 2018, 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.
Common units
Preferred unit series:
Series A
Series E
Series I
Public float
10% of public
float
87,881,761
8,788,176
3,300,400
3,707,734
4,865,540
330,040
370,773
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, 2022, or the date on which the REIT has purchased the maximum
number of units permitted under the bid. During the year ended December 31, 2021, the REIT acquired 11,137,764 common units at market prices aggregating $125,772,
resulting in contributed surplus of $19,365, which was the excess of stated capital over redemption proceeds. During the year ended December 31, 2021, the REIT also
acquired 60,600 and 88,588 Series A and E Units, respectively, at market prices aggregating $3,485, resulting in contributed surplus of $96, which was the excess of stated
capital over redemption proceeds.
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.
(d) Short form base shelf prospectus:
On October 18, 2021, the REIT issued a short form base shelf prospectus. The REIT may from time to time during the 25-month period that this short form base shelf
prospectus is valid, offer and issue the following securities up to a maximum of $1,000,000 (i) common units of the REIT; (ii) preferred units, which may be issuable in series; (iii)
debt securities, which may consist of debentures, notes or other types of debt and may be issuable in series; (iv) unit purchase warrants; and (v) subscription receipts to
purchase trust securities. As at December 31, 2021, the REIT had not issued any securities under this short form base shelf prospectus.
(e) 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
Year ended
December 31,
2021
2020
$
389,175
$
(17,260)
371,915
511
(574)
21,543
(17,420)
4,123
(374)
(346)
Diluted net income attributable to common unitholders
$
371,852
$
3,403
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
129,553,433
136,206,856
366,757
105,727
320,049
80,016
130,025,917
136,606,921
$
2.87
$
2.86
0.03
0.02
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
years ended December 31, 2021 and 2020, there were no anti-dilutive units.
109
consolidated financial statements
consolidated financial statements
110
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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, 2021 amounted to $2,915 (2020,
$4,579, including $2,123 related to accelerated vesting of restricted units as part of the executive settlement in connection with the proxy matter (note 26)). 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
(b) Deferred units:
Year ended
December 31,
2020
Units
694,034
262,303
43,877
(582,764)
(12,513)
2021
Units
404,937
153,915
97,404
(172,412)
(20,953)
462,891
404,937
12,068
14,291
Unit-based compensation expense related to deferred units outstanding under the equity incentive plan for the year ended December 31, 2021 amounted to $442 (2020,
$399). 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:
Note 17.
Distributions to unitholders
Total distributions declared to unitholders were as follows:
Common unitholders
Monthly distributions paid and payable in cash
$
Special distribution payable in cash
Special distribution payable in units
Preferred unitholders - Series A
Preferred unitholders - Series E
Preferred unitholders - Series I
Year ended
December 31, 2021
Year ended
December 31, 2020
Total
distributions
Distributions
per unit
Total
distributions
Distributions
per unit
$
76,250
39,589
256,091
371,930
4,699
5,116
7,445
0.59
0.32
2.07
2.98
1.42
1.37
1.50
$
73,654
$
—
—
73,654
4,763
5,200
7,457
0.54
—
—
0.54
1.42
1.37
1.50
The Board of Trustees declared a special distribution of $2.39 per common unit, which was comprised of $0.32 per common unit payable in cash and $2.07 per common unit
payable in common units. The special distribution was payable on December 31, 2021 to unitholders of record at the close of business on December 31, 2021. The special
distribution was principally being made to distribute to common unitholders a portion of the capital gain realized by the REIT from transactions completed during the year
ended December 31, 2021. Immediately following the issuance of common units on December 31, 2021, the common units were consolidated such that each unitholder held
the same number of units after the consolidation as each unitholder held prior to the special non-cash distributions. As at December 31, 2021, the special distributions
declared in common units of $256,091 was recorded as capital contributions.
Note 18.
Revenue
The REIT's revenue is made up of the following significant categories:
Year ended
December 31,
2020
Units
472,451
60,914
28,050
(468,507)
92,908
92,908
2021
Units
92,908
60,474
27,112
(46,942)
133,552
133,552
Base rent
Operating cost and realty tax recoveries
Parking and other revenue
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
Rental revenue from investment properties
Condominium sales
Refer to note 27 for a disaggregation of revenue by reportable geographical region.
Balance, beginning of year
Granted
Accrued
Redeemed
Balance, end of year
Deferred units vested at end of year
(c) Unit options:
At December 31, 2021 and 2020, no unit options had been granted under the REIT's equity incentive plan.
(d) Installment units:
At December 31, 2021 and 2020, no installment units had been granted under the REIT's equity incentive plan.
Year ended
December 31,
2021
2020
$
259,461
$
148,678
11,984
(24,765)
3,405
2,875
294,851
170,553
12,741
(24,854)
4,923
703
401,638
458,917
17,861
—
$
419,499
$
458,917
111
consolidated financial statements
consolidated financial statements
112
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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 equity accounted investments) over their remaining terms were
as follows:
Note 21.
Fair value gain (loss) on financial instruments
The REIT recorded gains (losses) on the following:
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.
Interest expense
Interest on mortgages and loans payable
Interest on senior unsecured debentures
Interest on credit facilities
Amortization of above- and below-market mortgages, net
Amortization of financing costs
December 31,
December 31,
2021
2020
$
253,355
$
226,499
199,755
165,380
136,935
529,669
293,096
260,653
233,099
196,447
159,376
635,042
$
1,511,593
$
1,777,713
Year ended
December 31,
2020
3,316
1,367
2,855
1,940
1,422
1,305
2021
3,262
1,396
3,357
2,083
1,362
1,253
Interest rate swaps
Foreign currency contracts
Other derivatives
Equity securities
Note 22.
Income taxes
(a) Canadian taxes:
Year ended
December 31,
2021
2020
$
15,966
$
(18,388)
305
(367)
5,320
2,257
(407)
—
$
21,224
$
(16,538)
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, 2021 and 2020. As a result, the REIT does not recognize any
deferred income tax assets or liabilities for Canadian income tax purposes.
$
12,713
$
12,205
(b) U.S. taxes:
Year ended
December 31,
2021
2020
$
36,751
$
10,876
19,486
(799)
3,334
45,492
12,639
24,983
(752)
3,744
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 21% to 30% 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.
Note 23.
Supplemental cash flow information
(a) Other items not affecting cash:
Year ended
December 31,
2021
2020
Tenant inducements amortized to revenue
$
24,765
$
24,854
$
69,648
$
86,106
Straight-line rent adjustments
Depreciation of property and equipment
Unit-based compensation
Amortization of above- and below-market mortgages, net
Amortization of financing costs included in interest expense
(3,405)
1,362
2,050
(799)
3,334
(4,923)
1,422
(1,859)
(752)
3,744
$
27,307
$
22,486
113
consolidated financial statements
consolidated financial statements
114
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
(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
Year ended
December 31,
2021
2020
$
15,058
$
428
3,650
1,878
(2,170)
(428)
1,633
2,597
(2,367)
(1,327)
Note 24.
Subsidiaries
,
Subsidiaries, joint ventures and associate of the REIT, excluding bare trustees, are outlined as follows:
Name of entity
Artis General Partner Ltd.
AX L.P.
$
18,844
$
108
Artis Property Management General Partner Ltd.
Year ended
December 31,
2021
2020
$
71,563
$
1,734
1,437
87,189
4,811
1,216
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.
Artis US Holdings IV GP, Inc.
Artis US Holdings IV, LLC
Artis US Holdings IV 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 (1)
ARTIS HRA Inverness Point GP, LLC
ARTIS HRA Inverness Point, LP
USCIF Artis Park Lucero Venture LP
(1) This joint venture was dissolved during the year ended December 31, 2021.
Ownership interest
December 31,
December 31,
2021
100 %
100 %
100 %
100 %
100 %
75 %
75 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
95 %
100 %
95 %
90 %
80 %
— %
50 %
50 %
10 %
2020
100 %
100 %
100 %
100 %
100 %
75 %
75 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
— %
— %
— %
100 %
95 %
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.
U.S.
U.S.
U.S.
U.S.
115
consolidated financial statements
consolidated financial statements
116
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Note 25.
Related party transactions
In addition to the remuneration to Trustees and key management personnel disclosed in note 26, the REIT had the following related party transactions.
Sandpiper Asset Management Inc. ("Sandpiper") is a related party by virtue of being a company under joint control of the President and Chief Executive Officer of the REIT.
Effective May 1, 2021, the REIT entered into a Space Sharing Licence Agreement with Sandpiper for use of certain office premises for an annual fee of $130 inclusive of taxes.
The agreement has a two-year term, with an automatic one-year extension unless terminated by either party upon written notice no later than 120 days before the end of the
term or extension term.
Revenue:
Year ended December 31, 2021
Equity
accounted
investments
adjustment
Total
Canada
U.S.
REIT
Rental revenue from investment properties
$
204,799 $
212,496 $
103 $
(15,760) $
401,638
Effective May 17, 2021, the REIT entered into a Services Agreement with Sandpiper to provide certain services to support the REIT’s strategy, under the Business
Transformation Plan, to acquire ownership positions in publicly-listed real estate entities. The annual fee payable to Sandpiper is 0.50% for years one to three, 0.40% for year
four, and 0.30% for year five and thereafter, based on the net value of the investments made by the REIT pursuant to this agreement. The agreement continues until
termination by either party upon 60-day written notice, or upon other specific circumstances. Under the Services Agreement, the REIT entered into a co-investment
agreement with Sandpiper and other Sandpiper related entities (together "Sandpiper Entities") to make certain investments in the identified publicly-traded securities of a
real estate entity on the basis of 50% of the aggregate investments by each of the REIT and Sandpiper Entities. The Sandpiper Entities are all under joint control of the
President and Chief Executive Officer of the REIT.
Fees paid and accrued to Sandpiper were as follows:
Space sharing licence costs
Service fees
Year ended
December 31,
2021
2020
$
$
83
$
111
194
$
—
—
—
Amounts payable to Sandpiper were $76 as at December 31, 2021 (December 31, 2020, $nil).
For the year ended December 31, 2020, proxy matter expenses included reimbursements of advisory, legal and other out-of-pocket expenses incurred by Sandpiper and RFA
Capital Partners Inc. of $1,383 and $42, respectively, relating to the settlement agreement between the REIT and Sandpiper Group. RFA Capital Partners Inc. is a related party
of the REIT by virtue of being a company controlled by a Trustee.
Note 26.
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:
Year ended
December 31,
2020
9,775
1,961
12,719
$
2021
7,387
1,571
—
8,958
$
24,455
$
$
Short-term benefits
Unit-based compensation
Retirement settlements
(a) Short-term benefits:
Short-term employee benefits include salaries, bonuses and other short-term benefits.
(b) Unit-based compensation:
Refer to note 16 for more information on the REIT's equity incentive plan.
(c) Retirement settlements:
During 2020, in connection with the resolution of the proxy matter and the resulting retirements of the former President & Chief Executive Officer and the former Chief
Financial Officer, the REIT recorded executive settlement expenses of $12,719, which were included in proxy matter expenses in the consolidated statements of operations.
Note 27.
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 equity accounted investments as presented using the proportionate share method. REIT income (expenses), including interest relating to senior unsecured
debentures and credit facilities, distribution income from equity securities and fair value gain (loss) on financial instruments, have not been allocated to the segments.
Condominium sales
Total revenue
Expenses:
Property operating
Realty taxes
Condominium cost of sales
17,861
—
—
—
17,861
222,660
212,496
103
(15,760)
419,499
53,844
30,760
16,038
50,610
37,375
—
—
—
—
—
(3,635)
(3,278)
—
100,819
64,857
16,038
(6,913)
181,714
Total operating expenses
100,642
87,985
Net operating income
122,018
124,511
103
(8,847)
237,785
Other income (expenses):
Corporate expenses
Proxy matter expenses
Strategic initiative expenses
Interest expense
Interest income
Distribution income from equity securities
Net income from equity accounted investments
Fair value gain on investment properties
Foreign currency translation loss
Transaction costs
Fair value gain on financial instruments
—
—
—
—
—
—
(12,713)
—
(18)
—
—
—
(12,713)
—
(18)
(16,916)
(23,316)
(31,962)
2,546
(69,648)
62
—
—
558
—
—
184,883
23,124
—
—
—
—
(11)
—
1,269
898
—
—
(3,244)
—
21,224
(4)
—
16,795
(10,496)
—
—
—
1,885
898
16,795
197,511
(3,244)
(11)
21,224
Income (loss) before income taxes
290,047
124,866
(24,443)
(6)
390,464
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
$
$
—
(1,295)
—
6
(1,289)
290,047 $
123,571 $
(24,443) $
— $
389,175
— $
5,823 $
— $
— $
5,823
66,055
14,808
2,552
55,174
15,814
7,779
—
—
—
(30,659)
(2,281)
(526)
90,570
28,341
9,805
Canada
U.S.
REIT
December 31, 2021
Equity
accounted
investments
adjustment
Total
Total assets
Total liabilities
$
2,026,027 $
2,334,821 $
320,287 $
(105,111) $
4,576,024
483,242
792,076
950,464
(105,111)
2,120,671
117
consolidated financial statements
consolidated financial statements
118
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Revenue:
Rental revenue from investment properties
$
243,370 $
236,026 $
306 $
(20,785) $
458,917
The REIT is contingently liable for bonds that have been provided to support industrial development projects in the amount of $5,842 (December 31, 2020, $nil).
Year ended December 31, 2020
Note 28.
Contingencies and guarantees
Canada
U.S.
REIT
Equity
accounted
investments
adjustment
Total
(a) Letters of credit:
As at December 31, 2021, the REIT had issued letters of credit in the amount of $75 (December 31, 2020, $3,574).
(b) 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. In the opinion of
management and based on the information available, any liability that may arise from such contingencies in excess of existing accruals would not have a material adverse
effect on the consolidated financial statements.
243,370
236,026
306
(20,785)
458,917
(c) Guarantees:
Condominium sales
Total revenue
Expenses:
Property operating
Realty taxes
Condominium cost of sales
Total operating expenses
Net operating income
Other income (expenses):
Corporate expenses
Proxy matter expenses
Strategic initiative expenses
Interest expense
Interest income
Distribution income from equity securities
Net income from equity accounted investments
Fair value (loss) gain on investment properties
Foreign currency translation gain
Transaction costs
Fair value loss on financial instruments
65,276
39,748
—
52,052
42,213
—
105,024
94,265
—
—
—
—
(4,457)
(5,190)
—
112,871
76,771
—
(9,647)
189,642
138,346
141,761
306
(11,138)
269,275
—
—
—
—
—
—
(18,638)
(32,438)
164
—
—
974
—
—
(125,443)
2,824
—
—
—
—
—
—
(12,205)
(17,423)
(4,029)
(39,591)
3,676
—
—
—
530
—
(16,538)
—
—
—
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)
—
(733)
—
$
$
(5,571) $
112,388 $
(85,274) $
— $
21,543
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
Equity
accounted
investments
adjustment
Total
(Loss) income before income taxes
(5,571)
113,121
(85,274)
Income tax expense
Net (loss) income
Additions to investment properties, investment properties under development and
investment properties held for sale
Additions to tenant inducements
Additions to leasing commissions
At December 31, 2021, the REIT has guaranteed certain debt assumed by purchasers in connection with the dispositions of two properties (December 31, 2020, 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, 2021 was $43,586
(December 31, 2020, $53,811), with an estimated weighted-average remaining term of 1.4 years (December 31, 2020, 2.1 years). Management has assessed the estimated fair
values of the borrowers' interests in the underlying properties compared to the mortgage balances and the risk of default by the borrowers and determined that a provision is
not required to be recognized in the consolidated financial statements.
Note 29.
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, 2021, the ratio of such indebtedness to gross book value was 42.9% (December 31, 2020, 49.3%), 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
December 31,
December 31,
Note
2021
2020
11
12
13
$
1,085,039
$
1,273,522
249,346
631,253
1,965,638
2,455,353
498,919
624,461
2,396,902
2,333,897
$
4,420,991
$
4,730,799
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
119
consolidated financial statements
consolidated financial statements
120
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
Note 30.
Risk management
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,
2021, the REIT had variable rate debt, including credit facilities, of $1,324,662 (December 31, 2020, $1,495,281). At December 31, 2021, the REIT had entered into
interest rate swaps to hedge the interest rate risk associated with $907,516 of variable rate debt, including swaps on credit facilities (December 31, 2020, $973,405).
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:
Variable rate debt
Fixed rate debt due within one year
Impact on interest expense
$
$
4,171
6,649
10,820
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 $574 during the year ended December 31, 2021 (2020, $2,693).
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,
$
2021
2,630
623
2,325
5,578
2020
2,074
596
2,990
5,660
Allowance for doubtful accounts
(1,538)
(1,444)
Some of the REIT's variable rate debt and interest rate swaps are linked to US dollar LIBOR ("USD LIBOR"), which is subject to the interest rate benchmark reform. The
Financial Conduct Authority ("FCA") has confirmed that the 1, 3, 6 and 12-month USD LIBOR will cease to be provided by any administrator immediately after June 30,
2023. All of the REIT's LIBOR-linked financial instruments have not yet been transitioned to an alternative interest rate benchmark. The November 2021 amendment to
the revolving term credit facilities agreement (note 13) include fallback provisions referencing the alternative benchmark rate and the trigger event on which such
provisions will be activated. For the remaining LIBOR-linked financial instruments, the REIT has begun communications with debt and swap counterparties regarding
amendments to include fallback provisions as appropriate. Additional interest rate risk may arise from the transition if the REIT is not able to negotiate with
counterparties to obtain the appropriate debt financing with variable rates and/or interest rate swaps to implement its interest rate risk management strategy.
As at December 31, 2021, the REIT had variable rate debt and interest rate swaps linked to USD LIBOR as follows:
The repayment terms of the deferred receivables are as follows:
Financial assets:
Interest rate swaps (1)
Financial liabilities:
Mortgages and loans payable (2)
Credit facilities (2)
Interest rate swaps (1)
December 31, 2021
Not later than one year
One to two years
Two to three years
$
$
$
1,029
628,155
131,851
4,005
764,011
(1) Interest rate swaps are disclosed at the fair values as at December 31, 2021.
(2) Mortgages and loans payable and credit facilities are disclosed at the outstanding balances as at December 31, 2021.
(ii) Foreign currency risk:
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 and a portion of the amounts drawn on credit facilities are 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 1.2565 for the year ended December 31, 2021, and the year-end
exchange rate of 1.2678 at December 31, 2021, would have increased net income by approximately $476 for the year ended December 31, 2021. A $0.10 weakening in
the US dollar against the Canadian dollar would have decreased other comprehensive income by approximately $115,479 for the year ended December 31, 2021.
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 fair value of investments in equity securities will vary as a result of changes in market prices of the investments. Market prices are subject to fluctuation and,
consequently, the amount realized in subsequent periods may differ from the reported market value and amounts realized from disposition of a security may be affected
by the quantity of the security being sold. Further, fluctuations in the market price of a security may have no relation to the intrinsic value of the security. The REIT
manages its equity price risk by limiting the size of these investments relative to its total assets.
(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.
Allowance for doubtful accounts
(179)
(545)
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 (gain)
$
776
$
4,356
$
December 31,
December 31,
$
2021
1,989
1,393
(819)
(852)
6
2020
406
2,860
(167)
(1,081)
(29)
Balance, end of year
$
1,717
$
1,989
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.
$
4,040
$
4,216
$
December 31,
December 31,
$
2021
780
112
63
955
2020
3,971
930
—
4,901
121
consolidated financial statements
consolidated financial statements
122
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
The following are the estimated maturities of the REIT's financial liabilities at December 31, 2021 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.
Note 32.
Subsequent events
Total
Less than
1 year
1 - 3 years
4 - 5 years
After 5
years
Accounts payable and other liabilities
$
120,854
$
120,854
$
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
1,423
631,851
250,000
1,087,521
307
500,000
—
302,810
$
—
434
131,851
250,000
500,175
$
—
285
—
—
—
397
—
—
200,226
84,310
$
2,091,649
$
923,971
$
882,460
$
200,511
$
84,707
Note 31.
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, 2021 and 2020.
December 31, 2021
December 31, 2020
The following events occurred subsequent to December 31, 2021:
•
•
•
•
•
•
•
•
•
•
The REIT participated in a consortium that acquired all of the outstanding units of Cominar Real Estate Investment Trust (“Cominar”) for consideration of $11.75 per unit
in cash under a Plan of Arrangement (the “Cominar Transaction”). Also under the Plan of Arrangement, certain of Cominar’s office, retail and industrial assets were
acquired by other parties not part of the consortium. The REIT contributed $212,000, including $112,000 to acquire common equity units (representing approximately
32.64% of the total common equity units in the newly-formed entity) and $100,000 to acquire junior preferred units that carry a distribution rate of 18.0% per annum. As
part of the consideration, the REIT contributed its existing Cominar units, which had a fair value of $13,419 as at December 31, 2021. The Cominar Transaction closed on
March 1, 2022.
The REIT disposed a portfolio comprised of two office properties located in the Greater Toronto Area, Ontario, for a sale price of $35,500.
The REIT entered into an unconditional sale agreement to sell an industrial property located in the Greater Toronto Area, Ontario, for a sale price of $29,200 with
expected closing in March 2022.
The REIT drew a net balance of $244,000 and repaid a net balance of $12,716 (US$10,000) on its revolving term credit facilities.
The REIT repaid $100,000 of the non-revolving credit facility that matured on February 4, 2022 and entered into an amended agreement for the remaining balance of
$100,000, bearing interest at BA rate plus 1.60% or prime plus 0.60% and maturing February 6, 2023.
The REIT repaid a mortgage for an industrial property in the amount of $9,845 (US$7,803).
The REIT purchased through the NCIB 3,583,882 common units at a weighted-average price of $12.37, 16,400 Series A Units at a weighted-average price of $24.82 and
19,300 Series E Units at a weighted-average price of $24.03.
The REIT purchased equity securities for an aggregate cost of $48,638.
The REIT declared a monthly cash distribution of $0.05 per common unit for the months of January and February 2022.
The REIT declared a quarterly cash distribution of $0.3750 per Series I Unit for the three months ended January 31, 2022.
Assets:
Investment properties
Investment properties under development
Investments in equity securities
Notes receivable
Investment properties held for sale
Derivative instruments
Liabilities:
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Derivative instruments
Fair value
hierarchy
Carrying
value
Fair value
Carrying
value
Fair value
Note 33.
Approval of financial statements
These consolidated financial statements were approved by the Board of Trustees and authorized for issue on March 3, 2022.
Level 3
Level 3
Level 1
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
$
3,741,544
$
3,741,544
$
4,325,121
$
4,325,121
195,161
195,161
132,243
132,243
77,186
36,282
62,904
1,029
77,186
36,473
62,904
1,029
—
21,684
74,483
—
—
22,269
74,483
—
4,114,106
4,114,297
4,553,531
4,554,116
1,085,039
1,088,737
1,273,522
1,278,649
249,346
631,253
7,689
254,346
631,851
7,689
498,919
624,461
22,792
507,251
625,617
22,792
1,973,327
1,982,623
2,419,694
2,434,309
$
2,140,779
$
2,131,674
$
2,133,837
$
2,119,807
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 value of the investments in equity securities has been determined based on the quoted price on the principal securities exchange on which the majority of the trading
occurs.
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.
123
consolidated financial statements
consolidated financial statements
124
2021 ANNUAL REPORTARTIS REAL ESTATE INVESTMENT TRUST
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F: +1 204 947 0453
www.artisreit.com
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